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/ 1998
/ January
/ Friday, January 30, 1998
[Federal Register: January 30, 1998 (Volume 63, Number 20)]
[Proposed Rules]
[Page 4951-5000]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja98-32]
[[pp. 4951-5000]] Milk in the New England and Other Marketing Areas; Proposed Rule
and Opportunity To File Comments, Including Written Exceptions, on
Proposed Amendments to Marketing Agreements and Orders
[[Continued from page 4950]]
[[Page 4951]]
enough is establishing a Class I differential structure and indeed may
have resulted in harm to producers located in northern and western New
York. Prior to the 1991 final rule, the price difference between the
New York base zone and New York City was 59 cents. The 1991 final rule
increased this to 72 cents, but in doing so, the differential at the
base zone was lowered by 13 cents. This resulted in a lowering of blend
prices to producers in the far reaches of the milkshed. This
observation may provide the basis for further examination of the Class
I differential structure presented under Option 1A. Specifically, a 5-
cent increase in the New York Class I differential and a similar
increase in the Class I differential at Philadelphia, together with
appropriate location adjustments between these pricing points, may
accomplish what a producer price differential schedule does not seem to
accomplish at its current state of development.
A submission from New York State Dairy Foods, Inc., (NYSDF) a trade
association representing dairy product manufacturers and retailers
voiced the need for raising the New York City Class I differential.
NYSDF proposed an 8-cent per cwt. increase to reflect the reality of
higher hauling rates. If this proposal is accepted, this would raise
the Class I differential in New York City from the current $3.14 to
$3.22. According to NYSDF, the 8-cent increase may not be sufficient
depending on the length of time needed to implement milk order reforms.
NYSDF also commented on their support for retaining farm-point pricing,
but offered no compelling arguments for doing so.
Marketwide Service Payments
Cooperative Service Payments. The Secretary proposes that
cooperative service payments as part of a marketwide service payment
provision for the consolidated Northeast order should not be included
in a consolidated Northeast order. As proposed by ADCNE a 2-cent per
cwt. payment would be made out of the marketwide pool to cooperatives
and non-cooperative entities for funding ``information and policy
services'' that would be of marketwide benefit. Cooperative service
payments of this sort currently are provided for under terms of the New
York-New Jersey order, but are not provided for in either the New
England or Middle Atlantic orders. However, under the New York-New
Jersey order, cooperative service payments are made only to qualified
cooperatives that meet the conditions specified under the order and
does not provide for such payments to non-cooperative entities.
Rationale offered in support for a cooperative service type payment
to cooperatives and non-cooperative entities were based on recognizing
that in a regulatory pool structure, private parties provide important
services that are of benefit to everyone involved in the marketwide
pool, including the promulgation, amendments to, and administration of
the order. Not to provide a mechanism for the recovery of a portion of
the expense involved in providing such services would disadvantage
those incurring these expenses while everyone in the market benefits as
a result of these services.
Qualification criteria presented for entities eligible to receive
this payment included a demonstration to the market administrator that
it provides information with respect to market order prices and
marketing conditions, that it has retained legal and economic staff or
consulting personnel available to participate in marketing order
amendatory proceedings, to consult with the market administrator with
respect to marketing order issues, and that the entity pool at least
2.5 percent of the order's total milk volume.
As presently presented there is not a compelling reason to adopt
this sort of compensatory plan to reimburse those entities that incur
these costs. Market administrators and their staffs make themselves
available to meet with, discuss, and aid in formulating positions that
are reflective of the need of the marketing area as a normal part of
their duties. Additionally, there are numerous provisions in the order
that require as a matter of course, the issuance of reports, prices,
and other information that affect all marketing order participants and
to provide service to the entities affected by the regulatory plan of
the order. Finally, no other current or recommended consolidated order
recommends providing for such cost compensation. Cooperative and
proprietary handlers in the New England and Middle Atlantic marketing
areas included in the consolidated Northeast order, as well as entities
in all other marketing areas have not experienced or have demonstrated
any of the harm or ``disadvantage'' that arises, or may arise, if such
costs are not shared by the entire pool of producers in the marketing
area. This proposed rule can only assume that industry participants
that have an interest in developing the promulgation and amendments to
marketing orders would be willing to do so at their own expense. The
positions and arguments offered are largely issues of the self-interest
of entities. As such, self-interest may or may not be of marketwide
benefit.
Balancing Payments. The Secretary proposes that a marketwide
service payment plan offered for inclusion in the consolidated
Northeast order includes a 4-cent per cwt. marketwide service payment
to qualified handlers that perform market balancing from the marketwide
pool should not be included in the consolidated Northeast order.
The proposal for balancing payments from the marketwide pool is
intended to reflect that there are costs that handlers incur in
balancing the Class I needs of the market and in providing for clearing
the market of temporary surpluses. According to the proponents, these
balancing costs are not fully recoverable from Class I handlers,
however the benefit that results from this service being provided is a
benefit of all producers in the market.
Handlers that incur the costs would be those handlers that would
receive partial cost reimbursement. Cooperatives would be eligible to
form common marketing agencies or federations for purposes of
qualifying for balancing payments. Such handlers would include those
who: (1) demonstrate ownership or operation of a balancing plant with
the capacity to process a million pounds of milk per day into storable
products such as cheese, butter, and nonfat dry milk and that such
handler also represent at least 2.5 percent of the total volume of milk
pooled under the order; (2) have under contract and the obligation to
pool on a year-round basis at least 8 percent of the market's milk
volume; (3) own a balancing plant that must be made available to other
handlers or cooperatives at the request of the market administrator;
(4) qualify to provide pool producers with a temporary market for their
milk for up to 30 days at the request of the market administrator; and
(5) demonstrate to the market administrator that their utilization of
milk in Class I uses is greater than the minimum shipments required for
pool plant qualification under the order.
There are several reasons for not recommending balancing payments
for the consolidated Northeast order. First, the proposed Northeast
order consolidates two current orders, New England and the Middle
Atlantic, that do not currently provide for balancing cost offsets to
handlers for such purposes and that these markets have not experienced
any undue harm or disadvantage by not providing for this sort of cost
offset. Secondly, and in addition to expressed opposition to
[[Page 4952]]
compensate handlers for balancing the market, an appropriate class
price has been provided for market clearing purposes--the Class III--A
price. It is a price that is applicable in all current Northeast
orders, and is continued in this proposed rule as the Class IV price.
While these two class prices are not the same (as explained in the BFP
section of this decision), they are conceptually similar in that
handlers have been provided with a market clearing price and further
compensation beyond this is not warranted. Lastly, the proposed 4-cent
per cwt. level is unexplained with respect to how adequately it tends
to offset balancing costs.
The ``Pass-Through'' Provision
Currently, the New York order provides for what is commonly
referred to as the ``pass-through'' provision. The intent of this
provision is to provide for a degree of competitive equity for handlers
that pay the order's Class I price for milk so that they can compete
with handlers in unregulated areas that do not. This provision has been
in place in the New York order since 1957 and is a part of how the
order allocates and classifies milk. In functional terms, the pass-
through provision removes the amount of milk distributed outside of the
marketing area from the full Class I allocation provisions of the
order, thereby providing a degree of price relief to handlers who
compete with other handlers who are not held to the pricing provisions
of the order in unregulated areas. Regulated New York handlers
currently compete with unregulated handlers in the unregulated areas of
Pennsylvania and other areas in the Northeast region.
The current provisions of the New England and Middle Atlantic
orders do not have this provision although they too adjoin similar non-
federally regulated areas. Handlers regulated by these two orders also
compete with these same handlers for Class I sales. The merging and
expansion of these three Northeast orders continue to result in areas
that adjoin the recommended Northeast order that would not be
regulated.
While there were proposals both for and against retaining a pass-
through provision in the consolidated order, the need for it was
expresses on the basis of the extent the Northeast consolidated order
would be expanded to include currently unregulated areas. Generally,
handlers support continuing to provide for a pass-through provision,
and this position can only be considered reinforced given the limited
degree of expansion of the consolidated Northeast order. If the entire
Northeast region would fall under Federal milk order regulation, the
need for the pass-through would be moot.
The Secretary proposes that a pass through provision, even in light
of the limited expansion suggested for the consolidated Northeast
order, should not be included. Class I prices charged to handlers that
compete within the marketing area for fluid sales are determined by the
location value of their plants. The Class I differential structure
recommended by either Option 1A or Option 1B both recognize the
location value of milk for Class I uses and are both designed to
establish Class I differential values to cause milk to be delivered to
bottling plant to satisfy fluid demands. Accordingly, any handler
located in high-valued pricing areas will be charged for the location
value of Class I milk at their plant location regardless of whether or
not they compete with other handlers for fluid sales in areas where the
location value of Class I milk at these plant locations are lower. This
location value pricing principle should be extended to address handlers
competing for sales with handlers who do not pay the same price for
Class I milk in unregulated areas.
Seasonal Adjustments to the Class III and Class IV Prices
The three northeast orders to be consolidated into a single
Northeast order currently provide for a seasonal adjustor on Class III
and Class IIIA milk prices. These provisions have been a part of these
three orders for more than 30 years. Prior to the adoption of the
Minnesota-Wisconsin (M-W) price series in the mid-1970's, these markets
established the equivalent of the modern Class III price on the basis
of what was known as the U.S. Average Manufacturing Grade Milk-Price
Series (U.S. average price).
The U.S. average price series was a competitive pay price series,
but differed from the M-W in that it recorded price averages
consistently below the M-W that was rapidly being adopted elsewhere in
the country as the appropriate price for surplus uses of milk and used
as a price mover for higher-valued class prices. Given the national
marketplace in which surplus diary products compete for sales, a
mechanism was needed to align these two differing price series.
Accordingly, seasonal adjustments to the Class III price were developed
and made a part of these orders. These seasonal adjustors were found
not only to be warranted for better price coordination between these
two price series, but also served to encourage handlers to dispose of
the maximum amount of milk in Class I uses.
By the mid-1970's, the M-W was adopted to replace the US. average
price series and the seasonal adjustors were retained. The reason for
retaining these adjustments were indicated to encourage handlers to
make more milk readily available for fluid use in the short production
months and to facilitate the orderly disposition of excess reserve milk
supplies in flush production months. Although some regional price
disparity was acknowledged to result from retaining these adjustments,
they were nevertheless retained because there was no evidence that
providing for such adjustment had led to any interregional problems in
the marketing of the reserve milk supply.
Agri-Mark, a major cooperative in the northeast, has proposed that
seasonal adjustments continue in the consolidated Northeast order. The
main thrust of their proposal is that markets with relatively high
Class I use create a burden on the manufacturing sector in their areas.
They view seasonal adjustments as also assisting in sending the proper
economic signal to manufacturers. This is important, according to Agri-
Mark because the seasonal adjustment provides an economic
``disincentive'' for Class III and Class IV manufacturers to use milk
in the fall when less producer milk is available and additional
supplies are needed for Class I uses.
The Secretary proposes that as presently formulated, seasonal
adjustors to the Class III and Class IV prices should not be
incorporated into the provisions of the consolidated Northeast order.
This proposed rule proposes a much more permanent replacement for the
current BFP. If the suggested BFP is adopted in all new consolidated
orders, there is no compelling reason offered at this time to
contemplate continuing seasonal adjustments to Class III and Class IV
prices in light of how these prices would be derived. They are also not
proposed for orders that are expected to have Class I utilizations
similar to those anticipated in the consolidated Northeast order and
who similarly have important manufacturing activity in such markets.
6b. Southeast Regional Issues
The 3 proposed orders for the Southeastern United States--Florida,
Southeast, and Appalachian--are faced with a different set of marketing
conditions than other orders. The Southeastern United States is one of
the fastest growing areas of the country but the most deficit area in
terms of milk
[[Page 4953]]
production per capita. From 1988 to 1995, the population of the 12
Southeastern states rose from 57.9 million to 63.5 million. By the year
2000, the population is expected to reach 66.8 million people.
While population increases in the Southeast, milk production in the
12 Southeast states (i.e., Alabama, Arkansas, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina,
Tennessee, Virginia, and West Virginia) has been decreasing--from 15.4
billion pounds in 1988 to 13.7 billion pounds in 1996. The net result
of these opposite trends is a widening gap between the local supply of
milk for fluid use and the demand for such milk.
Unlike other parts of the country, the Southeast has few facilities
for handling surplus milk. Consequently, surplus production during the
months of January through June must, in some cases, be shipped hundreds
of miles for processing at manufacturing plants generally to the north.
For this reason, the provisions in these orders must be aimed at the
twin goals of encouraging supplemental milk to move to these markets
during the short production months--generally July through December--
but they must also discourage supplemental milk to move to these
markets when it is not needed in the flush production months--generally
January through June--because such milk would simply displace local
milk and increase cooperative organizations' costs to dispose of the
milk.
Transportation Credits
As a result of the need to import milk to the Southeast from many
areas outside the Southeast during certain months of the year,
transportation credit provisions were incorporated in the Carolina,
Southeast, Tennessee Valley, and Louisville-Lexington-Evansville orders
in August 1996. These provisions provide credits to handlers that
import supplemental milk for fluid use to the market during the short
production months of July through December. The provisions restrict
credits to producers and plants outside of the marketing areas. The
credits are also restricted to producers who supply the markets during
the short season and are not applicable to producers who are on the
market throughout the year.
Following the initial implementation of transportation credits in
August 1996, the provisions were modified in a final decision issued on
May 12, 1997. The amendments became effective on August 1, 1997, in 3
of the 4 orders.\33\
---------------------------------------------------------------------------
\33\ The Tennessee Valley order, as amended, was not approved by
producers. The order was terminated effective October 1, 1997.
---------------------------------------------------------------------------
The Secretary proposes that transportation credit provisions should
be retained in the new Southeast and Appalachian orders but should not
be included in the Florida order. Written comments received in response
to the advance notice of proposed rulemaking indicate that producers in
the Southeast favor retention of these provisions for these two orders.
The Secretary proposes that the provisions should not be included in
the Florida order, however, because that market is largely supplied by
2 cooperative associations which are able to recoup their costs of
supplying the market with supplemental milk.
With the consolidation of orders, the Secretary proposes that some
conforming changes should be made to the transportation credit
provisions of the Southeast and Appalachian orders. Section 82(c)(1) of
the present orders limits transportation credits on transferred bulk
milk to plants that are regulated under orders other than the southeast
orders that currently have the provisions, and section 82(c)(2)(ii)
limits the area where farms may be located to be eligible for
transportation credits on milk shipped directly from producers' farms.
In Secs. 1005.82(c)(1), 1007.82(c)(1), 1005.82(c)(2)(ii), and
1007.82(c)(2)(ii), the references to ``1011 and 1046'' should be
removed.
The addition of northwest Arkansas and southern Missouri to the
Southeast marketing area will make those 2 areas ineligible for
transportation credits. This change in the application of the credits
would naturally follow from the logic for incorporating these 2 areas
in the Southeast marketing area. Specifically, northwest Arkansas and
southern Missouri are regular sources of supply for handlers in the
Southeast marketing area and, in addition, include plants that compete
for sales with handlers regulated under the Southeast order.
Accordingly, the producers in these 2 areas should, and will, regularly
share in the pool proceeds of the Southeast market. Of course, since
transportation credits are designed to attract supplemental milk to the
market for fluid use from producers who are not regularly associated
with the market, transportation credits should not, and will not, apply
to a farm or a plant in northwest Arkansas or that portion of southern
Missouri that is to be included in the Southeast marketing area.
Pooling Standards
A number of comments were submitted regarding the issue of pooling
standards in the southeast region. The Southeast Dairy Farmers
Association (SDFA) recommended that pooling standards be maintained at
levels that are as strict or stricter than current regulations and that
southeastern milk marketing orders contain pooling requirements that
reflect the deficit nature of these markets. SDFA argued that such
provisions would discourage the movement of milk into and out of a
Federal marketing area that does not normally serve the area unless the
milk was actually needed. The association stated that performance
requirements for plants are an important element in ensuring that
southeastern fluid markets are adequately supplied on a year-round
basis and in ensuring that only those plants that have as their
principle purpose the supplying of the markets' fluid milk requirements
receive the benefits of higher uniform prices. Currently, pooling
standards vary between markets and regions, and the association
believes that these varying standards should be maintained. SDFA
supports a 50% route disposition requirement for pool distributing
plants and recommends that the in-area route disposition requirement be
standardized at 15% and the 1500-pound daily average exemption be
changed to 150,000 pounds per month.
The National Farmers Organization (NFO), recommends that pooling
standards for all of the orders recognize and accommodate the pooling
on a year-round basis of milk supplies which are actually required for
that market's Class I needs on a seasonal basis. NFO suggests that each
order should be viewed separately in determining the standards and
urges the Department to carefully evaluate pooling provisions to assure
equity throughout the system. Another commentor, Middlefield Cheese of
Ohio (Middlefield), recommends that all orders have the same pooling
requirements. Middlefield states that varying pooling standards between
orders create great difficulty in procuring milk for small businesses.
It argues that uniformity would allow milk to be economically and
efficiently marketed to where it is needed as opposed to a ``large co-
op dictating control over the milk market.''
One of the major cooperatives operating within the Southeast, Mid-
America Dairymen, Inc. (Mid-Am), recommends that the pooling standard
for distributing plants in high utilization markets should be 50% Class
I. Mid-Am also recommends that market
[[Page 4954]]
administrators be given the authority to adjust shipping requirements
in all orders.
A number of comments addressed the issue of where a plant should be
regulated and whether there should be a ``lock-in'' provision which
would keep a distributing plant regulated under the order where it is
located rather than where it may have the most sales. SDFA supports the
adoption of lock-in provisions in the consolidated southeast orders.
Prairie Farms Dairy, Inc. states that pool distributing plants should
be regulated where located rather than where route disposition occurs.
Another cooperative association, Milk Marketing Inc. (MMI), states that
competition for local milk supply and a competitive pay price with
neighboring plants is much more important to both producers and
processors than a price that is competitive with other plants that
compete for sales in a given area. Therefore, MMI recommends regulating
a distributing plant in the market where it is located rather than on
the location of its sales. MMI contends that the Federal milk order
program should be concerned with attracting milk to a plant, not the
retail location. The cooperative states that plants in unregulated
areas should continue to be regulated based on sales areas.
Some comments received addressed supply plant requirements. SDFA
recommends that for the southeastern orders the supply plant shipping
requirement be 60% of a plant's receipts during July through November
and 40% during December through June. However, SDFA also acknowledges
that specific exceptions to this principle may be necessary to
accommodate specific needs and should be considered on a case by case
basis.
SDFA states that supply plant performance requirements should not
be changed in an effort to allow all Grade A milk to be included in a
marketwide pool. Such a change, it contends, would result in disorderly
marketing and jeopardize the viability of local supplies. SDFA
requested year-round shipping requirements for supply plants under
Orders 5, 6, and 7.
SDFA also states that automatic pooling should be provided for
manufacturing or receiving plants located in the marketing area if the
plant is operated by a cooperative association, but only if the
cooperative has a substantial association with the market.
MMI maintains that southeastern orders would be well-served by
provisions which allow reserve supply plants in the North and West to
participate in higher blend prices throughout the year, in exchange for
greater assurance of a milk supply in the short production months when
additional milk is needed. Land O'Lakes (LOL) recommended the
elimination of shipping requirements for supply plants, but suggested
that supply plant operators make a commitment to supply the market when
additional milk is needed. LOL also supports the adoption of a ``call''
provision in each order that would allow the market administrator to
require supply plant shipments on an as-needed basis.
Another cooperative operating in the Southeast wrote that reserve
supply plant qualification should be based on total cooperative
performance but that such plants should not be required to be located
in the marketing area. This cooperative contends that if a cooperative
is performing a balancing function for the market, it should not be
discriminated against just because its plant is not located in the
marketing area.
Suggestions were also received concerning certain specialty plants
that are located in the Southeast. SDFA recommended amending the route
disposition definition to accommodate a specialty fluid milk plant in
Jacksonville that disposes of long shelf life dairy products. SDFA
states that although a large portion of its fluid supply is disposed
for Class I use, because of the nature of its business, it is likely
that the plant would not meet the 50% route disposition requirement for
pool status.
Proposal: The Secretary proposes that the pool plant provisions for
the Appalachian, Florida, and Southeast orders under consideration
should closely follow the provisions now contained in the southeast
orders. The performance standards proposed are appropriate for the
needs of these seasonally-deficit markets.
Section 7(a) of each Federal milk order describes the pooling
standards for a distributing plant. To qualify for pooling under each
of the 3 orders, a distributing plant must dispose of 50 percent of the
total fluid milk products received at the plant as route disposition.
In addition, at least 10 percent of the plant's receipts must be
disposed of as route disposition in the marketing area. These standards
would indicate that a distributing plant is closely associated with the
fluid market and, therefore, should be part of the marketwide pool.
Paragraph (b) of Section 7 would accommodate the pooling of plants
that specialize in aseptically-packaged products. There are at least
two such plants in the southeast markets: the Ryan Foods Company plants
in Jacksonville, Florida and Murray, Kentucky.
Unlike a typical distributing plant, a plant specializing in
aseptically packaged products may have a more erratic processing
schedule, reflecting the longer shelf life of the products packaged at
the plant. Consequently, a plant's Class I utilization may vary
considerably from month to month. In the past, such variability has
resulted in shifting pool status for some of these plants from one
order to another. In some months, the plant may have been partially
regulated, even though all of the milk received at the plant was priced
under the order. This type of regulatory instability is not conducive
to orderly marketing. To guarantee greater regulatory stability for
these plants, they should be fully regulated pool plants if they are
located in the marketing area and have route disposition in the
marketing area. However, if the plant has no route disposition in the
marketing area during the month, the plant operator may request nonpool
status for the plant.
The Secretary proposes that each of the three orders also should
specify pooling standards for a supply plant. For the Appalachian and
Southeast orders, a supply plant must ship at least 50 percent of the
milk physically received during the month from dairy farmers and
cooperative bulk tank handlers. In the case of the Florida order, the
shipping percentage should be slightly higher at 60 percent.
Unlike supply plant provisions in other orders, the supply plant
provisions in the three southeast orders should not recognize shipments
directly from producers' farms as qualifying shipments for a supply
plant. At the present time, there are no plants qualifying as ``pool
supply plants'' under any of the southeast orders.
Almost all of the plants that balance the fluid needs of the
Southeast are operated by cooperative associations. These ``balancing
plants'' qualify for pooling based upon the performance of the
cooperative association and not based upon shipments from the plant
alone. The Secretary proposes that balancing plant provisions should be
maintained for the three southeast orders.
A balancing plant may qualify based upon shipments directly from
producers' farms as well as shipments from the plant. To qualify as a
balancing plant, the plant must be located within the order's marketing
area. This requirement ensures that milk pooled through the balancing
plant is economically available to processors of fluid milk if needed.
However, in the
[[Page 4955]]
case of the Appalachian order only, a balancing plant also may be
located in the State of Virginia. This provision has been in the
Carolina order and should be continued in the Appalachian order. The
performance standards for a balancing plant should be 60 percent of
producer receipts under each of the orders every month of the year.
There is no necessity to seasonally adjust the supply plant and
balancing plant shipping requirements for the three southeast orders
because the standards proposed are flexible enough to accommodate the
disposal of surplus milk during the flush production season. In
addition, the Secretary proposes that each of the three orders should
contain a provision to allow the market administrator to increase or
decrease shipping requirements and other pooling standards by up to 10
percentage points. This provision also should be included in the
producer milk section of all three orders with respect to the
percentage of milk that may be diverted and the number of days in which
a producer's milk must be received at a pool plant.
In addition to the provisions described above, the Secretary
proposes that each of the southeast orders should contain a provision
to allow unit pooling of distributing plants operated by the same
handler. The proposed rule is based upon the provision that has been in
the Southeast order since 1995.
Some distributing plants may meet the pooling standards of more
than one order. Consequently, the Secretary proposes that it is
necessary to specify the rules for determining where a plant will be
regulated. Under the southeast orders, if a plant meets the pooling
standards of the order and is located in the order's respective
marketing area, the plant should be regulated under that order even if
it has greater sales in some other order's marketing area. This
provision has evolved as a result of several price alignment problems
in the Southeast involving a plant located in one marketing area but
regulated under another order. In every such case, a plant's supply of
milk was put in jeopardy as a result of a lower blend price under the
order in which it became regulated based on its sales. Notwithstanding
the merging of several of the smaller markets in the Southeast, the
Secretary proposes that this provision should be retained for the
southeast orders to preclude a repetition of this problem. There was
widespread support in comment letters for retention of this provision.
In the case of a distributing plant that is not located within any
order's marketing area, the Secretary proposes that a different
standard should apply. Since, in this case, it cannot be presumed with
certainty that a plant is most closely associated with the market in
which it is located, its association with a market should be determined
based upon where it has the most sales.
Producer-Handler
The Secretary proposes that the producer-handler provisions for the
three southeast orders should be very similar to the current
provisions. To qualify as a producer-handler, a dairy farmer would have
to have route disposition in excess of 150,000 pounds per month;
otherwise, the producer's plant would be exempt from regulation
pursuant to a provision that has been uniformly adopted for all orders.
To qualify as a producer-handler, a dairy farmer may receive no
fluid milk products from sources other than his or her farm and may
dispose of no fluid milk products using the distribution system of
another handler. Finally, the dairy farmer must provide proof
satisfactory to the market administrator that the care and management
of the dairy animals and other resources necessary to produce all Class
I milk handled, and the processing, packaging, and distribution
operations, are his/her own enterprise and are operated at his/her own
risk.
At the present time, there are three or four producer-handlers
operating in the southeast markets. None of these operations would lose
their status as producer-handlers under the provision recommended for
new southeast orders.
Producer/Producer Milk
The Secretary proposes that the producer and producer milk
definitions recommended for the three southeast orders should be nearly
identical to the provisions now in the individual orders. These
provisions define which dairy farmers are eligible to share in the
proceeds of the marketwide pool.
A producer should be defined as a dairy farmer whose milk is
received at a pool plant, diverted to a nonpool plant, or received by a
cooperative association acting as a bulk tank handler. It excludes a
producer-handler, a dairy farmer whose milk is delivered to an exempt
plant, or a dairy farmer whose milk is reported as diverted milk under
the provisions of another Federal order.
The proposed diversion limits that are specified in the producer
milk section should be slightly different among the three southeast
orders. To qualify for diversion to a nonpool plant, a minimum amount
of a producer's milk should be received at a pool plant during the
month (i.e., this is called a ``touch-base'' requirement). Under the
Appalachian order, six days' production should be received at a pool
plant during each of the months of July through December, and two days'
production should be received at a pool plant during each of the other
months of the year. Under the Southeast order, ten days' production
should be required to be delivered to a pool plant during each of the
months of July through December to qualify a producer's milk for
diversion to a nonpool plant. During the months of January through
June, 4 days' production should be required to be delivered to a pool
plant.
Under the proposed Florida order, which will have a higher Class I
utilization and less need to divert milk, a producer should be required
to deliver at least ten days' production to a pool plant during every
month of the year in order to be eligible for diversion to a nonpool
plant. These proposed standards are comparable to those required under
the separate Florida orders.
The total quantity of milk which may be diverted by a pool plant
operator or cooperative association during the month also should vary
by market as well as by month. Under the Appalachian order, a pool
plant operator or cooperative association should be permitted to divert
25 percent of their producer milk during the months of July through
November, January and February. During the months of December and March
through June, the total diversion limit should increase to 40 percent
of producer milk receipts. The Secretary proposes that the Southeast
order should provide a total diversion limit of 33 percent during the
months of July through December, and 50 percent during the other
months. The proposed diversion limits under the Florida order should be
20 percent during the months of July through November, 25 percent
during the months of December through February, and 40 percent during
all other months.
The proposed ``touch base'' requirements and gross diversion limits
described above should be adjustable by the market administrator to
assure orderly marketing and/or efficient handling of milk in the
marketing area. This procedure is described in Secs. 1005.13(d)(7),
1006.13(d)(6), and 1007.13(d)(7).
Although a ``dairy farmer for other markets'' provision was
requested for the new orders by some producer organizations, it was
opposed by others. The Secretary does not propose inclusion of this
provision in the three southeast orders at this time. Such a
[[Page 4956]]
provision would restrict the free movement of milk as needed between
market. The proposed diversion limits and touch-base requirements in
the southeast orders should preclude the association of milk with these
markets when such milk is not needed at pool plants.
Report of Receipts and Utilization
The Secretary proposes that to accommodate the payment schedule
desired for the three southeast orders, the handler's report of
receipts and utilization must be in the market administrator's office
no later than the 7th day of the month. The producer payroll report
will be required by the 20th day of the month. The information to be
included in these proposed reports is essentially identical to the
current order provisions.
Payments for Milk
The Secretary proposes that the southeast orders should provide
uniform payment schedules for payments to and from the producer-
settlement fund and to producers and cooperative associations. Payment
to the producer-settlement fund should be made by the 12th day of the
month and payment from the producer-settlement fund should be made one
day later.
In the case of payments to producers and cooperative associations,
the Secretary proposes that the merged Florida order should maintain
the longstanding three-payment schedule that has been part of the
present Florida orders for many years. The partial payments to
producers under the new Florida order should be made on the 20th day of
the month for milk received during the first 15 days of the month and
on the 5th day of the following month for milk received during the
remainder of the month. The rate of payment should be at not less than
85 percent of the preceding month's uniform price, adjusted for plant
location and for proper deductions authorized in writing by the
producer. The final payment for milk received during the previous month
should be made on or before the 15th day of the month.
The Secretary proposes that the Appalachian and Southeast orders
should have identical payment schedules. The partial payment for milk
received during the first 15 days of the month should be made on the
26th day of the month. The rate of payment should be 90 percent of the
preceding month's uniform price. The final payment should be required
to be received by the producer on or before the 15th day of the
following month. The rate of final payment for all 3 orders should be
the preceding month's uniform price adjusted for butterfat, plant
location, partial payments, marketing services, and proper deductions
authorized in writing by the producer.
Each order now requires payment to a cooperative association to be
made one day earlier than the payment to an individual producer. The
Secretary proposes that this practice should continue under the new
orders.
6c. Midwest Region
Upper Midwest Order
Pool Plant
The Secretary proposes that the pool distributing and pool supply
plant definitions of the proposed consolidated Upper Midwest order
should use the standard order language used in other orders, adapted to
marketing conditions in the Upper Midwest.
The proposed pool distributing plant definition specifies that for
a plant to be a pool distributing plant, it must have 15 percent or
more of its total receipts of bulk fluid milk distributed as route
disposition. This percentage is considerably lower than the percentage
used in the Chicago Regional order, which varies from 30 percent to 45
percent depending on the month. However, the current Upper Midwest
order uses a percentage based on the marketwide Class I percentage for
the same month of the previous year. During ``normal'' months this
percentage is approximately 15 percent. When some milk is held off the
pool for economic reasons (primarily unusual price differences between
classes), the percentage may vary considerably, ranging from the
``normal'' 15 percent to over 50 percent. Use of a constant percentage
at approximately the market Class I percentage will reduce the current
opportunities available to distributing plants to become partially
regulated by manipulating their reported receipts and diversions of
milk. In addition, the proposed language should eliminate month-to-
month uncertainty caused by basing handlers' regulatory status on the
market's fluctuating utilization percentage.
In addition to specifying the route disposition percentage at 15
percent, the proposed percentage would be calculated on the basis of
the total receipts of bulk fluid milk products physically received at
the distributing plant. Currently both the Chicago Regional and Upper
Midwest orders include milk diverted from the distributing plant in the
total bulk receipts used to compute the route disposition percentage.
The Identical Provisions Committee recommended that the in-area
distribution criteria for pool distributing plants be 15 percent of
total route disposition. The Committee explained that use of total
route disposition rather than bulk receipts as the denominator would
reduce opportunities for handlers to manipulate the manner in which
they may report their operations to avoid regulation. Currently in the
Chicago Regional and Upper Midwest orders the in-area route disposition
standard is computed using the same basis (bulk receipts, including
diversions) as is used to determine whether a plant meets the
definition of a pool distributing plant.
The Secretary proposes that provision be made for a single handler
to form a unit of distributing plants and manufacturing plants, all of
which must be located within the marketing area. The unit would have to
meet the requirements for a pool distributing plant and at least one of
the plants in the unit would be required to meet the pool distributing
plant requirements as a separate plant. Plants not meeting the pool
distributing plant definition would be required to have disposition of
packaged fluid milk products, packaged fluid cream products, or cottage
cheese and other soft manufactured products of at least half of their
receipts of Grade A bulk fluid milk products, including milk diverted
by the plant operator.
Manufacturing plants traditionally have been included in units with
distributing plants because the manufacturing plants produced products
such as packaged fluid cream, sour cream, and cottage cheese that are
marketed in conjunction with bottled fluid milk products. In addition,
some of these plants produce a limited quantity of fluid milk products.
Handlers have argued that the operator of a free-standing manufacturing
plant that manufactures these complementary products should be able to
pool its milk supply for both (or for several) plants as if all of the
products were made in the bottling plant.
Both the Chicago Regional and Upper Midwest orders contain a
provision for a distributing plant unit. Although the current Chicago
Regional order does not specify the types of products that may be
manufactured at plants in the unit, the Upper Midwest order does. The
Secretary proposes that it is reasonable to place restrictions on the
types of products that are disposed of from the manufacturing plants in
the unit, since these plants would receive the benefits reserved for
pool distributing plants and
[[Page 4957]]
shipments from supply plants to the plants in the unit would be
considered in determining pool supply plant qualifications.
A pool supply plant operator should ship as qualifying shipments at
least 10 percent of the plant's receipts of milk from producers,
including milk diverted by the handler, each month. As in the current
Chicago Regional order, it is proposed that such shipments may be made
to pool distributing plants, pool distributing plant units, plants of
producer-handlers, partially regulated distributing plants, or
distributing plants fully regulated by other Federal milk orders. The
extent of shipments to partially regulated distributing plants to be
used for qualification would be limited to the quantity classified as
Class I. Qualifying shipments to distributing plants regulated by other
Federal milk orders should be limited to the quantity shipped to pool
distributing plants, and may not be agreed-upon Class II, Class III or
Class IV utilization. Shipments directly from farms to pool
distributing plants and to plants contained in pool distributing plant
units should be included as shipments that help to meet the percentage
qualification standard.
The proposed 10 percent shipping requirement is approximately 5
percentage points less than the anticipated Class I percentage for the
proposed consolidated Upper Midwest order. The 10 percent shipping
standard is greater than the current individual supply plant shipping
standard and equal to the maximum shipping percentage required of pool
units during the qualifying period in the current Chicago Regional
order. The standard under the current Upper Midwest order, which uses
the Class I use percentage of the same month in the previous year as
the supply plant shipping percentage, would exceed the proposed
percentage. Also under the current Upper Midwest order, a reserve
supply plant must ship 10 percent of its receipts to pool distributing
plants during January through June, and the marketwide Class I
percentage for the same months of the preceding year for the months of
July through December.
Although the proposed shipping percentage is below the estimated
Class I percentage for the proposed Upper Midwest order, the 10 percent
shipping standard should be appropriate, in view of the fact that many
distributing plants have a supply of milk from their own producers. In
September 1997, approximately 27 percent of the milk pooled or received
at distributing plants in the Chicago Regional order was pooled as
producer milk with the distributing plant operators as the handlers,
rather than as producer milk pooled by cooperatives and other handlers.
The milk pooled by distributing plant handlers accounted for
approximately 12 percent of the total milk pooled in September 1997 (or
approximately 5 percent of the total milk that would have been pooled
if all of the milk eligible to be pooled in September 1997 had been
pooled). Approximately 7 percent of the Class I producer milk, or
approximately 2 percent of the total producer milk, pooled under the
Upper Midwest order is pooled by distributing plant operators. The
combination of the supply plant shipping percentage and the percentage
of milk pooled directly by distributing plant handlers would appear
sufficient to meet anticipated Class I needs in the proposed Upper
Midwest order. The proposed 10 percent supply plant shipping percentage
also should be appropriate to avoid unnecessary and uneconomic
shipments.
The proposed rule would allow the market administrator to increase
or decrease the required shipping percentage on a marketwide or
selected area basis if deemed necessary to assure an adequate supply of
milk to pool distributing plants or to prevent uneconomic shipments of
milk. If the shipping percentage is increased by the market
administrator, shipments made for the purpose of meeting the increased
percentage may be made only to pool distributing plants or plants
contained in pool distributing plant units.
Groups of two or more supply plants should be allowed to form
systems of supply plants for the purpose of meeting the shipping
requirements, by shipping the same percentage as that required for
individual pool supply plants that are not part of such a system. These
pool supply plant systems may consist of plants of the same handler,
more than one handler, and may contain both proprietary and cooperative
handlers. The only requirement affecting an individual plant within the
unit is that the plant must be physically located within the marketing
area. This restriction is necessary to prevent distant plants from
receiving the benefits of participating in the marketwide pool without
having an actual association with the market.
Several plants located outside the boundaries of the proposed
marketing area currently are included in supply plant units by a
``grandfather clause'' in the Upper Midwest order. The proposed order
provides that these plants may continue to be included in a supply
plant unit if they so desire as long as they maintain continuous pool
plant status.
The Secretary proposes that handlers may form supply plant systems
by filing a written request by July 15, listing the plants to be in the
system. The system would remain in effect from August 1 through July 31
of the following year. These dates deviate from those proposed for
other orders because of the difference in seasonal production
variations between this and other orders. The handler or handlers
establishing the system may also delete a plant from the system or
dissolve the system by submitting a written request to the market
administrator. Any plant deleted from a system, or plants that were
part of a system that was discontinued, may not be part of a system
until the following August.
Provisions that allow handlers to add plants to a system under
certain circumstances and to allow systems to reorganize in the event a
plant changes ownership or in the event of a business failure by a
handler are also incorporated in the proposed order.
A system failing to meet pooling standards would be allowed to drop
plants from the system until the system does qualify. The handler
responsible for assuring that the system qualifies should notify the
market administrator of which plants are to be deleted from the system.
If the handler does not notify the market administrator, the market
administrator would exclude plants from the system beginning with the
plant at the bottom of the list of plants submitted by the handler
responsible for qualifying the system, and continuing up the list until
the system qualifies.
The provisions for supply plant systems are very similar to the
provisions currently contained in both the Chicago Regional and Upper
Midwest orders. Unlike the Chicago Regional and the Upper Midwest
orders, however, the proposed order does not contain a specific
shipping requirement for individual plants within a supply plant
system. In the current Chicago Regional order, pool supply plant
systems have twice the percentage shipping standard of individual
supply plants, with individual plants within the systems required to
ship 47,000 pounds or three percent of their producer receipts,
whichever is less, in five of the six months of August through January.
The current Upper Midwest order requires handlers with supply plants in
a supply plant system to ship five percent of each handler's Grade A
receipts, including milk diverted by the handler to nonpool plants,
during one of
[[Page 4958]]
the months of August through December.
This proposed rule does not propose providing for the category of
supply plants referred to as reserve supply plants. Reserve supply
plants ceased to be included in the Chicago Regional order in 1987,
while the Upper Midwest continues to provide for them. With year-round
shipping requirements, the unlimited ability of the market
administrator to change shipping percentages both in level and in area,
and the ability of supply plants to form systems, it is proposed that
there is no compelling reason to have two categories of supply plants.
A provision to allow plants to remain qualified for up to two
consecutive months due to unavoidable circumstances, such as a natural
disaster, fire, breakdown of equipment, or work stoppage is included in
this proposed order. The provision is contained in the Chicago Regional
order and has worked quite well in giving handlers some administrative
relief in the face of certain unavoidable circumstances.
Producer Milk
The definition of producer milk determines which milk will be
eligible to participate in the Federal order pool. The proposed order
provides that milk received at a pool plant directly from producers or
from a cooperative association acting as a handler should be eligible
to be producer milk. Milk for which the operator of a pool plant is the
handler that is delivered directly from the farm to another pool plant
should also be considered producer milk. Under certain circumstances,
milk delivered to a nonpool plant may also be considered producer milk.
Milk delivered directly from a farm to a nonpool plant may be
considered producer milk if at least one day's production is received
at a pool plant during the dairy farmer's first month as a producer.
In order to qualify as producer milk the milk pooled by a
cooperative association acting as a handler described in
Sec. 1030.9(c), the cooperative must deliver at least 10 percent of the
milk for which it is the handler pursuant to Sec. 1030.9(c) to pool
distributing plants, units of pool distributing plants, plants of
producer-handlers, partially regulated distributing plants, or
distributing plants fully regulated by other Federal milk orders. The
shipments to partially regulated distributing plants are limited to the
quantity classified as Class I. Qualifying shipments to distributing
plants regulated by other Federal milk orders are limited to the same
quantity shipped to pool distributing plants and may not be shipped as
agreed-upon Class II, Class III or Class IV utilization. These are the
same performance requirements that would apply to supply plants.
Likewise, the same performance requirements that apply to supply plants
would apply to cooperative associations acting as handlers if the
market administrator adjusts the shipping percentages.
The Secretary proposes that there would be no significant
differences in the treatment of milk received at pool plants under the
proposed order and under the Chicago Regional or Upper Midwest orders.
There are, however, several differences relating to diverted milk. The
proposed order would allow the operator of a pool plant to divert, or
ship milk directly from the farm to another pool plant, the milk of
producers for which it is the handler, and account for the milk as
producer milk at the shipping plant. Allowing either a proprietary pool
plant or a cooperative pool plant to divert milk to another pool plant
is consistent with the Chicago Regional order. In the Upper Midwest
order, milk that is received at a pool plant and for which a
cooperative association is the handler is considered producer milk at
the receiving plant. The Upper Midwest order specifies that a
proprietary handler may divert milk to another pool plant and that such
milk will be considered producer milk of the diverting proprietary
handler. The proposed language leaves to the discretion of the
cooperative association the option of diverting milk to another pool
plant from its own pool plant or delivering the milk to the pool plant
in its capacity as a handler of producer milk pursuant to
Sec. 1030.9(c).
The proposed Upper Midwest order would require that a new producer
or a producer who has broken association with the market have at least
one day's production received at a pool plant during the first month in
which the producer's milk is reported as producer milk. Currently the
Chicago Regional order requires a new producer on the market or a
producer who has broken association with the market to have at least
one day's production received at the pool plant at which the milk is
reported during the first month in which the producer's milk is
considered to be producer milk eligible for diversion to a nonpool
plant. In addition, at least one day's production of a producer's milk
must be received at a pool plant in each of the months of August
through January to be eligible for diversion to a nonpool plant. The
current Upper Midwest order requires that a new producer or a producer
who has broken association with the market be received at a pool plant
prior to the milk being diverted to a nonpool plant.
There is little or no justification for forcing producer milk to be
received at a pool plant to maintain or prove association with the
market. Supply plants and cooperatives would be required to ship a
fixed percentage of their total milk supply, not just that portion
received at their plants, to the fluid market. Since both cooperatives
and proprietary handlers can move milk directly from the farm to the
fluid market there is little reason to force milk into a pool plant for
regulatory purposes only. Certainly the extra cost to the handler of
moving milk for regulatory purposes does not enhance economic
efficiency or milk quality and in fact decreases economic efficiency
and milk quality to the detriment of the entire market.
The proposed order provides that producer milk be priced in the
month in which it is picked up at the farm and at the location of the
plant at which the milk is physically unloaded into processing
facilities or a storage tank. In the current Chicago Regional order
milk is priced where milk is pumped within the confines of a plant. The
proposed order would eliminate the pricing of milk where it is pumped
from truck to truck and price the milk where it is eventually unloaded
into processing facilities or a storage tank.
Location Adjustments and Transportation Credits
To help move milk to the fluid market a transportation credit and a
procurement credit to be applied to Class I milk are contained in the
proposed Upper Midwest order. The transportation credit would be
computed by multiplying the hundredweight of Class I milk contained in
transfers of bulk fluid milk from pool plants to pool distributing
plants by the value obtained by multiplying .0028 times the number of
miles between the shipping plant and the receiving plant. The
transportation credit should be paid to the shipping handler, since the
milk would be priced at the location at which it is first received.
The proposed transportation credit is similar to the transportation
credit currently contained in the Chicago Regional order. Both the
proposed transportation credit and the current credit, which use the
same .0028 rate, are applied to Class I milk only. However, in the
current Chicago Regional order the credit is based on 110 percent of
the Class I milk received
[[Page 4959]]
at the pool distributing plant, rather than on the Class I milk
delivered by the shipping handler, as proposed. Since the
transportation credit is computed on the basis of milk classified as
Class I at the shipping plant, the credit would be paid to the shipping
handler.
Unlike the transportation credit, which is based on mileage and
paid only on transfers of bulk milk to pool distributing plants, the
procurement credit would be paid at the rate of 8 cents per
hundredweight of Class I milk transferred or diverted by a pool plant
to a pool distributing plant. A procurement credit also will be applied
to milk received from producers and from cooperative associations
acting as handlers pursuant to Sec. 1030.9(c) based on the pro rata
share of producer milk delivered to a pool distributing plant and
allocated to Class I.
A transportation credit and procurement credit would be
incorporated in the proposed order to assist handlers in supplying the
Class I market. These transportation and procurement credits, to be
paid on Class I milk only in combination with the Class I price surface
discussed elsewhere in this proposed rule, will help handlers move milk
to the fluid market by distributing the cost of supplying the fluid
market to all market participants who share in the marketwide pool.
Handlers and producers who supply the Class I market on a regular basis
should not be expected to bear the entire cost of supplying the Class I
market while handlers and producers who meet only the minimum
requirements derive the benefits of marketwide pooling. Incorporation
of a transportation credit and procurement credit on Class I milk in
the marketwide pool will assure that at least some of the cost of
supplying the Class I market is shared among all market participants.
Mideast Order
Many of the provisions of the proposed Mideast order are explained
in the ``Identical Provisions'' portion of this proposed rule, and need
not be addressed here. The provisions that deviate somewhat from those
proposed for other order areas are the provisions dealing with
standards for determining the pool status of producers and handlers,
and those describing the pricing of milk under a component pricing plan
that differs slightly from that common to the other orders with
proposed multiple component pricing provisions. For the most part,
pooling provisions have less effect on the current Michigan Upper
Peninsula market than on the 4 other markets included in this
consolidated order because Michigan Upper Peninsula is the only
remaining individual handler pool in the current Federal order system.
Therefore, pooling provisions are discussed in relation to the 4
principal markets included in the proposed Mideast order.
Pool Plant
The proposed Mideast pool distributing plant definition would
differ from that contained in most of the other proposed orders to make
less likely the full Federal regulation of three State-regulated
plants, two in Pennsylvania and one in Virginia, that currently are
partially regulated under one or more of these orders. These State-
regulated handlers must pay a minimum Class I price for milk used in
fluid products, often a higher price than would be applied under
Federal order regulation. At the same time, Federal regulation of the
Pennsylvania and Virginia-regulated handlers under the consolidated
order would reduce producer returns while having little effect on
handlers' costs of Class I milk.
Specifically, the percentage of a handler's total route
dispositions distributed within the marketing area that would result in
the handler being fully regulated under the Mideast order should be 30
percent under this order rather than the 15-percent standard proposed
for all but one of the other 10 orders. This level of sales in the
marketing area can be compared to the current pooling standards for
distributing plants in the Eastern Ohio-Western Pennsylvania and
Indiana orders. These orders currently have variable (30-50 percent)
pooling standards for the percentage of a distributing plant's receipts
distributed on routes, combined with a 10-15 percent standard for
receipts distributed within the marketing area. Plants that meet the
total dispositions standard at the lower end of the range (35 or 40
percent) and distribute only 10 or 15 percent of their receipts on
routes in the marketing area would actually distribute approximately 30
percent of their route dispositions on routes in the marketing area. At
the same time, it would be difficult to justify establishing a pooling
standard so high that the significant role played in a market by a
handler having more than 30 percent of its route disposition in the
marketing area would fail to be recognized by inclusion in the
marketwide pool.
In addition to specifying the in-area route disposition percentage
at 30 percent of total routes, the total and in-area route disposition
percentages would be calculated on the basis of the total receipts of
bulk fluid milk products physically received at the distributing plant.
Currently all four of the larger orders to be included in the
consolidated Mideast order include milk diverted from the distributing
plant in the total bulk receipts used to compute the route disposition
percentages.
To assure continued pool qualification for all of the handlers who
currently are associated with the Mideast markets, the pool supply
plant definition of the consolidated Mideast order would provide for
all of the types of supply plants that currently qualify for pooling
under the 4 principal orders. The Eastern Ohio-Western Pennsylvania
pool plant provision includes a plant operated by a cooperative if the
cooperative association delivers to distributing plants at least 35
percent of the milk for which it is the handler during the current
month or over the preceding 12 months. The Southern Michigan order
includes as pool supply plants: (a) a plant that has been a pool plant
for 12 consecutive months and has a marketing agreement with a
cooperative association, and (b) a system of supply plants operated by
one or more handlers. Order 40 also includes some shipments to other
Federal order plants and partially regulated distributing plants, in
addition to pool distributing plants, as qualifying shipments by supply
plants.
The percentage of receipts as qualifying shipments to distributing
plants currently ranges from 30 to 40 percent for these orders, with
direct deliveries from farms rather than plant transfers limited to
half of the required deliveries under three of the orders. All four of
the orders require performance of pooling standards by supply plants
for the months of September through February, followed by a ``free
ride'' period during which shipping percentages need not be met by
supply plants that met the shipping standards during the required
period. The Indiana order contains a provision allowing the continued
pooling of a plant that fails to meet pooling standards because of
circumstances beyond the handler's control.
The proposed shipping standards for pool supply plants are 35
percent for all months, with plants meeting the standard for the months
of September through February being allowed to retain their pool status
for the immediately following months of March through August. For the
purpose of making the 35 percent level of shipping standard less
burdensome, up to 90 percent of required shipments should be allowed to
be made directly from farms
[[Page 4960]]
to distributing plants. The cooperative association plant provided for
in the Eastern Ohio-Western Pennsylvania order would be retained, as
would the supply plant provisions peculiar to the Southern Michigan
order.
Producer Milk
The producer and producer milk provisions of the orders to be
consolidated in the Mideast order are quite similar and differ little
from those to be incorporated in the other consolidated orders. The
principal difference between some of the individual orders and the
consolidated order would be the limit on the percentage of a handler's
pooled producer milk that may be diverted to nonpool plants. The Ohio
Valley, Indiana and Eastern Ohio-Western Pennsylvania orders all
contain 50 percent diversion limits for the months of September through
November, January and February and a 60 percent limit for the month of
December, with no diversion limit for the months of March through
August. The Southern Michigan order contains a 60-percent diversion
limit for the months of September through February, with no limit for
the months of March through August. In order to assure that all of the
milk that has been pooled under these orders continues to qualify for
pooling, the diversion limit proposed for the Mideast order is 60
percent for the months of September through February, with no limit for
the March through August period. At the same time, the market
administrator would be authorized to increase or reduce the diversion
limit as needed to maintain orderly marketing and efficient handling of
milk in the marketing area.
Multiple Component Pricing
The reporting and payment provisions of the proposed consolidated
Mideast order differ somewhat from those of the other consolidated
orders that provide for multiple component pricing (MCP) by retaining
the current Southern Michigan component pricing plan. The Southern
Michigan multiple component pricing plan is very similar to that
proposed for the other MCP orders, but prices ``fluid carrier'' instead
of ``other solids.'' The Mideast order language is changed accordingly.
This difference appears to be favored by market participants in the
Mideast, and would result in very little difference in total payments,
either by handlers or to producers whose milk is pooled under the
differing provisions.
Central Order
Many of the provisions of the proposed Central order are explained
in the ``Identical Provisions'' portion of this proposed rule, and need
not be addressed here. The provisions that deviate somewhat from those
proposed for other order areas are the provisions dealing with
standards for determining the pool status of producers and handlers. An
effort is made to explain significant differences between the pooling
provisions of the 8 individual orders included in this consolidation
and those of the consolidated order.
Pool Plant
The proposed Central pool distributing plant definition should
follow closely the provisions contained in most of the other proposed
orders. The proposed provisions would make no difference in the pool
status of distributing plants currently pooled under the individual
orders.
Specifically, the percentage of a handler's total route disposition
distributed within the marketing area that would result in the handler
being fully regulated under the Central order should be the 15-percent
standard proposed for most of the other 10 orders. The minimum
percentage of a pool distributing plant's actual physical receipts of
bulk fluid milk products that would have to be distributed on route is
proposed to be 25. Currently most of the orders to be included in the
consolidated Central order include milk diverted from the distributing
plant in the total bulk receipts used to compute the route disposition
percentages.
The proposed order would provide that a single handler be allowed
to form a unit of distributing plants and Class II manufacturing
plants, all of which must be located within the marketing area. The
unit would have to meet the requirements for a pool distributing plant,
and at least one of the plants in the unit would be required to meet
the pool distributing plant requirements as a separate plant. Plants in
the unit that do not meet the pool distributing plant definition would
be required to have disposition of packaged fluid milk products,
packaged fluid cream products, or cottage cheese and other Class II
products of at least half of their receipts of Grade A bulk fluid milk
products, including milk diverted by the plant operator.
The proposed inclusion of Class II manufacturing plants in units
with distributing plants is supported because the manufacturing plants
produce products such as packaged fluid cream, sour cream, and cottage
cheese that are marketed in conjunction with bottled fluid milk
products. In addition, some of these plants produce a limited quantity
of fluid milk products. Handlers have argued that the operator of a
free-standing manufacturing plant that manufactures these complementary
products should be able to pool its milk supply for both (or for
several) plants as if all of the products were made in the bottling
plant.
The pool supply plant definition of the consolidated Central order
would contain provisions that assure continued pool qualification for
any handlers or milk currently associated with the markets consolidated
into the proposed Central market. The Iowa order contains no limit on
the amount of direct-shipped milk that can be used to qualify a supply
plant, and several of the other orders allow such deliveries to make up
a portion of qualifying shipments. The proposed order allows direct-
shipped milk to be counted as pool qualifying shipments without limit.
The Greater Kansas City, Nebraska-Western Iowa, Southern Illinois-
Eastern Missouri, and Southwest Plains orders contain cooperative
balancing plant provisions, allowing cooperative-operated plants to be
pooled if the cooperative delivers a given percentage of the milk for
which it is the handler to pool distributing plants. The proposed
Central order also contains such a provision, including in the pool
plant definition a cooperative association plant that supplies at least
35 percent of the milk for which it is the handler to pool distributing
plants, either during the current month or for the immediately
preceding 12-month period. The deliveries to pool distributing plants
may include deliveries directly from the farms of producers for whom
the co-op is the handler, as well as transfers from the cooperative's
plant.
Cooperative association ``balancing plants'' serve the market as
the outlet of last resort. When surplus milk has no other place to go
on weekends, holidays, or during months of surplus production, it moves
to cooperative association ``balancing plants'' where it is
manufactured into storable products. When production decreases, these
plants operate at minimal capacity or may be shut down completely.
Cooperative members assume the burden and cost of processing surplus
milk through such plants.
Most of the Central orders allow a period during which supply
plants do not have to meet shipping percentages if they have done so
for the months during which milk production levels are
[[Page 4961]]
low and demand for fluid milk is high. The Iowa order has reduced
shipping standards for such months. The proposed order should include a
period during which supply plants that have served the needs of the
market when milk supplies are tight are not required to meet shipping
standards, but it is reduced from the 5-7 month period existing in the
current orders to a 3-month period from May through July.
The percentage of receipts as qualifying shipments to distributing
plants currently ranges from 30 to 50 percent for these orders, the
Iowa percentage reduced to 20 for the months of December through
August.
The proposed shipping standards for pool supply plants under the
proposed consolidated order are 35 percent for the months of September
through November and January and 25 percent for all other months, with
plants meeting the percentage standard for the months of August through
April being allowed to retain their pool status for the immediately
following months of May through July.
Groups of two or more supply plants should be allowed to form
systems of supply plants for the purpose of meeting the shipping
requirements, by shipping the same percentage as that required for
individual pool supply plants that are not part of such a system. These
pool supply plant systems may consist of plants of the same handler or
more than one handler, and may contain both proprietary and cooperative
handlers. The only requirement affecting each plant within the system
is that the plant must be physically located within the marketing area.
This restriction is necessary to prevent distant plants from receiving
the benefits of participating in the marketwide pool without having an
actual association with the market.
As in the other proposed consolidated orders, the market
administrator would have the authority to increase or reduce the
order's pooling provisions as marketing conditions change for the
purpose of assuring that an adequate supply of milk will be available
for fluid use, or to assure that the order does not require handlers to
undertake uneconomic movements of milk to maintain the pool status of
their plants.
Producer Milk
The producer and producer milk provisions of the orders to be
consolidated in the Central order are quite similar to each other and
differ little from those to be incorporated in the other consolidated
orders. The principal difference between some of the individual orders
and the consolidated order would be the limit on the percentage of a
handler's pooled producer milk that may be diverted to nonpool plants.
The percentage of a handler's milk that may be diverted to nonpool
plants varies under the individual orders from 20 percent of milk
received at pool plants during some months under the Eastern Colorado
order to 70 percent for some months under the Nebraska-Western Iowa and
Iowa orders. Most of the orders require each producer's milk to be
received at a pool plant at least once each month.
In order to assure that all of the milk that has been pooled under
these orders continues to qualify for pooling, the diversion limit
proposed for the Central order is 65 percent for the months of
September through November and January, and 75 percent for the months
of February through April and December. Allowable diversions for the
months of May through July would be unlimited. There would be no
requirement that each producer's milk be received at pool plants for a
minimum number of days per month. At the same time, the market
administrator would be authorized to increase or reduce the diversion
limit as needed to maintain orderly marketing and efficient handling of
milk in the marketing area.
Multiple Component Pricing
The reporting and payment provisions of the proposed consolidated
Central order would include those common to other orders with multiple
component pricing. These markets have a significant amount of milk used
in manufactured products, and component pricing will enable producers
to be paid according to the valuable components of their milk.
6d. Western Region
Southwest Order
The proposed consolidated Southwest marketing area is comprised
principally of the current Texas and New Mexico-West Texas marketing
areas. With regard to milk production and population (consumption),
these areas are both in the process of change, but in different ways.
Texas has one of the fastest-growing populations in the U.S., and until
recently has been able to maintain milk production on a per capita
basis. After a significant increase in milk production during the 1988-
1994 period, Texas milk production has been declining somewhat,
accompanied by the exit of approximately 29 percent of the State's
Grade A dairy farmers. If the current trend continues, the Texas market
could come to resemble more closely those of the Southeast portion of
the U.S., relying significantly on more distant milk supplies to meet
the market's Class I and II needs. This scenario currently is true for
the southern parts of Texas.
The State of New Mexico has experienced relatively slow population
growth, but dramatic increases in milk production--from 1.099 billion
pounds in 1988 to an estimated 4.020 billion pounds in 1997. With the
declining production in Texas, the New Mexico milkshed will be drawn
upon more often to supply Class I and II needs in the Texas demand
centers, 500-600 miles distant. Procurement costs would be expected to
increase dramatically. In light of these circumstances, proposed
provisions in the proposed Southwest order would provide flexibility to
handlers supplying the market to prevent inefficient movements of milk
and unnecessary costs of operation incurred for the purpose of
participating in the marketwide pool.
Prior to enactment of the 1996 Farm Bill, cooperatives operating in
the Southwestern Markets had determined that the two milk orders in the
region were being operated as one and should be merged. Much discussion
took place and proposed order provisions were developed by the
principal cooperatives involved. These comments, with numerous others,
were considered in the development of this proposed rule for the
Southwest marketing area.
Pooling Standards
Most of the pooling standards in the Texas and New Mexico-West
Texas orders have been suspended for some time. The rapid expansion of
milk production in the region during the late 1980's created a
situation in which handlers operating in the region could no longer
meet the provisions of the orders while pooling all of their milk
supplies.
Pool Distributing Plant. The identical provisions committee
recommended that a pool distributing plant distribute as route
disposition at least 25% of its bulk fluid milk receipts at the plant,
and distribute at least 15% of its total route disposition within the
marketing area. One partially regulated plant located in the Texas
marketing area would become fully regulated under this provision. The
plant has been partially regulated under the Texas order and,
periodically, fully regulated under the Chicago Regional order. The
proposed percentages for pool distributing plants will cause this plant
to become fully regulated under the Southwest order and alleviate the
disorderly conditions caused by its shifts between orders. There should
be no change in the
[[Page 4962]]
plant's costs, since their supply of milk comes from Southwest pool
sources.
Pool Supply Plant. The Texas and New Mexico-West Texas orders
currently contain a 50% pool supply plant shipping percentage during
the Fall months, with a lower percentage or an automatic pooling
provision for the remaining months. Currently there are no pool supply
plants regulated under either of the Southwest orders, but provision is
made for such an operation if it should meet the proposed order's
definition. A provision defining cooperative plants located in the
marketing area would base pool qualification on total cooperative
performance in delivering at least 30 percent of the cooperative's milk
supply pooled under this order to pool distributing plants.
Although neither the Texas nor New Mexico-West Texas orders
currently have provisions for split-plant operations (plants that have
both pool and nonpool portions) or the authority for the Market
Administrator to adjust shipping requirements, these provisions are
included in the proposed order, as recommended by the identical
provisions committee.
Producer Milk
The current Texas and New Mexico-West Texas orders have provisions
that require a producer's milk to be received at a pool plant, or touch
base, before milk of the producer is eligible to be diverted. Based on
comments received, the order would limit diversions of producer milk on
the basis of a portion of a handler's total milk supply. At least fifty
percent of the milk pooled by a handler should be received at pool
plants for the handler's entire milk supply to be pooled. Milk produced
by producers located in the marketing area should be eligible for
pooling without a particular percentage or number of days' production
being required to be received at a pool plant. For producers located
outside the marketing area, however, the currently-suspended ``touch-
base'' provision of 15% delivered to pool plants during the month
(rather than before diversions are allowed), is continued in this
proposed rule.
Diversion limits are suggested to be 50% of a handler's total milk
supply. The current Texas order allows an amount equal to one-third of
the milk delivered to pool plants to be diverted (this provision is
currently suspended), while the (currently suspended) New Mexico-West
Texas provision allows 50% of a handler's total milk supply to be
diverted. The current Texas order provisions base allowable diversions
on deliveries to individual pool plants, greatly exacerbating the time
and effort required to keep track of milk movements. The total
performance standard will allow handlers to meet diversion limits more
easily with more efficient movements of milk. In addition, the
increased percentage of allowable diversions will assure that all of
the producers whose milk would qualify for pooling under either of the
two orders being consolidated would continue to meet pooling
qualifications.
Transportation Credits for Surplus Milk
The Texas order currently has a market-wide service payment
provision that gives credits for hauling surplus milk located in
certain zones in Texas to nonpool plants outside the State for use in
manufactured products. The provision has not been included in the
proposed Southwest order language because of declining production and
increasing balancing plant capacity in the affected areas of Texas.
Payment Provision
The Texas order is one of only a few marketing orders that require
handlers to submit the full classified value during the month to the
market Administration. In turn, the Market Administrator acts as a
clearing house and forwards these proceeds on to the respective
organizations. Interested persons have expressed an interest in
retaining these provisions, not only for the proposed Southwest order,
but for all other orders.
The current Texas payment provision was found necessary because of
problems encountered in assuring timely payments by pooled handlers.
The provision has been in the Texas order since 1979, and the earlier
payment problems have been remedied. Such a provision involves a rather
large degree of regulatory intervention between milk processors and
their suppliers that should be shown to be necessary to correct
existing problems. There is no indication that such problems currently
exist, or would exist in the absence of the provision. Nearly all of
the milk that will be pooled under the consolidated Southwest order is
produced by cooperative members and pooled by the cooperatives. These
large, business-oriented organizations should be able to assure that
they receive full payment for their members' milk in a timely manner.
Arizona-Las Vegas Order
Many of the provisions of the proposed Arizona-Las Vegas order are
explained in the ``Identical Provisions'' portion of this proposed rule
and need not be addressed here. Those provisions that deviate to some
extent from the ``Identical Provisions'' are addressed in this
discussion.
Pool Plant
The proposed pool distributing plant definition is similar to that
contained in most of the other proposed orders. The minimum percentage
of a pool distributing plant's physical receipts of bulk fluid milk
products that are disposed of as route disposition is proposed to be
25%. The percentage of a handler's total route disposition into the
marketing area that would result in a distributing plant becoming fully
regulated under the Arizona-Las Vegas order is proposed to be 15%.
While this definition differs slightly from the current order language,
it provides uniformity with other proposed orders and should result in
no additional distributing plants being pooled under the proposed order
or any change in the pool status of distributing plants currently
pooled.
The proposed pool supply plant definition would require a supply
plant to ship 50% of its physical receipts of milk from dairy farmers
to pool distributing plants during the month in order to be a pool
supply plant. This definition would provide for easy, effective order
administration and would result in no additional handlers being
regulated under the order. There are currently no pool supply plants in
the proposed marketing area.
The current Central Arizona order permits a manufacturing plant
located in the marketing area that is operated by a cooperative
association to be a pool plant, provided that the cooperative ships at
least 50% of its member milk to pool plants of other handlers during
the current month or the previous 12-month period ending with the
current month. This percentage requirement is currently suspended. The
proposed order would reduce this percentage to 35%. In conjunction with
the market administrator being authorized to increase or reduce the
percentage in response to market conditions, the reduced performance
standard should enable the continued pooling of producer milk that
currently is pooled without resulting in uneconomic handling or
disorderly marketing.
The proposed Arizona-Las Vegas order should provide that a single
handler be allowed to form a unit of distributing plants and Class II
manufacturing plants provided each plant is located within the
marketing area. The unit in total would be required to meet the
requirements for a pool distributing plant and at least one of the
[[Page 4963]]
plants in the unit would be required to meet the pool distributing
plant definition individually. This provision would provide uniformity
with other federal orders and would not change the status of any plants
currently pooled. Class II manufacturing plants are included for unit
pooling with distributing plants operated by the same handler because
such plants produce products that are marketed in conjunction with
fluid milk products.
A provision permitting the market administrator to adjust the
percentages specified in the pool plant definition will provide the
flexibility to respond in a timely manner to changing marketing
conditions without the need for a formal hearing process.
Producer
The proposed order contains a dairy farmer for other markets
definition. A producer could not be pooled under the proposed Arizona-
Las Vegas order unless all of the milk from the same farm was pooled
under this or some other federal order or unless such nonpooled milk
went to a plant with only Class III or Class IV utilization. This
differs slightly from the current definition in the Central Arizona
Order. Such a provision is needed in the proposed order to prevent
dairy farmers whose milk is regularly used for fluid disposition in
other markets from pooling the surplus portion of their production
under the proposed order.
Producer Milk
The percentage of a handler's pooled milk that may be diverted to
nonpool plants is proposed to be 20% in any month. Currently,
diversions under the Central Arizona order are limited to eight days'
production of a producer during four months of the year, with unlimited
diversions the remainder of the year. The 20% diversion limit would
result in the amount of milk eligible for diversion being approximately
equivalent to eight days' production and would be easier to administer.
The 20% limit year round will assure that pooled milk will have a close
association with the market's fluid processing plants.
Component Pricing
The proposed Arizona-Las Vegas order does not provide for multiple
component pricing. There are six plants that are expected to be
regulated under the proposed order: five proprietary distributing
plants, and one manufacturing plant operated by a cooperative
association. The Class I utilization for the proposed order is expected
to be less than 50 percent, a level that would, in some other orders,
be an indication that component pricing would be appropriate. However,
the Class I utilization at the five distributing plants is more than 80
percent. With the exception of the one cooperative balancing plant, the
handlers to be regulated constitute predominantly a Class I market.
They have expressed no interest in component pricing, and the fluid
nature of much of the market would not seem to warrant multiple
component pricing at this time.
Western Order
Many of the provisions of the proposed Western order are explained
in the ``Identical Provisions'' portion of this proposed rule and need
not be addressed here. Those provisions that differ from those
explained in the ``Identical Provisions,'' or those currently contained
in the orders to be consolidated, are discussed below.
Pool Plant
The proposed pool distributing plant definition is similar to that
contained in most of the other proposed orders. The minimum percentage
of a pool distributing plant's physical receipts of bulk fluid milk
products that are disposed of as route disposition is proposed to be
25%. The percentage of a handler's total route disposition distributed
into the marketing area that would result in a distributing plant
becoming fully regulated under the Western order is proposed to be 15%.
While this definition differs slightly from the current language of the
orders involved in this proposed consolidation, it provides uniformity
with other proposed orders and should result in no additional
distributing plants being pooled under the proposed order or any change
in the pool status of distributing plants currently pooled.
The proposed pool supply plant definition would require a supply
plant operator to ship 35% of the milk pooled at the supply plant,
either by transfer or diversion, to pool distributing plants during the
month in order to qualify for pooling. This definition would provide
for more efficient order administration and would result in no
additional handlers being regulated under the order. The proposed
percentage is slightly higher than that contained in the current
Southwest Idaho-Eastern Oregon order and slightly lower than that
contained in the current Great Basin and Western Colorado orders. This
change should result in no milk that is currently associated with any
of the three orders losing such association.
The proposed pool supply plant definition includes provision for a
March through August period during which a supply plant that has met
the order's shipping percentages for the preceding months of September
through February to be able to continue to be a pool plant without
meeting the shipping standards. As with other proposed orders, the
market administrator would have the authority to increase or decrease
the order's supply plant pooling standards as marketing conditions
change.
The proposed order contains a provision that would permit a
manufacturing plant operated by a cooperative association and located
in the marketing area to be a pool plant if 35% of the milk for which
the cooperative is the handler is received at pool distributing plants
during the month or during the immediately preceding 12-month period.
This provision is similar to one currently contained in the Great Basin
order and in some of the other proposed orders. The proposed order
retains the ``bulk tank handler'' provision that is currently in the
Southwestern Idaho-Eastern Oregon order, permitting a handler other
than a cooperative association to divert milk to nonpool plants for the
handler's account based on shipments of milk to pool plants of other
handlers.
Although the three current orders proposed to be consolidated do
not contain such a provision, the proposed Western order would provide
that a single handler be allowed to form a unit of distributing plants
and Class II manufacturing plants provided each plant is located within
the marketing area, as suggested by the Identical Provisions committee.
The unit in total would be required to meet the requirements for a pool
distributing plant and at least one of the plants in the unit would be
required to meet the pool distributing plant definition individually.
This provision would provide uniformity with other federal orders and
would not change the status of any plants currently pooled. Class II
manufacturing plants are proposed to be included for unit pooling with
distributing plants operated by the same handler because such plants
produce products that are marketed in conjunction with fluid milk
products.
Producer
The proposed order contains a dairy farmer for other markets
definition. A producer would not qualify for pooling under the proposed
Western order unless all of the milk from the same farm was pooled
under this or some other federal order or unless such nonpooled milk
went to a plant with only Class III or Class IV utilization.
[[Page 4964]]
This differs slightly from the current definition in the Great Basin
order. Such a provision is proposed for the consolidated order to
prevent dairy farmers whose milk is regularly used for fluid
disposition in other markets from pooling the surplus portion of their
production on the proposed order.
Producer Milk
The percentage of a handler's pooled milk that may be diverted to
nonpool plants is proposed to be 80% in any month. This is identical to
the percentage currently included in the Southwestern Idaho-Eastern
Oregon order and is only slightly higher than that for the present
Great Basin order, which is 75% for cooperatives and 70% for
proprietary handlers. The 80% limit on movements of pooled milk to
nonpool plants should permit all milk associated with the market that
is not needed at pool plants during the month to be pooled and priced
under the order. These percentages are higher than those contained in
the Western Colorado order, but should not have the effect of
encouraging additional amounts of unneeded milk to be pooled in that
area.
Reports of Receipts and Utilization and Payroll Reports
The proposed order requires pool handlers to file a ``report of
receipts and utilization'' on or before the seventh day after the end
of the month. This is identical to the current reporting date in the
Western Colorado and Great Basin orders but two days earlier than the
same provision in the Southwestern Idaho-Eastern Oregon order. Almost
all handlers currently file reports by FAX or some other form of
electronic data transfer, which eliminates delays due to mail handling.
A seven-day reporting period should allow adequate time for handlers to
prepare reports and will allow the computation and release of producer
price information to occur on or before the 12th day after the end of
the month.
The date on which the report of payments to producers is proposed
to be due to the market administrator under the Western order is on or
before the 21st day after the end of the month. This is the same date
as that under the Great Basin order, but one day earlier than under the
Southwestern Idaho-Eastern Oregon order and two days earlier than the
Western Colorado order. The earlier reporting date and announcement of
producer prices should assure that an earlier payroll reporting date
would not be burdensome.
Multiple Component Pricing
Both the Great Basin order and the Southwestern Idaho-Eastern
Oregon order currently have multiple component pricing based on
protein; the Western Colorado order does not. The multiple component
pricing provisions of the proposed Western order should be the same as
those for other proposed orders that provide for multiple component
pricing based on protein. The proposed Western order has a significant
amount of milk used in manufactured products, especially cheese, and
component pricing will enable producers to be paid according to the
value of the components of their milk. However, the somatic cell
adjustment included in most of the rest of the orders for which
component pricing is proposed is not warranted by marketing conditions
under the Western order, and such an adjustment is not included.
Payments to and From the Producer Settlement Fund
Payments to the producer settlement fund under the proposed order
are due on or before the 14th day after the end of the month. This is
two days after the announcement of uniform producer prices, which is an
identical time period to that which exists in the three current orders
proposed to be consolidated.
Payments from the producer settlement fund under the proposed order
would be due on or before the 15th day after the end of the month. This
is the same date as under the current Great Basin order, three days
earlier than under the Southwestern Idaho-Eastern Oregon order, and one
day later than the Western Colorado order. This payment date should be
practicable given the use of current banking and transmission
techniques.
Payments to Producers and Cooperative Associations
Under the proposed order, partial payments would be due from
handlers to producers who are not members of cooperative associations
on or before the 25th day of the month in an amount not less than 1.2
times the lowest class price for the preceding month multiplied by the
hundredweight of milk received from such producers during the first 15
days of the month. Final payments would be due on or before the 17th
day after the end of the month.
Partial payments to cooperative associations would be due on or
before the 24th day of the month at the same rate as above, with final
payments due on or before the 16th day after the end of the month.
These final payment dates represent very little or no change from the
orders' present payment dates. The proposed partial payment dates are
earlier than those required under the current orders, but are very
close to those suggested by the Identical Provisions committee, and
compliance should present no hardship to handlers who would already
have had the use of the producers' milk for 9 to 23 days.
Pacific Northwest Order
Many of the provisions of the proposed Pacific Northwest order are
explained in the ``Identical Provisions'' portion of this proposed
rule, and need not be addressed here. The provisions that deviate
somewhat from those proposed for other order areas are the provisions
dealing with standards for determining the pool status of producers and
handlers, the definition of producer-handlers, the factors upon which
payments to producers are calculated, and reporting and payment dates.
Because this order is not proposed to be consolidated with any other
orders, there is little reason for changing the substance of many of
the provisions that are not included in the General Provisions.
Pool Distributing Plant
The pool distributing plant provisions of the proposed Pacific
Northwest Order would be changed from the current definition to one
that more closely resembles the definition suggested in the identical
provisions report. Rather than basing the identification of a pool
distributing plant on only 10 percent of the plant's receipts as in-
area route dispositions, the order should specify that such a plant
have at least 25 percent of its physical receipts distributed as route
disposition, and at least 15 percent of its route disposition
distributed within the marketing area.
It is not expected that the proposed pooling standard will affect
the pool status of any plant that currently does or does not meet the
pooling standard of the Pacific Northwest order. In addition, it would
remedy a provision that could result in fully regulating a plant that
has minimal association with the marketing area.
Pool Supply Plant
For the most part, the current pool supply plant definition of the
Pacific Northwest order is appropriate to the marketing conditions in
the area. However, the provision that currently requires a handler to
include producer milk moved directly to pool distributing plants in the
shipments on which pool plant performance is calculated would be
changed to allow the handler to
[[Page 4965]]
include such movements if the handler wants to qualify its plant for
pooling. A plant operator who receives milk at a plant only for
manufacturing use also would be able to supply producer milk directly
to distributing plants without a requirement that the manufacturing
plant be a supply plant.
The Pacific Northwest order's current pool supply plant performance
standard of 20 percent of milk receipts shipped to distributing plants
should continue to be appropriate for this market. The current March
through August period during which supply plants do not have to ship
the minimum percentage to distributing plants if they have done so
during the previous September through February period would continue to
be included in the pool supply plant definition.
As in the other proposed consolidated orders, the market
administrator is proposed to have the authority to increase or decrease
the order's pooling provisions as marketing conditions change for the
purpose of assuring that an adequate supply of milk will be available
for fluid use, or to assure that the order does not require handlers to
undertake uneconomic movements of milk to maintain: (1) the pool status
of their plants, or (2) the pooling of producers who have historically
been associated with the market and who help serve Class I needs.
Nonpool Plant
The current definition and exemption for milk produced and
processed by state institutions, as contained in the present order's
producer-handler definition, would be expanded and moved to be included
in the ``Nonpool plant'' definition contained in the General
Provisions. Such entities, along with colleges and universities and
charitable organizations, would not be subject to the orders' pricing
and pooling provisions as long as they have no sales in commercial
channels.
The present Pacific Northwest order provisions allow a state
institution to avoid any regulation on the portion of its milk that is
used only within the institution, and apply some pricing regulation to
that portion that is distributed in commercial channels. In some
respects, this arrangement is similar to the situation of partially
regulated distributing plants. However, partially regulated
distributing plant operators, to avoid obligations under Federal
orders, must show that they pay the dairy farmers who ship milk to them
at a rate at least commensurate with that paid to producers whose milk
is pooled under the order. In any case, they must procure a milk supply
in the competitive market. State institutions may have any number of
cost advantages over regulated handlers in the production and
processing of milk, such as not having to pay a minimum wage and not
having to pay property taxes. It would be unjust to allow such
institutions to compete with fully regulated handlers in regular
commercial channels as if the playing field were level. Therefore,
state and other institutions that compete with regulated handlers in
regular commercial channels, such as bids for school milk programs,
would also be fully regulated.
Producer-Handler
The current Pacific Northwest producer-handler provisions should
remain essentially untouched. Some of the ``Identical Provisions''
features of the producer-handler definition, such as the 150,000-pound
thresholds for route dispositions, own farm production, and receipts
from pool plants; and the ability to request to operate as both a pool
plant and a producer, would be adopted. The rest of the current
producer-handler provisions would remain in effect for administrative
purposes.
Producer-handlers represent a much larger portion of the Class I
dispositions in the Pacific Northwest marketing area than in most other
Federal order areas. In many marketing areas, producer-handlers supply
1 percent or less of the Class I sales. In the Pacific Northwest area,
however, they furnish almost 10 percent of the market's Class I
dispositions. The larger average size of the dairy farmers in the
western United States makes more likely the existence of a producer-
handler that is a significant factor in the market.
The current order's producer-handler provisions are based on the
history of producer-handler operations in this marketing area,
reflecting difficulties encountered in order administration, attempts
to circumvent order provisions, and court challenges.
In addition to the current order provisions, the producer-handler
definition would also contain language clarifying that milk received by
the producer-handler at a location other than the producer-handler's
processing plant for distribution on routes will be included as a
receipt from another handler.
Reserve Supply Unit
The Pacific Northwest order would continue to provide for a
cooperative reserve supply unit. The existing provision has many
similarities to a reserve supply plant, which is not provided in this
order but which is included in several of the proposed consolidated
orders.
Under the terms of the present provision, the cooperative members
of the reserve supply unit must be located near a pool distributing
plant, as a reserve supply plant must be located in the marketing area.
Both the reserve supply unit and the reserve supply plant provisions
require that the plant or unit operator request prior approval of the
market administrator to initiate and cancel their status, both require
long-term association with the market, and both provide substantial
penalties for failing to meet all required conditions. Although the
cooperative unit does not have monthly qualification requirements, it
is subject to a call by the market administrator after the market
administrator's investigation of the need for supplemental supplies of
milk. Because of the current existence of this provision, based on the
need shown at a public hearing, and its similarities to a pooling
mechanism suggested for other orders, provision for the cooperative
reserve supply unit would continue to be included in the proposed
Pacific Northwest order.
Producer and Producer Milk
The proposed Pacific Northwest order would contain a ``dairy farmer
for other markets'' provision for each month of the year. The large
volume of milk production in California and California's quota system
give dairy farmers an incentive to pool production in a volume equal to
their quota pounds on the California order, and then attempt to share
in the Pacific Northwest Class I market with their over-quota
production, for which returns under the California order are much less.
At the same time, none of the California Class I returns would be
shared with Pacific Northwest producers. Similarly, the reserve
supplies for the State-regulated markets of Western Nevada and Montana
should not be allowed to share in returns from the Pacific Northwest
order's higher classes of utilization while enjoying the benefits of
the State orders' Class I returns.
The current provisions of the Pacific Northwest order do not
require that a producer's milk be received at pool plants for the
producer's first pooled delivery on the market or for any specified
period. If a handler meets its overall performance requirements for
supplying milk to the market, it should make no difference which
individual producer's milk is actually delivered to pool plants as long
as the milk of each
[[Page 4966]]
producer participating in the pool is Grade A and available to the
market if and when needed. It is expensive, inefficient, and
unnecessary to move milk from areas close to nonpool manufacturing
plants to bottling plants in the city markets when that milk is not
needed for bottling. For the above reasons and the physical fact that
there are often great distances and mountainous terrain between plants
and farms in the more sparsely populated West, no ``touch base''
requirements should be included.
This order and other western orders have allowed producers to pool
milk on more than one order during the same month. Because of the
locations of a number of dairy farmers, their milk may be used by pool
plants regulated under more than one order in a single month. These
producers also represent a reserve supply for more than one market.
Large, multi-market handlers should be given the flexibility to market
and transport their milk to fulfill the needs of their customers in the
most efficient way possible.
The small degree of change from the current provisions necessary in
the pooling provisions of the proposed Pacific Northwest results in
very little change proposed for the order's diversion limits. The limit
of 80% of the handler's supply of producer milk should remain
unchanged, with the months during which the percentage is effective
changed from September through April to September through February.
These months will correspond to the months during which supply plants
must ship 20 percent of their receipts to pool distributing plants.
There would be no limit on diversions of producer milk for the months
of March through August. These delivery standards have not been overly
restrictive nor associated unneeded supplies with the market and should
be allowed to continue without change.
Payments to Producers and Cooperative Associations
Although the current Pacific Northwest order contains a multiple
component pricing plan very like that proposed to be standard for the
consolidated orders, it does not now and would not under this reform
process contain a somatic cell adjustment provision. The level of
somatic cells in the western U.S. is generally lower than in the east,
with an overall average of approximately 250,000 instead of 350,000.
This lower somatic cell count would seem to reduce the need for such a
provision. Historically, the principal argument for a somatic cell
adjuster has been the negative effect of somatic cells on the cheese
yields. Although cheese manufacturing in the Northwest is increasing,
most cheese manufacturing is done by cooperative associations who have
expressed the opinion that an adjustment for somatic cells is a quality
issue best dealt with internally. The somatic cell adjustments in the
proposed consolidated orders are not incorporated in the proposed
Pacific Northwest order.
Announcement of Producer Prices
The dates on which handler reports, market administrator's
announcement of producer prices, and payment to producers would remain
unchanged from those of the current order.
8. Miscellaneous and Administrative
(a) Consolidation of the Marketing Service, Administrative Expense, and
Producer-Settlement Funds
To complete the proposed consolidation of the present 31 Federal
orders effectively and equitably, the reserve balances in the marketing
service, administrative expense, and producer-settlement funds that
have resulted under the individual orders would be combined.
The balances in these three funds should be combined on the same
basis that the marketing areas are consolidated into regional orders
herein. For instance, the Texas and New Mexico-West Texas marketing
areas are merged into a new regional Southwest order. Accordingly, the
reserve balances in the marketing service, administrative expense and
producer-settlement funds of the two individual orders likewise should
be combined into three separate funds established under the
consolidated Southwest order.
The marketing areas of the proposed 11 consolidated orders
essentially represent the territory covered by the 31 individual orders
plus the territory included in the former Tennessee Valley marketing
area. Because of this, the handlers and producers servicing the milk
needs of the individual markets will continue to furnish the milk needs
of the applicable regional market for the most part.
In that regard, the reserve balances in the funds that have
resulted under the 31 individual orders should be combined on a
marketing area basis into the appropriate separate fund established for
each of the 11 regional orders. Any liabilities of such funds under the
individual orders would be paid from the appropriate newly established
fund of the applicable regional order. Similarly, obligations that are
due the separate funds under the individual orders would be paid to the
appropriate combined fund of the applicable consolidated order.
In most cases, the entire marketing area of an order or orders is
included in the proposed consolidated marketing area of one of the 11
regional orders. Three present marketing areas would be split between
two consolidated orders. One county of the present Louisville-
Lexington-Evansville (Order 46) marketing area would be included in the
Southeast order, and the rest of the territory in the Order 46
marketing area would be included under the Appalachian order. Even
though one Order 46 county is included in the proposed Southeast order,
all of the present Order 46 producers and handlers are expected to be
covered under the proposed consolidated Appalachian order. Accordingly,
the balances in the Order 46 marketing service, administrative expense,
and producer settlement funds should be consolidated into the three
separate funds established for the consolidated Appalachian market.
Different regulatory situations, however, will occur in the other
two instances where a current marketing area is divided between two
proposed consolidated orders. One county of the current Great Basin
(Order 139) marketing area would be included in the consolidated
Arizona-Las Vegas order and the rest of the Order 139 marketing area
would be included in the consolidated marketing area for the West. Some
of the present Order 139 producers and handlers would become regulated
under the Arizona-Las Vegas consolidated order and others would become
regulated under the regional order for the West. Similarly, two zones
of the Michigan Upper Peninsula (Order 44) marketing area would be
included in the consolidated Upper Midwest marketing area and the other
zone of the Order 44 marketing area would be included in the marketing
area for the Mideast regional order. Accordingly, any reserve balances
in the marketing service, administrative expense and producer-
settlement funds of these two individual orders should be divided
equitably among the applicable consolidated orders.
The money accumulated in the marketing service funds of the
individual orders is that which has been paid by producers for whom the
market administrators are performing such services. Since the marketing
areas of the proposed 11 regional orders encompass the territory
covered by the individual orders, for the most part, the producers who
have contributed to the
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marketing service funds of the individual orders are expected to
continue supplying milk for the consolidated orders. Since marketing
service programs will be continued for these producers under the
regional orders, it would be appropriate to combine the reserve
balances in the marketing service funds of the order or orders that are
represented in the consolidation of each of the proposed 11 regional
orders.
When the proposed consolidated marketing area includes the
marketing area of one or more individual orders, any remaining balance
in the marketing service fund of the individual order or orders should
be combined in the marketing service fund established for the
applicable consolidated order. If a current marketing area is split
between two consolidated markets and the regulatory status of producers
and handlers is divided between the two regional orders, as is the case
with the Michigan Upper Peninsula and Great Basin orders, any balance
in the marketing service fund of the individual order should be
prorated between the two consolidated orders on the basis of the amount
of milk subject to the marketing service deduction that will be covered
by each respective regional order (using producer deliveries in the
last month the individual orders are in effect but assuming that the
marketing areas had been consolidated).
The money paid to the administrative expense fund is each handler's
proportionate share of the cost of administering the order. For the
most part, handlers currently regulated under the individual orders
will continue to be regulated under the proposed consolidated orders.
In view of this, it would be an unnecessary administrative and
financial burden to allocate the reserve funds of the individual orders
back to handlers and then accumulate an adequate reserve for each of
the consolidated orders. It would be as equitable and more efficient to
combine the remaining administrative monies accumulated under the
individual orders in the same manner as the marketing areas are
proposed to be combined.
For the orders where the proposed consolidated marketing area
includes the regulated territory of one or more of the individual
orders, any remaining balance in the administrative expense fund of the
individual order or orders would be combined into the administrative
expense fund established for the applicable consolidated order. In the
situations where the current individual marketing area is split and the
regulatory status of producers and handlers is divided (as in the case
of the Michigan Upper Peninsula and Great Basin orders) between two
consolidated marketing areas, the remaining balance in the
administrative expense fund should be prorated between the two regional
orders on the basis of the amount of milk that would be pooled and
priced under each respective consolidated order (using producer milk
deliveries during the last month the individual orders are in effect
but assuming that the orders had been consolidated).
Likewise, the producer-settlement fund balances of the individual
orders should be combined. They should be combined on the same basis as
the marketing areas are consolidated herein. This will enable the
producer-settlement funds of the consolidated orders to continue
without interruption.
The producers currently supplying the individual markets are
expected to supply milk for the proposed consolidated markets. Thus,
monetary balances in the producer-settlement funds of the individual
orders now would be reflected in the pay prices of the producers who
will benefit from the applicable consolidated orders. The combined fund
for each proposed consolidated order also would serve as a contingency
fund from which money would be available to meet obligations (resulting
from audit adjustments and otherwise) occurring under the individual
orders.
The same procedure used in combining the remaining balances in the
marketing service and administrative expense funds of the individual
orders should be followed in combining the producer-settlement fund
balances when the individual orders are consolidated. For orders where
the consolidated marketing area includes the marketing area of one or
more orders, any remaining balance in the producer-settlement fund of
the individual order or orders would be combined into the producer-
settlement fund established for the applicable consolidated order. In
the two situations (Michigan Upper Peninsula and Great Basin) where the
marketing area of a current order is split between two proposed
consolidated orders and some of the individual market's producers and
handlers would be regulated under one consolidated order and others
would be regulated under another consolidated order, the balance in the
producer-settlement fund should be divided equitably between the two
consolidated orders. Since the Michigan Upper Peninsula order is an
individual-handler pool market, no producer-settlement fund is
provided. The remaining balance in the producer-settlement fund of the
Great Basin order should be prorated between the consolidated Arizona-
Las Vegas order and the regional order for the West on the basis of the
amount of milk that will be pooled and priced under each respective
proposed consolidated order (using producer milk deliveries during the
last month the individual orders are in effect but assuming that the
orders had been consolidated).
(b) Consolidation of the Transportation Credit Balancing Funds
To complete the consolidation process, the reserve balances in the
transportation credit balancing funds that are in effect now under
three Southeast orders (Carolina, Order 5; Southeast, Order 7; and
Louisville-Lexington-Evansville, Order 46) should be consolidated also.
These funds should be combined on a marketing area basis. In that
regard, the reserve balances in the transportation credit balancing
funds of the Carolina and Louisville-Lexington-Evansville orders should
be consolidated into a newly established transportation credit
balancing fund for the Appalachian order, which also includes the
current marketing areas of these two orders with the exception of one
county. Similarly, the reserve balance in the transportation credit
balancing fund of the present Southeast order should be transferred to
the consolidated Southeast order, which includes all of the marketing
area of the present Southeast order. These procedures will enable the
transportation credits to continue without interruption under these two
proposed consolidated orders.
(c) Proposed General Findings
The proposed findings and determinations hereinafter set forth
supplement those that were made when the aforesaid orders were first
issued and when the |
