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Friday,

May 20, 2005

Part V

Department of
Agriculture
Agricultural Marketing Service

7 CFR Parts 1005 and 1007


Milk in the Appalachian and Southeast
Marketing Areas; Partial Recommended
Decision and Opportunity To File Written
Exceptions on Proposed Amendments to
Tentative Marketing Agreements and to
Orders; Proposed Rule

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29410 Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules

DEPARTMENT OF AGRICULTURE provisions of Sections 556 and 557 of size, if the plant is part of a larger
Title 5 of the United States Code and, company operating multiple plants that
Agricultural Marketing Service therefore, is excluded from the collectively exceed the 500-employee
requirements of Executive Order 12866. limit, the plant will be considered a
7 CFR Parts 1005 and 1007 The amendments to the rules large business even if the local plant has
[Docket No. AO–388–A15 and AO–366–A44;
proposed herein have been reviewed fewer than 500 employees.
DA–03–11] under Executive Order 12988, Civil During February 2004, the milk of
Justice Reform. They are not intended to 7,311 dairy farmers was pooled on the
Milk in the Appalachian and Southeast have a retroactive effect. If adopted, the Appalachian (Order 5) and Southeast
Marketing Areas; Partial proposed amendments would not (Order 7) milk orders (3,395 Order 5
Recommended Decision and preempt any state or local laws, dairy farmers and 3,916 Order 7 dairy
Opportunity To File Written Exceptions regulations, or policies, unless they farmers). Of the total, 3,252 dairy
on Proposed Amendments to Tentative present an irreconcilable conflict with farmers (or 96 percent) and 3,764 dairy
Marketing Agreements and to Orders this rule. farmers (or 96 percent) were considered
The Agricultural Marketing small businesses on the Appalachian
AGENCY: Agricultural Marketing Service, Agreement Act of 1937, as amended (7 and Southeast orders, respectively.
USDA. U.S.C. 601–674), provides that During February 2004, there were a
ACTION: Proposed rule; partial administrative proceedings must be total of 36 plants regulated by the
recommended decision. exhausted before parties may file suit in Appalachian order (25 fully regulated
court. Under section 608c(15)(A) of the plants, 7 partially regulated plants, 1
SUMMARY: This document recommends
Act, any handler subject to an order may producer-handler, and 3 exempt plants)
adoption of provisions that would
request modification or exemption from and a total of 51 plants regulated by the
expand the Appalachian milk marketing
such order by filing with the Southeast order (32 fully regulated
area, eliminate the ability to
Department a petition stating that the plants, 6 partially regulated plants, and
simultaneously pool the same milk on
order, any provision of the order, or any 13 exempt plants). The number of plants
the Appalachian or Southeast order and
obligation imposed in connection with meeting the small business criteria
a State-operated milk order that has
the order is not in accordance with the under the Appalachian and Southeast
marketwide pooling, and amend the
law. A handler is afforded the orders were 13 (or 36 percent) and 13
transportation credit provisions of the
opportunity for a hearing on the (or 25 percent), respectively.
Southeast and Appalachian orders. This The proposed amendments adopted
petition. After a hearing, the Department
decision does not recommend adopting in this proposed rule would expand the
would rule on the petition. The Act
a proposal that would merge the Appalachian milk marketing area to
provides that the district court of the
Appalachian and Southeast milk include 25 counties and 14 cities in the
United States in any district in which
marketing areas and a proposal that State of Virginia that currently are not
the handler is an inhabitant, or has its
would create a ‘‘Mississippi Valley’’ in any Federal milk marketing area. This
principal place of business, has
marketing order. Proposals regarding the decision recommends the adoption of a
jurisdiction in equity to review the
producer-handler provisions of the proposal that would amend the
Department’s ruling on the petition,
Appalachian and Southeast orders will producer milk provisions of the
provided a bill in equity is filed not
be addressed in a separate decision. Appalachian and Southeast milk orders
later than 20 days after the date of the
DATES: Comments must be submitted on to prevent producers who share in the
entry of the ruling.
or before July 19, 2005. proceeds of a state marketwide pool
Comments (6 copies) should be filed Regulatory Flexibility Act and from simultaneously sharing in the
with the Hearing Clerk, United States Paperwork Reduction Act proceeds of a Federal marketwide pool
Department of Agriculture, STOP 9200– In accordance with the Regulatory on the same milk. In addition, this
Room 1083, 1400 Independence Flexibility Act (5 U.S.C. 601 et seq.), the decision recommends adopting
Avenue, SW., Washington, DC 20250– Agricultural Marketing Service has proposed amendments to the
9200. You may send your comments by considered the economic impact of this transportation credit provisions of the
the electronic process available at the action on small entities and has certified Appalachian and Southeast orders.
Federal eRulemaking portal: http:// that this proposed rule will not have a The proposed amendments to expand
www.regulations.gov or by submitting significant economic impact on a the Appalachian marketing area would
comments to substantial number of small entities. For likely continue to regulate under the
amsdairycomments@usda.gov. the purpose of the Regulatory Flexibility Appalachian order two fluid milk
Reference should be made to the title of Act, a dairy farm is considered a ‘‘small distributing plants located in Roanoke,
action and docket number. business’’ if it has an annual gross Virginia, and Lynchburg, Virginia, and
FOR FURTHER INFORMATION CONTACT: revenue of less than $750,000, and a shift the regulation of a distributing
Antoinette M. Carter or Jack Rower or dairy products manufacturer is a ‘‘small plant located in Mount Crawford,
Gino M. Tosi, Marketing Specialist, business’’ if it has fewer than 500 Virginia, from the Northeast order to the
USDA/AMS/Dairy Programs, Order employees. Appalachian order.
Formulation and Enforcement Branch, For the purposes of determining The proposed amendments would
STOP 0231–Room 2971, 1400 which dairy farms are ‘‘small allow the Kroger Company’s (Kroger)
Independence Avenue, SW., businesses,’’ the $750,000 per year Westover Dairy plant, located in
Washington, DC 20250–0231, (202) 690– criterion was used to establish a Lynchburg, Virginia, that competes for a
3465 or (202) 720–3257 or (202) 690– marketings guideline of 500,000 pounds milk supply with other Appalachian
1366, e-mail address: per month. Although this guideline does order plants to continue to be regulated
antoinette.carter@usda.gov, or not factor in additional monies that may under the order if it meets the order’s
jack.rower@usda.gov or be received by dairy producers, it minimum performance standards. The
gino.tosi@usda.gov. should be an inclusive standard for plant has been regulated by the
SUPPLEMENTARY INFORMATION: This most ‘‘small’’ dairy farmers. For Appalachian order since January 2000.
administrative action is governed by the purposes of determining a handler’s In addition, the proposed amendments

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Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules 29411

would remove the disruption that months of February through May but remain identical to the current
occurs as a result of the Dean Foods not more than 50 percent of the milk requirements. No new forms are
Company’s (Dean Foods) Morningstar production of the dairy farmer, in proposed and no additional reporting
Foods plant, located in Mount aggregate, was received as producer requirements would be necessary.
Crawford, Virginia, shifting its milk under the order during those two This notice does not require
regulatory status under the Northeast months. The proposed amendments additional information collection that
order. recommended for adoption in this requires clearance by the Office of
The Appalachian order currently decision would provide the Market Management and Budget (OMB) beyond
contains a ‘‘lock-in’’ provision that Administrator of the Appalachian order currently approved information
provides that a plant located within the and the Market Administrator of the collection. The primary sources of data
marketing area that meets the order’s Southeast order the discretionary used to complete the forms are routinely
minimum performance standard will be authority to adjust the 50 percent milk used in most business transactions.
regulated by the Appalachian order production standard. Forms require only a minimal amount of
even if the majority of the plant’s Class This decision recommends adoption information which can be supplied
I route sales are in another marketing of proposals seeking to prohibit the without data processing equipment or a
area. The proposed expansion along simultaneous pooling of the same milk trained statistical staff. Thus, the
with the lock-in provision would on the Appalachian or Southeast milk information collection and reporting
regulate fluid milk distributing plants marketing orders and on a State- burden is relatively small. Requiring the
physically located in the marketing area operated order that provides for the same reports for all handlers does not
that meet the order’s minimum marketwide pooling of milk. Since the significantly disadvantage any handler
performance standard even if the 1960’s, the Federal milk order program that is smaller than the industry
majority of their sales are in another has recognized the harm and disorder average.
Federal order marketing area. that result to both producers and Interested parties are invited to
Accordingly, the proposed amendments handlers when the same milk of a submit comments on the probable
would regulate under the Appalachian producer is simultaneously pooled on regulatory and informational impact of
order Kroger’s Westover Dairy, located more than one Federal order. When this this proposed rule on small entities.
in Lynchburg, Virginia; Dean Foods’ occurs, producers do not receive Also, parties may suggest modifications
Morningstar Foods plant, located in uniform minimum prices, and handlers of this proposal for the purpose of
Mount Crawford, Virginia; and National receive unfair competitive advantages. tailoring their applicability to small
Dairy Holdings’ Valley Rich Dairy, The need to prevent ‘‘double pooling’’
businesses.
located in Roanoke, Virginia. Based on became critically important as
distribution areas expanded, orders Prior documents in this proceeding:
Small Business Administration criteria
these are all large businesses. merged, and a national pricing surface Notice of Hearing: Issued January 16,
This decision recommends proposed was adopted. Milk already pooled under 2004; published January 23, 2004 (69 FR
amendments to the transportation credit a State-operated program and able to 3278).
provisions of the Appalachian and simultaneously be pooled under a Preliminary Statement
Southeast orders. The Appalachian and Federal order has essentially the same
Southeast orders contain provisions for undesirable outcomes that Federal Notice is hereby given of the filing
a transportation credit balancing fund orders once experienced and with the Hearing Clerk of this
from which payments are made to subsequently corrected. Accordingly, recommended decision with respect to
handlers to partially offset the cost of proposed amendments to eliminate the proposed amendments to the tentative
moving bulk milk into each marketing ‘‘double pooling’’ of the same milk on marketing agreements and the orders
area to meet fluid milk demands. the Appalachian or Southeast order and regulating the handling of milk in the
The proposed amendments would a State-operated milk order that has Appalachian and Southeast marketing
increase the maximum rate of the marketwide pooling is recommended for areas. This notice is issued pursuant to
transportation credit assessment of the adoption. the provisions of the Agricultural
Appalachian and Southeast orders by 3 The proposed amendments would be Marketing Agreement Act and the
cents per hundredweight. Specifically, applied to all Appalachian and applicable rules of practice and
the proposed amendments would Southeast order participants (producers procedure governing the formulation of
increase the maximum rate of and handlers), which consist of both marketing agreements and marketing
assessment for the Appalachian order large and small business. Since the orders (7 CFR Part 900).
from 6.5 cents per hundredweight to 9.5 proposed amendments recommended Interested parties may file written
cents per hundredweight while for adoption would be subject to all the exceptions to this decision with the
increasing the maximum rate of orders’ producers and handlers Hearing Clerk, U.S. Department of
assessment for the Southeast order from regardless of their size, the provisions Agriculture, Washington, DC 20250–
7 cents per hundredweight to 10 cents are not expected to provide a 9200, by the 60th day after publication
per hundredweight. Increasing the competitive advantage to any of this decision in the Federal Register.
transportation assessment rates will participant. Accordingly, the proposed Six copies of the exceptions should be
tend to minimize the exhaustion of the amendments should not have a filed. All written submissions made
transportation credit balancing fund significant economic impact on a pursuant to this notice will be made
when there is a need to import substantial number of small entities. available for public inspection at the
supplemental milk from outside the A review of reporting requirements office of the Hearing Clerk during
marketing areas to meet Class I needs. was completed under the Paperwork regular business hours (7 CFR 1.27(b)).
Currently, the Appalachian and Reduction Act of 1995 (44 U.S.C. The proposed amendments set forth
Southeast orders provide that Chapter 35). It was determined that below are based on the record of a
transportation credits shall apply to the these proposed amendments would public hearing held at Atlanta, Georgia,
milk of a dairy farmer who was not a have no impact on reporting, on February 23–26, 2004, pursuant to a
‘‘producer’’ under the order during more recordkeeping, or other compliance notice of hearing issued January 16,
than two of the immediately preceding requirements because they would 2004 (69 FR 3278).

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29412 Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules

The material issues on the hearing the proposed merged milk order) and returns from sales of milk including
record relate to: Proposal 2 would combine the milk not needed for fluid use. The
1. Merger of the Appalachian and remaining balances of funds of the witness further stated that handlers
Southeast Marketing Areas. current Appalachian and Southeast would be assured that competitors
a. Merging the Appalachian and orders if the proposed merged order was would pay a single set of minimum
Southeast milk marketing areas and adopted. According to the witness, SMA prices for milk set by the established
remaining fund balances. is a marketing agency whose order. The witness stated that a merged
b. Expansion of the Appalachian cooperative members include Arkansas order is in the public interest because it
marketing area. Dairy Cooperative Association, Inc., assures that an adequate supply of high
c. Transportation credits provisions. Dairy Farmers of America, Inc. (DFA), quality milk will be available for
2. Promulgation of a new ‘‘Mississippi Dairymen’s Marketing Cooperative, Inc., consumers.
Valley’’ milk order. Lone Star Milk Producers, Inc., The proponent cooperatives’ witness
3. Eliminating the simultaneous Maryland & Virginia Milk Producers noted that the adoption of a new Federal
pooling of the same milk on a Federal Cooperative Association, Inc. (MD&VA), order is contingent upon being able to
milk order and a State-operated milk and Southeast Milk, Inc. (SMI) show that interstate commerce occurs in
order that provides for marketwide (proponent cooperatives). the proposed marketing area. It is the
pooling. The witness for the proponent opinion of the witness that ‘‘interstate
4. Producer-handler provisions. cooperatives said SMA was created in commerce’’ does exist due to the
This partial recommended decision response to a changing market structure movement of bulk and packaged milk
deals only with Issues 1 through 3. Issue and is an extension of the cooperatives’ products within, into, and out of the
No. 4 will be addressed separately in a initiative to consolidate and seek Appalachian and the Southeast
forthcoming decision. enhanced marketing efficiencies. The marketing areas—the proposed
witness indicated that SMA pools marketing area.
Findings and Conclusions certain costs and returns for its The proponent cooperatives’ witness
The following findings and cooperative member producers noted a trend of larger geographical
conclusions on the material issues are supplying distributing plants fully
areas being served by fewer Federal
based on evidence presented at the regulated under the Appalachian and
milk marketing orders. Specifically, the
hearing and the record thereof: Southeast milk orders. SMA considers
witness said between 1996 and 2003 the
the Appalachian and Southeast orders
1. Merger of the Appalachian and number of dairy farmers in the
one market in terms of the distribution
Southeast Marketing Areas southeastern states of Alabama,
of revenues, the allocation and pooling
Arkansas, Georgia, Kentucky, Louisiana,
1a. Merging the Appalachian and of marketing costs, milk supply and
Mississippi, Missouri, North Carolina,
Southeast Milk Marketing Areas and demand, and the development of its
South Carolina, Tennessee, and Virginia
Remaining Fund Balances annual budget, the witness explained.
The proponent cooperatives’ witness declined from 11,712 to 7,180. This
This decision recommends denial of a stated that the proposed order merger decrease, the witness explained,
proposal that would merge the current would create a milk market which parallels the trend of a drop in the
Appalachian marketing area and would be commonly supplied and number of dairy farmers pooled on the
Southeast milk marketing area into a deserving of a common blend price. The current Appalachian and Southeast
single marketing area under a proposed witness testified that the continued orders. The witness stated that based on
order. Accordingly, a proposal that existence of the separate Appalachian the final decision for Federal Order
would combine the fund balances of the and Southeast Federal milk orders Reform (issued March 12, 1999, and
current Appalachian and Southeast across a functionally single fluid milk published April 2, 1999 (64 FR 16025))
orders is rendered moot and is not marketing area inhibits market 8,180 dairy farmers were expected to
recommended for adoption. efficiency in supplying and balancing pool their milk on the consolidated
The Appalachian marketing area the market, creates unjustified blend Appalachian and Southeast orders.
consists of the States of North Carolina price differences, encourages However, the witness noted only 7,243
and South Carolina, parts of eastern uneconomic movements of milk, and dairy producers supplied milk to the
Tennessee, Kentucky excluding results in the inequitable sharing of the two orders during December 2003.
southwest counties, 7 counties in Class I proceeds of what should be a The proponent cooperatives’ witness
northwest/central Georgia, 20 counties single market. stressed that there is an acute milk
in southern Indiana, 8 counties and 2 The proponent cooperatives’ witness deficit in the Appalachian and
cities in Virginia, and 2 counties in stated that different blend prices and Southeast Federal orders. Referencing
West Virginia. The Southeast order different and separate pool qualification data obtained from the USDA National
marketing area consists of the entire requirements constitute disruptive Agricultural Statistics Service (NASS)
States of Alabama, Arkansas, Louisiana, conditions that would be removed by a for the states of Alabama, Arkansas,
Mississippi, Georgia (excluding 4 merger of the orders. The witness Georgia, Kentucky, Louisiana,
northern counties), southern Missouri, asserted that the proposed merger Mississippi, Missouri, North Carolina,
western/central Tennessee, and would allow producer milk to flow South Carolina, Tennessee, and Virginia
southern Kentucky. more freely between pool plants and (southeast region), the witness testified
A witness testifying on behalf of provide for the equal sharing of that a decline in dairy farmers led to a
Southern Marketing Agency, Inc. balancing costs across all producers in decline in milk production in the
(SMA), presented testimony in support the proposed merged order. southeast region. The witness noted
of Proposals 1 and 2 as contained in the The proponent cooperatives’ witness milk production decreased from 13,518
hearing notice published in the Federal stressed that the adoption of the million pounds in 1996 to 10,671
Register (69 FR 3278). Proposal 1 would proposed merged order would assure million pounds in 2003 a decline of 21
merge the current Appalachian and producers that milk would be sold at percent. The witness asserted that this
Southeast marketing areas into a single reasonable minimum prices and decline coupled with an increase in
marketing area (hereafter referred to as producers would share pro rata in the population has resulted in a major

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expansion of the milkshed for the According to the proponent Class III. For 2003, the witness noted
southeastern region of the United States. cooperatives’ witness, all of the that non-fluid milk utilization for the
According to the proponent distributing plants currently regulated Appalachian order was 14.41 percent
cooperatives’ witness, 9,071.9 million under the Appalachian and Southeast Class II, 7.11 percent Class III, and 8.12
pounds of Class I producer milk was orders are expected to be fully regulated percent Class IV, while the non-fluid
pooled on the combined Appalachian by the proposed merged order. Using milk utilization for the Southeast order
and Southeast orders during 2003. The December 2003 data, the witness stated was 9.97 percent Class II, 17.79 percent
witness said marketings of milk that the proposed merged order would Class III, and 6.78 percent Class IV. The
produced in the southeastern region was have had a Class I route distribution of witness stressed that these differing uses
10,671 million pounds in 2003, which 773.4 million pounds. The witness of milk result in different blend prices
means 85 percent of Grade A milk added that 86.58 percent of Class I sales between the Appalachian and Southeast
production was needed for Class I use would have been from milk produced in orders which leads to disorderly
on an annual basis. the proposed marketing area. The marketing conditions. The witness
In 1996, the proponent witness witness stated that the proposed emphasized that differences in blend
testified, it was anticipated that 72 fluid Southeast order would rank third in the prices between the two orders is largely
milk processing plants were or would total number of pool plants regulated by due to significant differences in uses
become fully regulated distributing a Federal milk order. and prices in the manufacturing classes
plants on the consolidated Appalachian The proponent cooperatives’ witness and is not necessarily due to significant
and Southeast orders. However, the stated that there is substantial and differences in Class I milk utilization.
witness noted, only 52 remained significant overlap of the supply of The witness explained that SMA in
regulated by the orders during producer milk for the Appalachian and April 2002 began the common pooling
December 2003. The witness indicated Southeast orders. The witness noted of the costs and returns to supply the
that of the fully regulated pool plants Federal order data for 2000 through customers of member cooperatives in
existing in both January 1996 and 2003 shows that dairy farmers located in the separate orders in an effort to
December 2003, more than two-thirds southern Indiana, central Kentucky, alleviate disruptive blend price
have experienced at least one ownership central Tennessee, central North differences. The witness testified that
change and some have experienced Carolina, western South Carolina, and while this procedure has resolved some
several ownership changes. central and southern Georgia have
The proponent cooperatives’ witness blend price differences, their procedure
supplied milk to plants regulated under does not result in removing inequitable
cited a set of criteria used for Appalachian or Southeast orders. The
consolidation of orders during the blend prices for all producer milk
witness said milk of dairy farmers pooled on the separate orders.
reform process. The witness said this located in the Central marketing area
list included overlapping route sales Regarding the commonality of
and Southwest marketing area, and
and areas of milk supply, the number of cooperative associations in the two
dairy farmers located in northwestern
handlers within a market, the natural marketing areas, the proponent
Indiana and south central Pennsylvania,
boundaries, the cooperative associations have supplied fluid milk plants cooperatives’ witness stated that
operating in the service area, provisions regulated by the Appalachian and cooperative membership is an
common to the existing orders, milk Southeast orders. indication of market association and
utilization in common dairy products, In December 2003, the witness stated, provides support for the consolidation
disruptive marketing conditions, and dairy farmers located in 28 states of marketing areas. The witness noted
transportation differences. supplied milk to handlers under the that the six SMA member cooperatives
The proponent cooperatives’ witness Appalachian or Southeast orders. accounted for approximately 734
testified that significant competition for Sixteen of the 28 states supplied milk to million pounds of producer milk during
sales between plants exists between the both orders and 13 states were located November 2003, which represents about
Appalachian and Southeast orders. The wholly or partially within the proposed 67 percent of the total producer milk
witness noted that the ‘‘corridor of merged order marketing area, the that would be pooled on the proposed
competition’’ is the shared border of the witness noted. Southeast order. Also, the witness stated
Appalachian and Southeast. The The witness for the proponent these cooperatives market milk of other
witness testified that Federal milk order cooperatives testified that the proposed cooperatives whose member producers’
data for 2003 shows Class I disposition order would rank second in Class I milk would be pooled on the proposed
on routes inside the Southeast order by utilization representing 19.5 percent of Southeast order. Using November 2003,
Appalachian order pool plants was total Class I sales in all Federal milk the witness stated approximately 871
11.25 percent of the total Class I route orders. Using annual Federal milk order million pounds or 79 percent of the
disposition by all plants in the data, the witness noted that for 2003, producer milk pooled under the
Southeast order. According to the Class I utilization for the Appalachian proposed Southeast order would be
witness, Class I route disposition in the and Southeast orders was 70.36 percent represented by these proponent
Southeast order by Appalachian order and 65.47 percent, respectively. The cooperatives.
pool plants has increased in total by witness said the combined Class I The witness for the proponent
11.1 percentage points since January utilization for the proposed merged cooperatives pointed out that the
2000 (i.e., 5.9 percentage points from order would have been 67.77 percent for regulatory provisions of the
2000 to 2001, 2.1 percentage points from 2003 or 9,071.9 million pounds of Appalachian and Southeast orders are
2001 to 2002, and 1.9 percentage points 13,385.7 million pounds of producer similar in most respects except for the
from 2002 to 2003). In addition, the milk pooled. qualification standards for producer
stated record data reveals that Class I The proponent cooperatives’ witness milk and a producer. While not a
route disposition by Appalachian order noted that milk not needed for fluid Federal milk order regulatory provision,
pool plants into the Southeast order was uses in the Appalachian order is the proponent witness stated that the
63.9 percent of the total Class I primarily used in Class II and Class IV common handling of cost and returns
disposition by all nonpool plants for the while milk not needed for fluid uses in for milk that would be pooled on the
Southeast order during 2003. the Southeast order is primarily used in proposed merged order recognized

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similar marketing conditions within the production during the months of July The witnesses indicated that all of the
proposed order marketing area. through December. The witness stated cooperatives are members of SMA and
The proponent cooperative witness that the 33 percent production standard that the milk of their dairy farmer
testified that the proposed merged order is a reasonable minimum requirement members is shipped to plants regulated
should retain the Appalachian order for establishing a producer’s association by the Appalachian or Southeast orders.
pool plant provisions. The witness with the market during the short The MD&VA witness asserted that the
recommended adopting provisions that production months of July through consolidation of the current
would allow the pooling of a supply December. Under their proposal, the Appalachian and Southeast orders is
plant operated by a cooperative milk of a dairy farmer would be eligible necessary due to changes in the
association that is located outside the for diversion to a nonpool plant the first marketing structure (i.e., milk
marketing area but within the State of day of the month during which the milk production and processing sectors) in
Virginia. The witness stated that the of such dairy farmer meets the order’s the southeastern United States. The
proposed merged order should include touch base requirements. witness was of the opinion that the area
the Appalachian order ‘‘split’’ pool The proponent cooperatives’ witness covered by the two current orders is
plant provision which would continue indicated that their proposal contains essentially a single market and that all
to provide for defining that portion of a current Southeast order language that of the producers delivering milk to the
pool plant designated as a ‘‘nonpool limits the total amount of producer milk market should share a common Federal
plant’’ that is physically separate and that may be diverted by a pool plant order blend price.
operates separately from the pool operator or cooperative association to 33 The witnesses for MD&VA, ADC,
portion of such plant. percent during the months of July Lone Star, and DMC stated the producer
The proponent cooperatives’ witness through December and 50 percent milk requirements under the current
stated that lock-in provisions be during January through June. Appalachian and Southeast Orders
included in the proposed merged order. The proponent cooperatives’ witness make it difficult to ensure the pooling
According to the witness, distributing proposed that the reserve balances of of milk on the orders. The witnesses
plants in the Southeastern markets have the marketing services, administrative contended a merger of the Appalachian
been ‘‘locked in’’ or fully regulated as expense, producer-settlement funds, and Southeast orders would enhance
pool plants under the order in which and the transportation credit balancing market equity, allow for increased
they are physically located since the funds that have accrued in the efficiencies in supplying a deficit milk
mid-1980s. The witness testified that individual Appalachian and Southeast region, and eliminate the disruptive and
unit pooling distributing plants on the orders, be merged or combined in their disorderly marketing conditions that
basis of their physical location should entirety if the proposed merged order is currently exist in the Appalachian and
be retained in the merged order. The adopted. The witness explained that the Southeast orders by eliminating blend
witness noted that the Appalachian and handlers and producers servicing the price differences.
Southeast orders currently provide that milk needs of the individual orders Witnesses representing Georgia Milk
two or more plants operated by the same would continue to furnish the milk Producers, Inc. (GMP), testified in
handler that are located within the needs of the proposed marketing area. opposition to the merger as proposed in
marketing area may qualify for pool According to the proponent Proposals 1 and 2. The witness was of
status as a unit by meeting the in-area cooperatives’ witness, it would be the opinion that USDA had made a
Class I route disposition standards appropriate to combine the reserve mistake in 2000 when the western part
specified for pool distributing plants. balances of the orders’ marketing service of the current Southeast order, which
The witness for the proponent funds since marketing service programs had a lower Class I utilization, was
cooperatives explained that lock-in for producers would continue under the added to the Southeast order which had
provisions help to preserve the viability proposed order. In regards to the a higher Class I utilization.
of capital investments in pool administrative expense funds, the Other testimony presented on behalf
distributing plants. The witness witness stated that it would be equitable of GMP, and relying on 1997 data,
indicated that lock-in provisions in the and more efficient to combine the indicated that milk production in
Southeast and Appalachian orders remaining administrative funds Georgia fell short of Georgia’s fluid milk
adequately provide for regulatory accumulated under the individual demand by about 122 million pounds as
stability for pool plants on the edge of orders. In addition, the witness compared to only 4 to 11 million pound
a market area that may shift regulatory indicated that this would enable the supply shortfalls in the other states
status between two orders due to producer-settlement funds and the included in the proposed merged order
changes in route disposition patterns. transportation credit funds of the area. The witness stated that the
The proponent cooperatives’ witness proposed merged order to continue widening supply-demand gap will
recommended changing the ‘‘touch without interruption. accelerate as population increases and
base’’ requirement of the producer milk Witnesses for Maryland & Virginia milk production declines in Georgia.
provision from a ‘‘days’’ production Milk Producers Cooperative, Inc. The GMP witness stated that: ‘‘Based on
standard to a ‘‘percentage’’ production (MD&VA), Arkansas Dairy Cooperative, the decline in production in the region
standard. This change, the witness Inc. (ADC), Lone Star Milk Producers, compared to the growth in demand,
stated, will accommodate pooling the Inc. (Lone Star), and Dairymen’s USDA has not sufficiently considered
milk of large producers who ship Marketing Cooperative, Inc. (DMC), the needs of the dairy farmers in the
multiple loads of milk per day. The testified in support of consolidating the states covered by the Order.’’ According
witness proposed that individual current Appalachian and Southeast milk to the witness, GMP dairy farmers have
producers deliver 15 percent of their orders into a single milk order. lost income each time the Southeast
monthly milk production (equivalent to According to witnesses, MD&VA is Federal Order has been expanded.
approximately 4.5 days of milk comprised of 1,450 to 1,500 dairy The GMP witness testified that a
production) to a pool plant during farmers, ADC has 160 member dairy rejection of the proposed merged order
January through June and 33 percent farmers, Lone Star is comprised of about together with the creation of a new
(equivalent to about 10 days of milk 160 member dairy farmers, and DMC is Mississippi Valley Order, as offered by
production) of their monthly milk comprised of 168 member dairy farmers. Proposal 5, would be the first step to

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help rectify the mistake made in Federal blend price. The witness requested that considered when revising or merging
milk order reform. The witness the current Appalachian order pool orders. The witness indicated that
supported raising the utilization in the plant definition be included in the market efficiency suffers and difficulties
most deficit areas of the Southeastern proposed merged order. This request, occur in supplying and balancing the
States by creating a Mississippi Valley according to the witness, would permit market at all Federal milk order borders.
order and combining the high their plant located in Winchester, The witness indicated that the lines
utilization areas of the remainder of Kentucky, to continue its association drawn between marketing areas create
Order 7 into a new smaller Southeast with the proposed merged order rather unjustified blend price differences,
Order. than with the Mideast order. encourage uneconomic movements of
The GMP witness asserted that A witness representing Dairy Farmers milk, and result in the inequitable
historically, the larger the marketing of America (DFA) testified that the sharing of Class I proceeds.
area, the higher the balancing costs in a proponents do not anticipate any A witness representing Dean Foods
deficit market. The witness further difficulties from merging of the two testified in opposition to the proposed
asserted that transportation credits shift orders or expanding the proposed merger of the Appalachian and the
part of that cost to the entire market merged area to include additional Southeast market areas. According to
rather than to the dairy farmers in the Virginia counties. According to the the witness, more and smaller order
order who are members of cooperatives. witness, the Virginia State Milk areas create more flexible incentives to
The witness testified that transportation Commission has been able to deliver milk to Federal order pool
credits unintentionally encourage the simultaneously operate a producer base plants. According to the witness,
importation of milk rather than milk pricing program for producers relative blend prices determine where
encourage increased production of local supplying milk to plants with Class I milk is shipped and pooled. According
milk. sales within the State. The witness to the witness the disincentives
A witness representing the Kroger indicated that DFA opposes any change associated with increased transportation
Company (Kroger) testified in support of to the proposed merged order provisions costs increase faster than the incentives
the proposed merger of the Appalachian that may cause conflicts between the from the higher location value of the
and Southeast orders. According to the operations of the Virginia State Milk merged order blend price. The witness
witness, Kroger owns and operates Commission and the Federal milk cited the St. Louis/southern Illinois area
Winchester Farms Dairy, in Winchester, marketing order program. and its chronic milk deficit as a prime
Kentucky, and Westover Dairy, in A witness representing Prairie Farms example of these phenomena.
Lynchburg, Virginia. The witness stated testified in opposition to Proposals 1 Post-hearing briefs addressing
that both plants are pool distributing and 2. The witness indicated that the Proposals 1 and 2 were submitted by
plants regulated on the Appalachian fluid milk industry would be better SMA, Dean Foods, and Prairie Farms.
Federal milk order. The witness stated served by more Federal milk marketing The proponent cooperatives for the
that Kroger owns and operates Heritage orders covering smaller areas rather proposed order merger, submitted a
Farms Dairy in Murfreesboro, than fewer Federal milk marketing post-hearing brief reiterating their
Tennessee, and Centennial Farms Dairy orders covering large areas. The witness support for the merger of the
in Atlanta, Georgia, both fully regulated indicated that Federal milk order reform Appalachian and Southeast orders. The
distributing plants under the Southeast left ‘‘dead zones’’ in the State of Illinois brief described conditions existing in
milk order. and Missouri, near St Louis. According the Appalachian and Southeast orders
According to the Kroger witness, their to the witness, this area is not able to as disruptive and disorderly, and
Winchester, Kentucky, plant was attract a fluid milk supply and asserted that these conditions are
associated with the Ohio Valley order experiences weekly fluid milk deficits. symptoms of a market that has changed
(now part of the Mideast order) from The Prairie Farms witness indicated significantly since the orders were
1982 to 1988, with the Louisville- that the low per capita milk production promulgated by Federal order reform,
Lexington-Evansville order from 1988 in Illinois, in combination with effective January 1, 2000.
through 1999, and with the Appalachian economic incentives to move the milk According to the proponent
order since 2000. The witness indicated produced in Illinois and eastern cooperatives’ brief, a merger of the
that previous decisions by USDA Missouri into the Appalachian and existing orders would bring blend price
adopted pool plant provisions that Southeast orders, has caused disorderly uniformity, recognize inter-order
allowed their Winchester, Kentucky, marketing conditions. The witness competition and integrate Class I sales
plant to be regulated under the indicated that the blend price within the proposed merged order,
Appalachian order. According to the differences between the Upper Midwest recognize common supply areas within
witness, being regulated by the order and the Central order are not the proposed merged order, and allow
Appalachian order retains that plants sufficient to cover the transportation producer milk to move more freely
ability to procure milk with a higher cost of moving milk to the ‘‘dead between pool plants within the
blend price when compared with the zones’’. The witness testified that at an proposed marketing areas. In addition,
Mideast order. October 31, 2001, meeting, DFA— proponents contended it would equalize
The Kroger witness indicated that Prairie Farms’ major supplier— the costs of balancing within the
with the exception of the Murfeesboro, indicated that they would no longer be proposed marketing area, erase the
Tennessee, plant, which has a minority able to provide supplemental milk artificial line that separates a common
supply of milk from independent supplies to Prairie Farms due to the lack milk market, and recognize the common
producers, all of the Kroger pool of incentives and expenses. pooling of costs and returns for
distributing plants are supplied by Dairy The Prairie Farms witness stated that producer milk within the proposed
Farmers of America. The witness today’s dairy environment shows that merged order. The brief asserts that no
indicated that if their Winchester plant the current order system needs to be additional parties would become
were to again be associated with the reconfigured and inequities fixed regulated as a result of the proposed
Mideast order, the returns to the milk system-wide. The witness asserted that merged order. According to the
supplying cooperative would be the consequences for nearby marketing proponent cooperatives’ brief, other
reduced due to the lower Mideast order areas and adjacent orders must be options that forestall a complete merger

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are inadequate to correct the present allow payments due to the fund to be commonly shared structural
disruptive and disorderly conditions in submitted overnight instead of through relationships. The most important of
the separate orders. the electronic wiring of funds. However, these factors are evidence of
Opposition to proposal 1 was this was not a noticed proposal and no overlapping sales patterns among
reiterated by Dean Foods and Prairie evidence or witness was available to handlers of Class I milk and overlapping
Farms in a joint post-hearing brief. The testify regarding this written request. milk procurement area. The measures of
brief suggested that blend price The 1996 Farm Bill mandated that association between the Appalachian
differences between orders cause milk Federal milk orders be consolidated to and Southeast milk order marketing
to move to where it is most needed. The not less than 10 or more than 14. The areas in terms of overlapping route sales
Dean Foods and Prairie Farms stated Federal order reform final decision and milk procurement have not change
that without blend price differences issued March 12, 1999 and published in significantly since the consolidated
milk movements between and within the Federal Register April 2, 1999, (64 orders became effective in January 2000.
marketing areas are impaired. The FR 16026) meet the requirements set Several criteria were used by the
opponents brief suggested a national forth in the 1996 Farm Bill through the Department in determining which of the
hearing in order to consider consolidation of the 31 Federal milk 31 milk order marketing areas exhibited
simultaneously all marketing regions orders into 11 orders. The Agricultural a sufficient measure of association in
because the results of one proceeding Marketing Agreement Act of 1937 terms of sales, procurement area, and
directly affects other regions. The brief (AMAA), as amended, provides the other structural relationships to warrant
stated that combining the Appalachian Department the authority to issue and consolidation or mandated by the 1996
and Southeast marketing areas was amend orders. Accordingly, the merger Farm Bill into the current 10 milk
considered but was not adopted under proposal may be considered by the marketing areas. These criteria included
Federal milk order reform. Department. overlapping route disposition,
The Dean Foods and Prairie Farms This decision does not recommend overlapping areas of milk supply,
joint brief stated that market merging the Southeast and Appalachian number of handlers within a market,
administrator data demonstrates that marketing areas. Record evidence of this natural boundaries, cooperative
moving milk to where it is needed proceeding does not substantiate the
associations, common regulatory
through blend price differences need for merging these two separate
provisions, and milk utilization in
effectively moves milk from the west to marketing order areas. Overlap of Class
common dairy products.
the east for the Southeast marketing area I route disposition between the two
and from north to south for the orders is relatively unchanged since the The primary factors during reform
Appalachian marketing area. The brief separate orders were created in 2000. that supported the creation of the
offered the St. Louis area as an example The overlap in milk supply areas for consolidated Appalachian milk order
of blend price differences that are plants in the Appalachian and and the consolidated Southeast milk
sometimes too small to cover additional Southeast orders remains minimal and order were overlapping route sales and
costs of transporting milk to major unchanged since 2000. Blend price milk procurement areas between the
metropolitan area for fluid use. The differences and other marketing marketing areas. The determinations
brief indicated that similar problems conditions of the two orders raised by were based on an analysis of milk sales
could result elsewhere if the two orders the proponents are not significantly and procurement area overlap between
are merged. different from conditions existing in the pre-reform orders using 1997 data.
In their joint brief, Dean Foods and 2000. The proponents have not Specifically, the Federal order reform
Prairie Farms suggested that although a demonstrated that the current marketing final decision issued March 1999, stated
majority of dairy market participants conditions are disorderly. The that the primary factors for the
may favor a merger, it is important to proponents have not made a convincing consolidation of the (1) Tennessee
consider the minority opinion. The brief case that the current marketing Valley, (2) Louisville-Lexington-
also requested the inclusion of the conditions are disorderly. Evansville, and the (3) Carolina
Kentucky counties of Ballard, Calloway, The AMAA provides that milk orders marketing areas into the current
Carlisle, Fulton, Graves, Hickman, may be issued where the marketing of Appalachian milk order were
Marshall, and McCracken in the milk is in the current of interstate or commonality of overlapping route
Southeast marketing area if Proposal 1 foreign commerce or where it directly disposition and milk procurement
is denied and Proposal 5 is adopted. burdens, obstructs, or affects interstate between the two marketing areas. The
Dean Foods and Prairie Farms’ joint or foreign commerce. Federal milk decision found that there was ‘‘a
brief contended that the proposal to orders define the terms under which stronger relationship between the three
merger the Appalachian and Southeast handlers in a specified market purchase marketing areas involved than between
orders brings forth a significant policy milk from dairy farmers. The orders are any one of them and any other
and legal question the Department must designed to promote the orderly marketing area on the basis of both
address prior to issuing a decision on exchange of milk between dairy farmers criteria.’’ (64 FR 16059)
the merits of the proposal. The proposed (producers) and the first buyers For the Southeast order, the Federal
merger, if adopted, would cause the (handlers) of milk. Record evidence of order reform final decision stated that
number of Federal orders to fall to this proceeding does not support a the basis for the adopted Southeast
below the minimum number of 10 finding that the current Appalachian marketing area which consolidated the
required by Congress in the 1996 Farm and Southeast milk orders are not former Southeast marketing area with
Bill, they stated. achieving the goal of orderly marketing. additional counties in Arkansas,
A written statement submitted on In determining whether Federal milk Kentucky, and Missouri was
behalf of LuVel Dairy Products, Inc., order marketing areas should be merged, ‘‘overlapping route dispositions within
requested that the administrative the Department generally has the marketing area to a greater extent
requirements of the producer-settlement considered the extent to which Federal than with other marketing areas.
fund be modified to extend the time order markets share common Procurement of producer milk also
period in which payments to the fund characteristics such as overlapping sales overlaps between the states within the
are due by one full business day and to and procurement areas, and other market.’’ (64 FR 16064)

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Proposals to merge the Appalachian producer milk between these areas.’’ neighboring dairy farmers. As discussed
and Southeast order marketing areas Accordingly, the merger proposals were later in this decision, there is no
into a single marketing area were not adopted during Federal order evidence of disorder occurring within
considered during the Federal order reform. the Appalachian and Southeast order
reform process. Dairy Farmers of Record evidence indicates that the marketing areas as a result of plants
America, Inc., and Carolina-Virginia Appalachian and Southeast order shifting regulation to other orders.
Milk Producers Association submitted marketing areas share minor and Overlapping milk supply principally
comments requesting that the proposed unchanged commonality in sources of applies when the major proportions of
consolidated Appalachian order milk supply, fluid milk route sales, and a market’s milk is supplied by the same
marketing area and the proposed market participants (cooperative area. The cost of a handler’s milk is
consolidated Southeast order marketing associations and handlers). However, as influenced by the location of the milk
area be combined into a single discussed later in this decision, such supply which affects other competitive
consolidated Southeast marketing area. measures of association between the factors. The common pooling of milk
Also, the Kentucky Farm Bureau Appalachian and Southeast orders can produced within the same procurement
Federation requested a single Federal only support a finding to maintain two area facilitates the uniform pricing of
order consisting of the proposed separate Federal orders with some producer milk among dairy farmers.
consolidated Appalachian and minor modifications. However, all marketing areas having
Southeast marketing areas including all Overlapping Route Sales and Milk overlapping procurement areas do not
of the State of Kentucky. Supply. Current proponents of merging warrant consolidation. An area that
The proponents for merging the two the Appalachian and Southeast supplies a minor proportion of an
consolidated marketing areas contended marketing areas contend that there is adjoining area’s milk needs from minor
that common procurement areas substantial overlap in route sales and proportions of its own total milk supply
between the orders would result in milk supply areas between the orders. and has minimal competition among
different blend prices paid to producers The movements of packaged fluid milk handlers in the adjacent marketing area
if the orders were not consolidated. The between Federal milk order marketing for fluid sales, supports concluding that
Federal order reform final decision areas provide evidence that plants from the two marketing areas are clearly
rejected this assertion stating that ‘‘As more than one Federal milk order are in separate and distinct.
discussed in the proposed rule, competition with each other for fluid Based on record evidence of Federal
consolidating the Carolina and milk sales. Overlapping sales patterns milk order data, Table 1 illustrates that
Tennessee Valley markets with the can result in the regulatory shifting of the Appalachian and Southeast milk
Southeast does not represent the most handlers between orders and tends to orders have experienced no significant
appropriate consolidation option cause disorderly marketing conditions change in overlapping route disposition
because of the minor degree of by the changed price relationships or milk procurement since the orders
overlapping route disposition and between competing handlers and were consolidated.

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29418 Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules

For the 2000 through 2003 period, order accounted for about 85 percent of to 2003, while route sales from the
route sales by distributing plants the order’s total Class I sales. Southeast order regulated plants into
regulated by the Appalachian order into Of the total producer milk pooled on the Appalachian marketing area
the Southeast marketing area averaged the Appalachian order, the amount of remained relatively unchanged for the
about 12 percent, while the route sales producer milk produced in the 4-year period. Likewise, the data in
from plants regulated by the Southeast Southeast marketing area decreased Table 1 shows that producer milk
order into the Appalachian marketing from 8.5 percent in 2000 to 4.3 percent pooled on the Appalachian order that
area averaged about 2 percent. Record in 2003. The milk produced in the originated from the Southeast marketing
Appalachian marketing area that was area declined each year since 2000,
data also indicates that the majority of
pooled on the Southeast order while the producer milk pooled on the
the Class I sales by distributing plants
accounted for about 3.2 percent of the
regulated by the Appalachian and Southeast order that originated from the
total producer milk pooled on the
Southeast orders are within each of the Appalachian marketing area has
Appalachian order for the same 4-year
respective orders. For the 4-year period, remained unchanged since the orders
period.
Appalachian order handlers accounted In summary, the Table 1 data were consolidated in January 2000.
for about 75 percent of the total Class I illustrates that route sales from Table 2, which is based on Federal
sales within the order’s marketing area Appalachian order handlers into the milk order record data, further details
and plants regulated by the Southeast Southeast marketing area increased the source of producer milk pooled on
slightly (1 percentage point) from 2000 the Appalachian and Southeast orders.
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The Table 2 data illustrates that the Appalachian order that was produced producer milk that was produced in the
share of total producer milk pooled on outside the Appalachian marketing area Appalachian marketing area which
the Appalachian order produced within during this period, 12.7 percent was remained relatively unchanged at about
the marketing area during 2000 through produced in the Southeast marketing 3 percent from 2000 through 2003.
2003 has declined from about 51 area and 12.8 percent in the Northeast Record data reveals that the
percent to about 45 percent. The amount marketing area, and 26 percent in the supplemental milk for the Southeast
of producer milk produced in the Mideast marketing area. In addition, order is produced primarily in the
Southeast marketing area as a share of record data indicates that approximately Central and Southwest marketing areas.
the total amount of producer milk half of the pooled milk on the Specifically, the share of producer milk
pooled on the Appalachian order also Appalachian order is produced in produced in the Central marketing area
has declined from 8.5 percent in 2000 counties within the marketing area and that was pooled on the Southeast order
to 4.3 percent in 2003. At the same time, 20 percent to 25 percent of the total increased from 8.9 percent in 2000 to
the amount of producer milk produced pooled milk is supplied by Federally 14.2 percent in 2003. In addition,
in the Mideast marketing area that was unregulated areas, mainly from counties producer milk produced in the
pooled on the Appalachian order in the State of Virginia, Pennsylvania Southwest marketing area that was
increased from 9.1 percent in 2000 to and New York. pooled on the Southeast order was
19.2 percent in 2003. For the 4-year period of 2000 through about 17 percent in 2000, increased to
During 2000 through 2003, the 2003, record data reveals the share of about 22 percent in 2002, and declined
Northeast, Southeast, and Mideast the total Southeast order producer milk to about 17 percent in 2003.
marketing areas accounted for about 27 produced within the marketing area The record data clearly reveals the
percent of the total producer milk declined from about 67 percent in 2000 degree of overlap in milk supply
pooled on the Appalachian order. Of the to about 58 percent in 2003. However, between the Appalachian and Southeast
EP20MY05.001</GPH>

total producer milk pooled on the this decline was not supplied by milk order marketing areas has

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decreased over the 4-year period since utilization rates for the Southeast order unregulated counties of four states to
Federal order reform while the degree of averaged 10.8 percent, 17.3 percent, and form the Southeast order addressed the
overlap between the Appalachian and 8.5 percent, respectively. This data issue of blend price differences among
Mideast orders has increased each year. illustrates that the Appalachian orders (60 FR 25014). The decision
The data further reveals that the primary marketing area is balanced primarily by stated that blend price differences
out-of-area sources of supplemental Class II and Class IV while in the between orders may be caused by a
milk for the Appalachian order Southeast marketing area is balanced by number of factors including order
marketing area are the Northeast and Class II and Class III. provisions, institutional factors, the
Mideast regions. In contrast, the primary Blend Prices. Proponent cooperatives location of surplus milk and differences
out-of-area sources of milk supply for contend that the differences in blend in class prices. The decision concluded
the Southeast order marketing area are prices between the Appalachian and that the five separate orders were
the Southwest and Central marketing Southeast milk orders result in encouraging plants to shift regulation
areas. disruptive marketing conditions. The among the orders which resulted in
Record data reveals that the minimal blend price of an order is a function of disorderly marketing conditions as
overlap in milk supply areas that exists the utilization of milk in the respective producers and handler inequity greatly
between the Appalachian and Southeast classes (Class I, Class II, Class III, and increased.
milk order marketing areas is primarily Class IV) at the corresponding class The current Southeast and
concentrated along the Tennessee and prices. The blend prices for the Appalachian orders do not experience
Kentucky borders. Such overlap is Appalachian and Southeast order have disorderly marketing conditions as a
typical for adjoining marketing areas. differed due to the Orders’ different result of plants shifting regulation
The Federal order reform final decision class utilization of milk. The magnitude between orders. This may be attributed
addressed the issue of overlapping milk of the blend price differences is to the current lock-in and unit pooling
supply areas among adjacent orders by primarily attributed to the differences provisions contained in the
stating that ‘‘an area that supplies a between the class prices since the Appalachian and Southeast orders’
minor proportion of an adjoining area’s Appalachian marketing area is mainly pooling provisions. The lock-in
milk supply with a minor proportion of balanced by Class II and Class IV and provisions provide that a plant located
its own total milk production while the Southeast marketing area by Class II within a marketing area that meets the
handlers located in the area are engaged and Class III. The blend price difference minimum performance standards of the
in minimal competition with handlers further illustrates that the Appalachian order will be regulated by that order
located in the adjoining area likely does and Southeast milk orders have separate even if the majority of its sales occur in
not have a strong enough association and distinct market characteristics. another marketing area. Also, the unit
with the adjoining area to require For the 5-year period of 2000 to 2004, pooling provisions allow two or more
consolidation. For a number of the the annual average blend price of the plants located in the marketing area and
consolidated areas it would be very Appalachian order has been higher than operated by the same handler to qualify
difficult, if not impossible, to find a that of the Southeast order blend price. for pool status as a unit by meeting the
boundary across which significant This is in part due to the Appalachian order’s total and in-area route
quantities of milk are not procured for order having a greater percentage of disposition standards as if they were a
other marketing areas.’’ (64 FR 16045) milk utilized in Class I compared to the single distributing plant.
Accordingly, the overlap existing Southeast order over the past five years. A plant shifting regulation to an order
between the Appalachian and Southeast The range of the blend price differences with a lower blend price could
milk order marketing areas does not for the Appalachian and Southeast jeopardize the plant’s ability to maintain
warrant an order merger. orders is mainly due to differences in a milk supply. Current Appalachian and
Based on the record data, this the Class III and Class IV prices (i.e., the Southeast order provisions allow a plant
decision finds that the overlap in route ‘‘balancing’’ class of milk). When the that meets the performance standards of
sales and milk procurement areas Class III price goes up relative to the the order and is physically located
between the Appalachian and Southeast Class IV price, the blend price within the order marketing area to be
milk order marketing areas does not difference between the two orders regulated by the order even if the
support merging the two orders. narrows due to the predominance of majority of its sales are in another
Milk Utilization. During 2000 through milk utilized in Class III among the non- marketing area. The provisions were
2003, the 4-year weighted average Class Class I uses in the Southeast marketing adopted into the southeastern orders
I utilizations for the Appalachian and area. and retained in the consolidated
Southeast orders were 66.9 percent and Blend price differences between the Appalachian and Southeast orders to
63.1 percent, respectively. The level of Appalachian and Southeast orders have allow plants that are associated with the
Class I utilization is a factor considered narrowed since the orders were market and are servicing the market’s
in determining whether orders should consolidated in 2000. The differences in fluid needs to be regulated under the
be merged but does not form the basis the weighted average blend prices for order in which they are physically
for adopting a merger because it is a the two orders was $0.36 per cwt in located.
function of how much milk is pooled on 2000, $0.24 per cwt in 2001, $0.21 per If these provisions were not present in
an order. cwt in 2002, $0.09 per cwt in 2003, and the Appalachian and Southeast orders,
From 2000 through 2004, the non- $0.08 per cwt in 2004. Over the 2000 to then plants could shift regulation
Class I use of milk (Class II, Class III, 2004 period, the Appalachian order between orders because of blend price
and Class IV) of the Appalachian and blend price exceeded the Southeast differences which could cause
Southeast marketing areas have been order blend price by an average of $0.20 disorderly marketing conditions to
different. During this 5-year period, per cwt. occur. Since record data indicates that
Appalachian order Class II, Class III and A 1995 final decision that the Appalachian and Southeast orders’
Class IV utilization rates averaged 14.5 consolidated five former Southeastern blend price differences are continuing to
percent, 7.30 percent, and 10.1 percent, orders (Georgia, Alabama-West Florida, decrease and there are provisions that
respectively. For the same period, the New Orleans-Mississippi, Greater prevent plants from shifting regulation
Class II, Class III, and Class IV Louisiana, and Central Arkansas) with among orders, this decision finds that

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the blend price differences between the orders. A number of these cooperatives respectively. In 2002, five cooperative
two orders do not form a contributing are members of SMA and others associations formed SMA, which
basis for merging the two marketing cooperatives have the milk of their markets the majority of the raw milk
areas. members that is pooled on the supplied to plants regulated by the
An analysis of the record data reveals Appalachian and Southeast orders Appalachian and Southeast orders.
that the proposed order merger would marketed by SMA. The number of pool distributing
likely lower the blend price paid to The evidence indicates that plants on the Appalachian and
dairy farmers of the Appalachian milk proponent cooperatives market the Southeast orders for 1996 was 29 and
order and increase the blend price paid majority of the milk pooled on the 36, respectively. For December 2003 the
to dairy farmers of the Southeast order. Appalachian and Southeast orders. For number of pool distributing plants for
The gains to Southeast order dairy example, for December 2003, proponent the orders was 24 and 27, respectively.
farmers would be offset by losses to cooperatives marketed 62.23 percent of The plant changes that have occurred
Appalachian order dairy farmers by a the total producer milk pooled on the include ownership changes, new plant
similar magnitude. Appalachian order and 69.68 percent of openings, as well as plant closings.
If the two orders are merged and the total producer milk pooled on the Taken singularly or as a whole, the
assuming no significant depooling in Southeast order. While commonality of structural changes that have occurred
the Federal order system, it is projected cooperative associations can be from 1996 to present have had no
that for the period of 2005 through 2009 significant it is not a primary criteria significant impact on overlapping route
the blend price paid to dairy farmers of used to determine whether orders disposition and overlapping
the current Appalachian order would be should be merged. procurement patterns of the
reduced by about $0.07 per cwt on The record indicates that the Appalachian and Southeast orders.
average, while the blend price paid to proposed merger could likely provide Other order provisions. Proponent
dairy farmers of the current Southeast some administrative relief to SMA in cooperatives’ proposal to combine the
order would be increased by $0.07 per marketing the milk of their cooperative balances of the Producer Settlement
cwt on average. The $0.07 per cwt members. However, this outcome is at Funds, the Transportation Credit
decline in the current Appalachian the expense of independent dairy Balancing Funds, the Administrative
order blend price would cause average farmers who are currently associated Assessment Funds, and the Marketing
order pool receipts to decline by about with the Appalachian order. Service Funds of the Appalachian and
11 million pounds and average order Market and Structural Changes. Southeast milk orders for the proposed
pool revenues to fall by $6.6 million. Record evidence indicates that there merged order is not adopted in this
For the current Southeast order, the have been several market and structural decision. The proposal is moot since
$0.07 per cwt blend price increase changes in the Southeast and this decision does not recommend
would increase average order pool Appalachian markets since the Federal merging the two orders.
receipts by an average of 11 million Order Reform process began in 1996 and Proponent cooperatives offered order
pounds, resulting in an average gross the implementation of the consolidated provisions for inclusion in the proposed
pool revenue increase of $6.5 million orders in January 2000. These changes merged order. These recommendations
per year. include fewer and larger producers and included adopting for the proposed
Record testimony by proponent producer organizations, handler merged order provisions that currently
cooperatives indicates that SMA has, consolidations, and other plant are included in the Appalachian order
through its pooling of costs and returns, ownership changes. and/or the Southeast order. The
reduced their pay price differences to From January 2000 through December proponent cooperatives recommended
their member producers. Thus, a merger 2003, the number of dairy farmers that the proposed merged order include
of the Appalachian and Southeast pooled on the Appalachian and pool plant provisions currently in the
orders would merely increase the blend Southeast milk orders decreased. For Appalachian order, and proposed the
price for Southeast order nonmember the Southeast, the decline was 13.6 ‘‘touch-base’’ requirement of the
producers while reducing the blend percent from 4,213 to 3,658, and the producer milk provisions include a
price received by Appalachian order number of dairy farmers pooled on the ‘‘percentage’’ production standard
nonmember producers. In effect, while Appalachian order decrease by 15.6 instead of a ‘‘days’’ production
benefiting certain producers, the percent from 4,974 to 4,200. Milk standard. Since this decision does not
proposed merged order would production in the Appalachian and recommend adopting the proposal to
negatively affect certain other dairy Southeast marketing areas has decreased merge the Appalachian and Southeast
farmers. since the Federal orders were marketing areas, the recommendations
Based on this analysis, the absence of consolidated. This decrease in milk concerning order provisions for the
disorderly marketing conditions, production has caused additional proposed merged order are moot.
together with the minimal and supplemental milk to be imported into The proponent cooperatives requested
unchanged overlap between the these deficit milk production markets. that the proposed merged order contain
Appalachian and Southeast orders in The record reveals that producer transportation credit provisions
Class I sales and milk procurement area, organizations associated with the currently applicable to the Appalachian
the two orders should not be merged. Appalachian and Southeast order and Southeast milk orders, with certain
Cooperative Associations. Record marketing areas changed since the modifications. The proponent
evidence clearly demonstrates that there Federal order reform process. In 1996, cooperatives requested the
is a strong cooperative association there were 14 cooperative associations transportation credit provisions be
commonality between the Appalachian marketing the milk of their members on modified to increase the maximum rate
and Southeast order marketing areas. what is now the Appalachian order and of assessment to $0.10 per cwt, change
During December 2003, there were a nine Southeast order cooperatives. the months a producer’s milk is not
total of 14 cooperatives marketing the During December 2003, the number of allowed to be associated with the
milk of members on the Appalachian cooperative associations marketing market for such producer to be eligible
and Southeast orders and 9 of these members’ milk on the Appalachian and for transportation credits, and provide
cooperatives marketed milk on both Southeast orders was 12 and 11, the Market Administrator the authority

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29422 Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules

to adjust the 50-percent production expanded the proposed merged order to Commission and Virginia base-holder
eligibility standard. They also supported included 25 currently unregulated producers would be insignificant. The
the proposed changes for the individual counties and 14 currently unregulated witness was of the opinion that, if there
orders if their order merger proposal cities in the State of Virginia. Similarly, were any impact on Virginia base-
was not adopted. a proposal published in the notice of holders producers, it would be
Proponent cooperatives contended hearing as Proposal 4 sought the positive—reflecting the higher blend
that by adopting transportation credits expansion of the marketing area by price at Mount Crawford, Virginia, for
provisions in the Appalachian and adding an area adjoining the the plants under the proposed merged
Southeast orders the Secretary Appalachian marketing area that order versus the Northeast order.
established the inextricable and includes two unregulated cities and two The proponent cooperatives
common supply relationship between unregulated counties in State of submitted a post-hearing brief
the orders. The proponents state that the Virginia. Proposal 3, which also was supporting the expansion of the
proposed merger simply extends that supported by proponents of Proposal 4, proposed merged order area to include
recognition to provide common uniform is adopted. the additional 25 counties and 14 cities
prices and terms of trade for all dairy Proponent cooperatives of Proposal 3 in Virginia.
farmers delivering milk to the market, offered that the merger of the A witness representing the Kroger
and a common set of producer Appalachian and Southeast marketing Company (Kroger) testified in support of
qualification requirements. area be expanded to include the Virginia Proposal 4 to expand the proposed
This decision finds that the inclusion counties of Allegheny, Amherst, merged order to include two currently
of transportation credit provisions in the Augusta, Bathe, Bedford, Bland, unregulated counties (Campbell and
Appalachian and Southeast orders is not Botetourt, Campbell, Carroll, Craig, Pittsylvania), and two currently
a basis for merging the two orders. Such Floyd, Franklin, Giles, Grayson, Henry, unregulated cities (Lynchburg and
provisions were incorporated and Highland, Montgomery, Patrick, Danville) in the State of Virginia. The
established in the orders based on the Pittsylvania, Pulaski, Roanoke, witness stated that Kroger owns and
prevailing marketing conditions of each Rockbridge, Rockingham, Smyth, and operates four pool distributing plants
individual order. Also, record indicates Wythe) and Virginia cities of Bedford, associated with the Southeast and
that the orders’ transportation credit Buena Vista, Clinton Forge, Covington, Appalachian milk orders, including
balancing funds have functioned Danville, Galax, Harrisonburg, Westover Dairy located in Lynchburg,
differently since 2000 with respect to Lexington, Lynchburg, Martinsville, Virginia. The witness also testified in
the assessment rates at which handlers Radford, Roanoke, Salem and Staunton. support of adopting the current
made payments and the payments from The proponent cooperatives’ witness
Appalachian order pool plant
the orders’ transportation credit testified that the addition of the 25
definition.
balancing fund for each year since 2001. counties and the 14 cities would
The Appalachian order waived the properly change the regulatory status of According to the Kroger witness, the
collection of assessments at least two a Dean Foods’ Morningstar Foods plant Appalachian order pool distributing
months of each year from 2001 through located at Mount Crawford, Virginia, plant provisions require that at least 25
2003. The Southeast order, while from the Northeast order to the percent of a plant’s total route
collecting assessments at the maximum Appalachian order. Also, the witness disposition must be to outlets within the
rate of $0.07 per cwt, has prorated stated the proposed expansion would marketing area. This requirement,
payments from the fund each year since have the effect of fully and continuously explained the witness, has restricted
2001. regulating under the Appalachian order Kroger’s ability to expand its Class I
As discussed later in this decision, two fluid milk distributing plants (the sales into areas outside the Appalachian
proposed amendments to the Kroger Company’s Westover Dairy marketing area, including the area
transportation credit provision of the plant, located in Lynchburg, Virginia, directly associated with the plant’s
Appalachian and Southeast orders are and the National Dairy Holdings’ Valley physical location (Lynchburg, Virginia).
recommended for adoption. The Rich Dairy plant, located in Roanoke, The Kroger witness noted that
proposed amendments are warranted Virginia) under the proposed merged Westover Dairy has been a fully
due to the declining milk production order. regulated plant on the Appalachian
within the Appalachian and Southeast The witness said the Dean Foods order since January 2000, and prior to
marketing areas and the anticipated Company’s Mount Crawford plant reform, the plant was regulated on the
growing need of importing milk alternates between partially regulated Carolina order—one of the former orders
produced outside the marketing areas to and fully regulated status under the combined to form the Appalachian
supply the fluid needs of the markets. Northeast milk order. According to the order. According to the Kroger witness,
witness, in order for the plant to procure the total in-area route disposition
1b. Expansion of the Appalachian an adequate supply of milk, producers standard increased from 15 percent to
Marketing Area delivering to it must receive a blend 25 percent when the consolidated and
While the proposal for merging the price comparable with the blend price reformed Appalachian order became
Appalachian and Southeast milk generated under the proposed merged effective in January 2000. This change,
marketing area is not recommended for order, if adopted. the witness contended, has created an
adoption, this decision recommends The proponent cooperatives’ witness undue hardship on Westover Dairy and
expanding the current boundaries of the stated that the milk supply located near has force it to relinquish sales in areas
Appalachian milk marketing area to Dean Foods’ Mount Crawford, Virginia, outside of the Appalachian market to
include certain unregulated counties plant is an attractive source of supply maintain its pool status under the order.
and cities in the State of Virginia. for plants that are fully regulated by the The witness concluded by stating that
Expansion of the marketing area Appalachian order that are located in Kroger prefers Proposal 3—the larger
adjoining the Appalachian marketing southern Virginia, North Carolina, expansion—which would not only
area was contained in the proposal South Carolina, and eastern Tennessee. expand the order area to include their
published in the hearing notice as The witness indicated that the impact of plant located at Lynchburg, Virginia, but
Proposal 3. The proposal would have this proposal on the Virginia State Milk would allow a further expansion of

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Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules 29423

Class I sales into other surrounding Crawford, Virginia, from the Northeast transportation assessment rates will
areas. order to the Appalachian order. tend to minimize the exhaustion of the
The witnesses for MD&VA, ADC, The Kroger’s Westover Dairy plant has transportation credit balancing fund
Lone Star, and DMC testified in support been regulated by the Appalachian when the need for importing
of Proposal 3 to expand the proposed order since the order was consolidated supplemental bulk milk from outside of
Southeast milk order area to include in January 2000. Current Appalachian the marketing areas to meet Class I
certain unregulated counties and cities order pool plant provisions require that needs occurs. Additionally, the Market
in the State of Virginia as proposed by at least 25 percent of a distributing Administrators of the orders should be
the proponent cooperatives. The plant’s total Class I sales be to outlets given the discretionary authority to
witnesses stated that the cooperatives within the marketing area. Prior to the increase or decrease the 50 percent
were not opposed to the expansion of reform of Federal milk orders, the production standard for determining the
the proposed Southeast milk marketing former orders that were combined into milk of a dairy farmer that is eligible for
area into the smaller territory in the the Appalachian order contained a 15 transportation credits. Such dairy
State of Virginia as proposed by Kroger percent in-area route disposition farmer should not have been a producer
but stated the larger expanded area in standard for pool distributing plants. under the order during more than two
Proposal 3 was preferable. Record evidence indicates that the of the immediately preceding months of
The MD&VA witness explained that current in-area Class I route sales February through May for the milk of
some of the its member producers are standard likely is limiting the growth the dairy farmer to be eligible for receipt
located in the proposed expanded area potential of Kroger’s Westover Dairy of a transportation credit.
and that the cooperative delivers the plant, located in Lynchburg, Virginia. It The Appalachian and Southeast
milk of producers holding Virginia Milk is not the intent of Federal milk orders orders each contain a transportation
Commission base to plants fully to inhibit the growth of handlers. credit balancing fund from which a
regulated under the Appalachian milk Federal orders are designed to provide payment is made to partially offset the
for the orderly exchange of milk from cost of moving milk into each marketing
order. According to the witness, the
the dairy farmer to the first buyer area to meet fluid milk demands. The
milk of MD&VA member producers is
(handler). The orders also provide fund is the mechanism through which
marketed to Dean Foods’ Morningstar
minimum performance standards to handlers deposit on a monthly basis
Foods plant located in Mount Crawford,
ensure that the fluid needs of the market payment at specified rates for eventual
Virginia, which would become a pool
are satisfied. Accordingly, the adoption payout as defined by a specified
distributing plant if the proposed
of the expansion proposal should ensure formula. The orders’ transportation
merged order and the expansion to
that Kroger’s Westover Dairy plant is credit provisions provide payments
Virginia counties and cities are adopted.
able to maintain a milk supply in typically during the short production
Witness appearing on behalf of Dean competition with nearby Appalachian months of July through December to
Foods and Prairie Farms stated they order plants. handlers who incur hauling costs
were not opposed to Proposals 3 and 4. In the case of Dean Foods’ importing supplemental milk to meet
Thus, there was no opposition to the Morningstar Foods plant in Mount the fluid demands of the market.
adoption of these proposals. Crawford, Virginia, the proposed Transportation credit payments are
This decision recommends adopting amendments would eliminate the restricted to bulk milk received from
proposed amendments to the current disruption and disorder caused plants regulated by other Federal orders
Appalachian order that would expand by the plant shifting its regulatory status or shipped directly from farms of dairy
the marketing area to include 25 from fully to partially regulated under farmers located outside the marketing
currently unregulated counties and 14 the Northeast order. Such shifting from areas and who are not regularly
cities in the State of Virginia. The fully to partially regulated status under associated with the market. The handler
proposed amendments would cause the an order may cause financial harm to payments into the funds are applicable
full and continuous regulation under producers supplying that plant. to the Class I milk of producers who
the Appalachian order of three fluid The record indicates that the Kroger’s supply the market throughout the year.
milk distributing plants, one of which Westover Dairy plant and Dean Foods’ The Market Administrators of the orders
has been shifting regulatory status under Morningstar plant are supplied by are authorized to adjust payments to
the Northeast order. The plants are producers located near the plants and and from the relevant transportation
located in Lynchburg, Virginia, that the plants compete with other credit balancing fund.
Roanoke, Virginia, and Mount, Appalachian order plants in milk The transportation credit provisions
Crawford, Virginia. Because of procurement. This decision finds that of the Appalachian and Southeast
Appalachian order’s lock-in provision, orderly market conditions would be orders differ by the assessment rate at
these plants, which would be physically preserved by the adoption of the which handlers make payments to the
located within the Appalachian proposed expansion amendments. The transportation credit balancing fund.
marketing area, would continue to be regulation of no other plants should be The maximum rate of assessment for the
regulated under the Appalachian order affected by the adoption of these Appalachian order is $0.06 per cwt
even if the majority of their sales are in proposed amendments. In addition, the while the maximum rate of assessment
another Federal order marketing area. proposed expansion of the Appalachian for the Southeast order is $0.07 per cwt.
The proposed expansion would marketing area is not expected to have A feature of the proposal for merging
continue the regulation of two fluid a negative impact on the blend price the Appalachian and Southeast orders
milk distributing plants (Kroger’s paid to producers. was providing for a maximum
Westover Dairy plant, Lynchburg, transportation assessment rate of 10-
Virginia, and National Dairy Holdings’ 1c. Transportation Credits Provisions cents for the proposed Southeast order.
Valley Rich Dairy plant, Roanoke, The maximum rates of the This would essentially represent a 3-
Virginia) under the Appalachian order. transportation credit assessment for the cent per cwt increase from the current
The proposed expansion also would Appalachian and Southeast orders Southeast order, and a 3.5-cent increase
shift the regulation of the Dean Foods’ should each be increased by 3-cents per from the Appalachian order. While
Morningstar Foods plant, Mount hundredweight. Increasing the there was no separate proposal for

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29424 Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules

increasing the assessment rate for the In their brief, Dean Foods and Prairie Southeast orders, the maximum
transportation credit fund, it was made Farms stated there is no reason to assessment rate at which payments are
clear by the proponents that in the increase the rate of assessment. collected was not modified. The current
absence of adopting the proposed Changing the rate of assessment, they maximum rate of $0.065 cents per cwt
merger an increase in the transportation contended, would effectively change the for the Appalachian order has been
credit assessment rate was warranted system of pricing without considering sufficient to meet most of the claims
and supported for the current orders. the impact on other marketing orders. made by handlers applying for
With regard to the transportation In opposition to any change in the transportation credit. The record reveals
credit issue, the proponent cooperatives’ rate of transportation credits, a witness that since implementation of milk order
witness testified that the maximum for Georgia Milk Producers, Inc. (GMP), reform in January 2000, the market
transportation credit assessment rate testified that increasing the assessment administrator for the Appalachian order
should be increased to $0.10 per cwt. rate would generate more revenue to be waived assessing handlers in at least
According to the witness, the increase is paid to truck drivers instead of paying two months of each year from 2001
necessary to eliminate insufficient higher prices to local dairy farmers. through 2003.
funding for transportation credit claims According to the witness, the price of For the current Southeast order, the
that would likely have been paid had milk paid to local dairy farmers should current maximum transportation credit
sufficient funds been available. be increased rather than subsidizing rate of $0.07 per cwt has not been
According to the witness, that the additional outlays for transportation sufficient to cover hauling cost claims
transportation credit rate of $0.07 per costs. by handlers. As a result, the market
cwt for the current Southeast order has The GMP witness suggested that administrator of the Southeast order has
been at the maximum rate since the instead of increasing the transportation prorated payments from the
inception of the order, but that credit assessment rate, a financial transportation credit balancing fund
payments from the transportation credit incentive should be initiated for dairy since 2001.
balancing fund were exhausted in 2001, farmers to encourage milk production Even though this decision does not
2002, and 2003 resulting in a prorating during the fall months when fluid milk recommend the merging of the current
of dollars from the transportation credit demands are highest. According to the Southeast and Appalachian marketing
balancing fund to the amount of witness, if the incentive plan still does area, the fundamental purposed of the
transportation claims submitted for not cover the local milk production transportation credit fund provisions of
receipt of the credit. In contrast, the deficits, only then should the the orders are strongly supported by the
witness noted, the transportation credit assessment rate for transportation proponent cooperatives. This support is
fund for the Appalachian order has been credits be increased. The witness was of independent of providing for a new and
sufficiently funded since 2000 thus the opinion that an incentive plan larger Southeast milk marketing order.
enabling the payment of all claims. encouraging local milk production An increase in the maximum
The proponent cooperatives’ witness would reduce hauling costs because less transportation credit assessment rate for
was of the opinion that the exhaustion milk would be imported into the the Appalachian and Southeast orders is
of transportation credit funding in the Southeast market. The witness also was warranted on the basis of declining milk
Southeast order resulted in inequitable of the opinion that a financial incentive production within the Appalachian and
supplemental milk costs to handlers plan would lower balancing costs by Southeast marketing areas. For example,
between the two orders. The witness encouraging the movement of milk the final decision of Federal milk order
testified that handlers procuring supplies located near processing plants. reform anticipated that the about two-
supplemental milk supplies for the Current Appalachian and Southeast thirds of the milk supply for the
Appalachian order were reimbursed at order transportation credit provisions Appalachian order would be produced
100 percent of their claimed credits have been a feature of the orders, or within the marketing areas, with
while handlers procuring supplemental predecessor orders, since 1996. The supplemental milk supplies from
milk supplies for the Southeast order need for transportation credits arose unregulated area to the north in Virginia
were reimbursed at approximately 50 from the consistent need to import milk and Pennsylvania (based on 1997 data).
percent of their claimed credits. from many areas outside of these Since implementation of order reform in
According to the witness, the unequal marketing areas during certain months January 2000, record evidence reveals
payout between the two orders results of the year when milk production in the that only 50 percent of the Appalachian
in disorderly marketing conditions areas is not sufficient to meet Class I milk supply is produced within the
exhibited by inequitable costs for demands. The transportation credit marketing area. The trend of lower in-
producer milk among handlers. provisions provide payments to area milk production strongly suggests
Dean Foods and Prairie Farms voiced handlers to cover some of the costs of that the anticipated future needs of
opposition to the proponents’ proposed importing supplemental milk supplies relying on milk supplies from outside
amendments to increase the maximum into the Appalachian and Southeast the marketing area will only grow and
rate of assessments and increase the marketing areas need during the short that such growth necessarily warrants
amount of milk that would be eligible production months of July through an increase in the Appalachian
for transportation credits. Dean Foods December. The provisions also are transportation credit assessment rate.
and Prairie Farms pointed out that the designed to limit the ability of The Southeast marketing area exhibits
proposals to incorporate transportation producers who are not normally pooled the same trend.
credit provisions into the Southeastern on these orders from pooling their milk To the extent that assessments are not
orders were strongly opposed by some on the Appalachian and Southeast needed to meet expected transportation
fluid milk processors and some dairy orders during the flush production credit claims, provisions that provide
farmers. They noted that the intent and months when such milk is not needed authority to the market administrator to
purpose of transportation credit to supply fluid needs. set the assessment rate at a level deemed
provisions was to only pay a portion of While Federal milk order reform sufficient or to waive assessments
the cost associated with hauling made modifications to certain features should be allowed. Additionally, the
supplemental milk to the markets to of the transportation credit fund transportation credit provisions of the
meet fluid needs. provisions of the Appalachian and Appalachian and Southeast orders

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prevent the accumulation of funds and April, the definition of credit balancing fund in each proposed
beyond actual handler claims. In this supplemental milk under the new marketing area by more efficiently
regard, increasing the transportation transportation credit provisions would attracting milk to the Class I market and
credit rate will not result in an effectively change. Supplemental milk decreasing the need for hauling milk
unwarranted accumulation of funds for purposes of determining the from longer distances.
beyond what is needed to pay handler eligibility of transportation credits is The Dean Foods-Prairie Farms
claims. that milk that is not regularly associated witness testified that there are two
As part of the proposed merged with the market. The proposed change major incentives to ship milk to
marketing areas and orders, the would allow supplemental milk to be distributing plants—the blend price
proponent cooperatives’ witness delivered to a pool plant all twelve paid by pool distributing plants and the
proposed that any producer that is months, potentially lowering the blend price paid for diverted milk.
located outside of the marketing area, uniform price during those high According to the witness, there are two
would be eligible for transportation production months by pooling disincentives to ship milk to a pool
credits if that producer did not pool additional milk when is not needed for distributing plant under any order—the
more than 50 percent of the producers fluid use. net transportation cost of shipping milk
farm milk production during the months By retaining the months of February and the alternative blend prices in other
of March and April. The witness through May and allowing the Market markets that may attract milk to plants
testified that the market administrator Administrators of the Appalachian and in those other markets. The witnesses
should also be given the discretionary Southeast orders to adjust the 50 cited milk deficit areas in southern
authority to adjust the 50 percent limit percent production standard, the Illinois and St. Louis, Missouri, as
based on the prevailing supply and current definition of supplemental milk examples of areas where, in the opinion
demand conditions for milk in the area. remains intact. The orders’ market of the witnesses, blend price differences
The current transportation credit administrator would be allowed to result in a failure to attract enough milk
provisions of the Appalachian and increase or decrease the 50 percent to adequately serve the Class I market.
Southeast orders specify that production standard, if warranted, The witness asserted that the
transportation credits will apply to the based on current marketing conditions. establishment of a Mississippi Valley
milk of a dairy farmer who was not a
2. Promulgation of a New ‘‘Mississippi order would likely result in blend price
‘‘producer’’ under the order during more
Valley’’ Milk Order differences between the new areas
than 2 of the immediately preceding
A proposal, published in the hearing which would provide producers the
months of February through May, and
notice as Proposal 5, seeking to split economic incentives of receiving higher
not more than 50 percent of the
from the current Southeast marketing blend prices while incurring lower
production of the dairy farmer during
area and forming a new Mississippi transportation costs.
those two months, in aggregate, was
received as producer milk under the Valley milk marketing area and order is The Dean Foods-Prairie Farms
orders during those two months. These not recommended for adoption. witness testified that a national hearing
provisions provide the basis for A witness appearing on behalf of may be justified to more fully consider
determining the milk of a dairy farmer Dean Foods and Prairie Farms testified the border, pricing, and milk deficit
that is truly supplemental to the in support of Proposal 5. In splitting the issues and alternatives to proposals (like
market’s fluid needs. The provision current Southeast marketing area, a new Proposals 1 and 5) advanced to merge or
specifies the months of February marketing area, to be named the to split the Southeast marketing area.
through May—the period when milk Mississippi Valley order, would include According to the witness, when
production is greatest—as the months the area of the existing Southeast marketing area borders are changed,
used to determine the eligibility of a marketing area west of the Alabama- such change affects all marketing areas
producer whose milk is needed on the Mississippi borderline including the in the Federal order milk order system.
market. States of Mississippi, Louisiana, The witness was of the opinion that
The market administrators of the Arkansas. According to the witness, this considering border issues would
orders should be given discretional new marketing area would extend necessarily require a broad rethinking of
authority to adjust the 50 percent northward through the relevant portions the marketing areas of the entire Federal
eligibility standard for producer milk of Tennessee and Kentucky, and would order program and that a national
receiving transportation credits based include southern Missouri. The second hearing may be the most appropriate
on the prevailing marketing conditions order, according to the witness, would venue to consider these affects.
within the marketing area. The market consist of the remainder of the current A witness for GMP testified that the
administrator should have the authority Southeast marketing area, i.e., Georgia, expansions of the Southeast marketing
to increase or decrease this requirement a portion of the western panhandle of area prior to Federal milk order reform,
because it is consistent with authorities Florida, and Alabama. and as a result of Federal order reform,
already provided for supply plant The Dean Foods-Prairie Farms have successively reduced income to
performance standards and diversion witness, and others supporting the Georgia producers. The witness
limit standards. Accordingly, the adoption of Proposal 5, asserted that explained that the expansions of the
proposed change to the transportation increasing the number of Federal milk marketing area have discouraged local
credit provisions of the Appalachian marketing areas and orders would milk production and encouraged
and Southeast orders is recommended provide the economic incentives for movements of milk from outside the
for adoption. more efficient movement of milk and marketing area. According to the
This decision does not recommend increase the blend price received by witness, the declining ability of local
changing the period the milk of a dairy producers who supply the needs of the production to meet the Class I needs of
farmer is not allowed to be associated Class I market. According to the the market, and the increased balancing
with the market for such dairy farmer’s witnesses, splitting the Southeast order requirements of an expanded marketing
milk to be eligible for transportation into two orders would reduce area, have increased costs while
credits. If the months were modified transportation costs and improve the reducing revenues to Georgia dairy
from February through May to March efficient operation of the transportation farmers.

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In the opinion of the GMP witness, including the Kentucky counties of inadvertently created during the
the establishment of a separate Ballard, Calloway, Carlisle, Fulton, consolidation of Federal orders
Mississippi Valley marketing area and Graves, Hickman, Marshall, and permitting double pooling of the same
order and a smaller Southeast marketing McCracken into the smaller Southeast milk on a Federal milk marketing order
area would have positive benefits for order if Proposal 5 is adopted. and on a State-operated order that, like
Georgia milk producers. The witness The proposal to split the current a Federal order, provides for the
explained that as a smaller Southeast Southeast marketing area hinges on the marketwide pooling of producer milk.
marketing area, the Georgia market assertions that geographically smaller (The double pooling of milk has become
would likely experience lower marketing areas tend to reduce known as ‘‘double dipping’’)
balancing costs and expanded local transportation and balancing costs and According to the Dean Food-Prairie
production to meet the growing Class I increase blend prices for pooled Farms’ witnesses, this loophole has
needs of the market. producers in each of the newly defined been exploited for financial gain by
A witness for proponents of Proposal marketing areas. The record does not some parties at the expense of pooled
1 testified in opposition to adopting a contain specific evidence to support producers in other Federal orders until
new Mississippi Valley marketing area these conclusions. The record lacks prohibited by subsequent milk order
by splitting it from the current evidence to support concluding that the amendments. The proponents testified
Southeast marketing area. According to adoption of Proposal 5 would lower that proposals similar to Proposal 6
the witness, the proposed new transportation costs, increase local milk have been adopted in the Upper
marketing area would not lead to lower production, and reduce balancing costs. Midwest, Pacific Northwest, and Central
transportation costs but instead may The same is true for concluding that Federal milk orders.
lead to increased administrative local milk production would be Proponents testified that prohibition
difficulties with transportation credit encouraged and increased to the extent of double dipping in the Southeast and
balancing funds. The witness was of the that transportation expenses, and the Appalachian orders would close a
opinion that blend price enhancement need for continued transportation credit potential loophole in these orders or in
for the proposed smaller Southeast fund payments, would be significantly a successor order if these orders were
marketing area would be achieved at the reduced while bringing forth a sufficient merged. The witnesses testified that the
expense of producers pooled on the supply of milk to meet the Class I needs pooling of milk regulated by Virginia
proposed new Mississippi Valley order. of the proposed marketing areas. and Pennsylvania milk programs would
The opposition witness was of the Opponents of Proposal 5 argued that not be affected by the prohibition of
opinion that blend prices for the blend price increases from splitting the double pooling. According to the
proposed smaller Southeast marketing Southeast marketing area may not occur witnesses, milk that is pooled on these
area may increase to levels that would and that lower transportation cost may State milk programs does not receive
exacerbate differences between the not be realized. However, the record extraordinary benefits that would have
blend prices of the new smaller does not contain information necessary an impact on Federal milk order pools.
Southeast and the Appalachian order for determining if either the positions of No opposition testimony was presented.
and may give rise to unintended market the proponents or opponents of Since the 1960’s the Federal milk
disruptions. The witness was of the Proposal 5 are valid. order program has recognized the harm
opinion that a smaller Southeast This decision does not recommend and disorder that resulted to both
marketing area and order also may the adoption of Proposal 5. The record producers and handlers when the same
result in administrative difficulties in is insufficiently persuasive in milk of a producer was simultaneously
the operation of transportation credit demonstrating the efficiencies in milk pooled on more than one Federal order.
balancing funds among the three orders movements for handlers as advanced by When this occurs, producers do not
and may lead to the inefficient its proponents. receive uniform minimum prices, and
movements of milk. The witness some handlers receive unfair
3. Eliminating the Simultaneous Pooling competitive advantages. The need to
expressed the opinion that splitting the
of the Same Milk on a Federal Milk prevent ‘‘double pooling’’ became
Southeast marketing area would not
address the concerns that proponents of Order and a State-operated Milk Order critically important as distribution areas
Proposal 1 have raised regarding that Provides for Marketwide Pooling expanded, orders merged, and a
overlapping sales and inefficient milk A proposal, published in the hearing national pricing system was adopted.
movement issues between the notice as Proposal 6, seeking to prohibit Milk already pooled under a State-
Appalachian and Southeast marketing the simultaneous pooling of the same operated program and able to
areas. The witness indicated that these milk on the Appalachian or Southeast simultaneously be pooled under a
issues would remain unresolved if the milk marketing orders and on a State- Federal order creates the same
Southeast marketing area was split and operated order that provides for the undesirable outcomes that allowing
if the Southeast and Appalachian marketwide pooling of milk is milk to be pooled on two Federal orders
marketing areas were not merged. recommended for adoption. Currently, used to cause and subsequently
A post hearing brief by the neither the Appalachian or Southeast corrected.
proponents of Proposal 5 reiterated their orders have a provision that would There are other State-operated milk
position that creating more, rather than prevent the simultaneous pooling of the order programs that provide for
fewer, blend price differences will same milk on the order and on a State- marketwide pooling. For example, New
provide incentives to ship milk to operated order that provides for York operates a milk order program for
markets where the milk is demanded. In marketwide pooling. the western region of that State. A key
addition, the brief reiterated that The proponents of Proposal 6, Deans feature explaining why this State-
splitting the Southeast marketing area Foods and Prairie Farms testified that operated program has operated for years
will reduce transportation costs and the simultaneous pooling of milk on alongside the Federal milk order
result in more efficient movement of more than one marketing order was program is the provision in the State
milk in a smaller Southeast marketing prohibited between all Federal milk pool that excludes milk from the State
area and a Mississippi Valley marketing orders. According to the Dean Food- pool when the same milk is already
area. The brief also called for the Prairie Farms’ witnesses, a loophole was pooled under a Federal order. Other

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Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules 29427

States with marketwide pooling conclusions set forth above. To the For the reasons set forth in the
similarly do not allow double-pooling of extent that the suggested findings and preamble 7 CFR Parts 1005 and 1007 are
Federal order milk. conclusions filed by interested parties amended as follows:
The record supports that the are inconsistent with the findings and
Appalachian, Southeast, and possible conclusions set forth herein, the PART 1005—MILK IN THE
successor orders should be amended to requests to make such findings or reach APPALACHIAN MARKETING AREA
preclude the ability to simultaneously such conclusions are denied for the
pool the same milk on the order if the reasons previously stated in this 1. The authority citation for 7 CFR
milk is already pooled on a State- decision. part 1005 continues to read as follows:
operated order that provides for Authority: 7 U.S.C. 601–674.
marketwide pooling. Proposal 6 offers a General Findings
2. Section 1005.2 is amended by
reasonable solution for prohibiting the The findings and determinations revising the Virginia counties and cities
same milk to draw pool funds from hereinafter set forth supplement those to read as follows:
Federal and State marketwide pools that were made when the Appalachian
simultaneously. It is consistent with the and Southeast orders were first issued § 1005.2 Appalachian marketing area.
current prohibition against allowing the and when they were amended. The * * * * *
same milk to participate simultaneously previous findings and determinations
are hereby ratified and confirmed, Virginia Counties and Cities
in more than one Federal order pool.
Adoption of Proposal 6 will not except where they may conflict with Alleghany, Amherst, Augusta, Bath,
establish any barrier to the pooling of those set forth herein. Bedford, Bland, Botetourt, Buchanan,
milk from any source that actually (a) The tentative marketing Campbell, Carroll, Craig, Dickenson,
demonstrates performance in supplying agreements and the orders, as hereby Floyd, Franklin, Giles, Grayson, Henry,
the Appalachian and Southeast markets’ proposed to be amended, and all of the Highland, Lee, Montgomery, Patrick,
Class I needs. terms and conditions thereof, will tend Pittsylvania, Pulaski, Roanoke,
Evidence presented at the hearing to effectuate the declared policy of the Rockbridge, Rockingham, Russell, Scott,
establishes that milk that can be pooled Act; Smyth, Tazewell, Washington, Wise,
simultaneously on a State-operated (b) The parity prices of milk as and Wythe; and the cities of Bedford,
order and a Federal order, would render determined pursuant to section 2 of the Bristol, Buena Vista, Clifton Forge,
the Appalachian and Southeast milk Act are not reasonable in view of the Covington, Danville, Galax,
orders unable to establish prices that are price of feeds, available supplies of Harrisonburg, Lexington, Lynchburg,
uniform to producers and to handlers. feeds, and other economic conditions Martinsville, Norton, Radford, Roanoke,
This shortcoming of the pooling which affect market supply and demand Salem, Staunton, and Waynesboro.
provisions allows milk which was for milk in the marketing areas, and the
minimum prices specified in the * * * * *
pooled on a state order to be pooled
milk on a Federal order. Such milk tentative marketing agreements and the 3. Section 1005.13 is amended by
therefore could not provide a reasonable orders, as hereby proposed to be revising the introductory text and
or consistent service to meet the needs amended, are such prices as will reflect adding a new paragraph (e), to read as
of the Class I market because it was the aforesaid factors, insure a sufficient follows:
committed to the State order. quantity of pure and wholesome milk,
§ 1005.13 Producer milk.
No record evidence was presented and be in the public interest; and
illustrating or documenting current (c) The tentative marketing Except as provided for in paragraph
double pooling of milk in the agreements and the orders, as hereby (e) of this section, Producer milk means
Appalachian and Southeast orders. proposed to be amended, will regulate the skim milk (of the skim equivalent of
Consequently, it is determined that the handling of milk in the same components of skim milk) and butterfat
emergency marketing conditions do not manner as, and will be applicable only contained in milk of a producer that is:
exist and the adoption of Proposal 6 to persons in the respective classes of * * * * *
should be included as part of the industrial and commercial activity (e) Producer milk shall not include
issuance of a recommended decision. specified in, marketing agreements upon milk of a producer that is subject to
which a hearing has been held. inclusion and participation in a
4. Producer-Handler Provisions
Recommended Marketing Agreements marketwide equalization pool under a
A decision considered at the hearing milk classification and pricing program
and Order Amending the Orders
regarding the regulatory status of imposed under the authority of a State
producer-handlers will be addressed in The recommended marketing
agreements are not included in this government maintaining marketwide
a separate decision. pooling of returns.
decision because the regulatory
Conforming Change provisions thereof would be the same as * * * * *
This decision recommends amending those contained in the orders, as hereby § 1005.81 [Amended]
the Appalachian and Southeast orders proposed to be amended. The following
to appropriately reference the Deputy order amending the orders, as amended, 4. In § 1005.81(a), remove ‘‘$0.065’’
Administrator of Dairy Programs. regulating the handling of milk in the and add, in its place, ‘‘$0.095’’.
Appalachian and Southeast marketing § 1005.82 [Amended]
Rulings on Proposed Findings and
areas is recommended as the detailed
Conclusions 5. In § 1005.82, paragraph (b) is
and appropriate means by which the
Briefs and proposed findings and foregoing conclusions may be carried revised by removing the words
conclusions were filed on behalf of out. ‘‘Director of the Dairy Division’’ and
certain interested parties. These briefs, adding, in their place, the words
proposed findings and conclusions, and List of Subjects in 7 CFR Part 1005 and ‘‘Deputy Administrator of Dairy
the evidence in the record were 1007 Programs’’ and adding a new paragraph
considered in making the findings and Milk marketing orders. (c)(2)(iv) to read as follows:

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29428 Federal Register / Vol. 70, No. 97 / Friday, May 20, 2005 / Proposed Rules

§ 1005.82 Payments from the adding a new paragraph (e), to read as (c) * * *
transportation credit balancing fund. follows: (2) * * *
* * * * *
§ 1007.13 Producer milk. (iv) The market administrator may
(c) * * * Except as provided for in paragraph increase or decrease the milk
(2) * * * (e) of this section, Producer milk means production standard specified in
(iv) The market administrator may the skim milk (of the skim equivalent of paragraph (c)(2)(ii) of this section if the
increase or decrease the milk components of skim milk) and butterfat market administrator finds that such
production standard specified in contained in milk of a producer that is: revision is necessary to assure orderly
paragraph (c)(2)(ii) of this section if the * * * * * marketing and efficient handling of milk
market administrator finds that such (e) Producer milk shall not include in the marketing area. Before making
revision is necessary to assure orderly milk of a producer that is subject to such a finding, the market administrator
marketing and efficient handling of milk inclusion and participation in a shall investigate the need for the
in the marketing area. Before making marketwide equalization pool under a revision either on the market
such a finding, the market administrator milk classification and pricing program administrator’s own initiative or at the
shall investigate the need for the imposed under the authority of a State request of interested persons. If the
revision either on the market government maintaining marketwide
investigation shows that a revision
administrator’s own initiative or at the pooling of returns.
might be appropriate, the market
request of interested persons. If the * * * * * administrator shall issue a notice stating
investigation shows that a revision that the revision is being considered and
§ 1007.81 [Amended]
might be appropriate, the market inviting written data, views, and
administrator shall issue a notice stating 7. In § 1007.81(a), remove ‘‘$0.07’’ and
add, in its place, ‘‘$0.10’’. arguments. Any decision to revise an
that the revision is being considered and applicable percentage must be issued in
inviting written data, views, and § 1007.82 [Amended] writing at least one day before the
arguments. Any decision to revise an 8. In § 1007.82, paragraph (b) is effective date.
applicable percentage must be issued in revised by removing the words
writing at least one day before the * * * * *
‘‘Director of the Dairy Division’’ and
effective date. adding, in their place, the words Dated: May 13, 2005.
* * * * * ‘‘Deputy Administrator of Dairy Kenneth C. Clayton,
Programs’’ and adding a new paragraph Acting Administrator, Agricultural Marketing
PART 1007—MILK IN THE SOUTHEAST (c)(2)(iv) to read as follows: Service.
MARKETING AREA
§ 1007.82 Payments from the [FR Doc. 05–9962 Filed 5–19–05; 8:45 am]
6. Section 1007.13 is amended by transportation credit balancing fund. BILLING CODE 3410–02–P
revising the introductory text and * * * * *

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