[Federal Register Volume 63, Number 228 (Friday, November 27, 1998)]
[Rules and Regulations]
[Pages 65517-65524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31587]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 63, No. 228 / Friday, November 27, 1998 /
Rules and Regulations
[[Page 65517]]
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NORTHEAST DAIRY COMPACT COMMISSION
7 CFR Parts 1301 and 1304
Over-Order Price Regulation
AGENCY: Northeast Dairy Compact Commission.
ACTION: Final rule.
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SUMMARY: This rule amends the Compact Over-order Price Regulation to
limit the payment of the Compact Over-order producer price to milk
disposed of within the Compact regulated area, with a seasonally
adjusted allowance for diverted or transferred milk, but does not
restrict Compact payment on bulk transfers of processed fluid milk
products. This rule also amends the definitions of producer and
producer milk to be consistent with the amended rules regarding
diverted and transferred milk, and further amends the definition of
producer to include December 1998 as an additional requirement for
qualification.
EFFECTIVE DATE: January 1, 1999.
ADDRESSES: Northeast Dairy Compact Commission, 43 State Street, P.O.
Box 1058, Montpelier, Vermont 05601.
FOR FURTHER INFORMATION CONTACT: Kenneth M. Becker, Executive Director,
Northeast Dairy Compact Commission at the above address or by telephone
at (802) 229-1941, or by facsimile at (802) 229-2028.
SUPPLEMENTARY INFORMATION:
I. Background
On June 11, 1998 the Northeast Dairy Compact Commission issued a
notice of proposed rulemaking 1 to consider amendments to
the Compact Over-order Price Regulation that would exclude milk from
the pool which is either diverted or transferred, in bulk, out of the
Compact regulated area. The Commission held a public hearing to receive
testimony on the proposed rules on July 1, 1998 and additional comments
and exhibits were received until 5:00 PM on July 15, 1998. The
Commission held a deliberative meeting on August 5, 1998 2
to consider the testimony and comments received and to discuss
modifications to the proposed rules based on that information. The
Commission determined that it required additional information on the
issues and published notice 3 (1) that an additional public
hearing would be held on September 2, 1998; (2) that the comment period
would be extended to September 16, 1998 to receive further testimony
and comment on the proposed rules regarding diverted and transferred
milk; and (3) that the Commission was considering updating the
definition of producer to include December 1998 as an additional
requirement for qualification.
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\1\ 63 FR 31943 (June 11, 1998). In this same notice of proposed
rulemaking, the Commission also proposed to establish a reserve fund
for reimbursement to school food authorities. The final rule
establishing the reserve fund was published at 63 FR 46385
(September 1, 1998).
\2\ Public notice of this meeting was published at 63 FR 40069
(July 27, 1998).
\3\ 63 FR 43891 (August 17, 1998).
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The Commission held a second deliberative meeting on October 7,
1998 4 to consider all oral and written comments received at
the public hearings held on July 1, 1998 and September 2, 1998 and the
additional comments received by the Commission's published comment
deadlines, and to deliberate and act on the proposed amendments to the
Over-order Price Regulation.
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\4\ Public notice of this meeting was published at 63 FR 51864
(September 29, 1998).
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Based on the oral testimony and written comments and exhibits
received, the Commission concludes that appropriate limits must be
established to prevent increases in milk supply that are not needed for
the New England market and hereby amends the following sections of the
Over-order Price Regulation:
(1) 7 C.F.R. 1301.12--to clarify that producer milk must be
physically moved to a pool plant, or be diverted as permitted by the
regulation, to qualify for the Compact payment;
(2) 7 C.F.R. 1301.23 and 1304.2--to exclude milk from the pool
which is either diverted or transferred, in bulk, out of the Compact
regulated area, in excess of 8% in the fall months of August,
September, October and November, 10% in the transition months of
January, February, July and December and 13% in the spring months of
March, April, May and June. The percentage is calculated on the milk
handler's total producer receipts. The amended rule does not restrict
Compact payments on bulk transfers of skim milk and condensed milk,
bulk milk transferred and classified Class I by a federal market order
and fluid milk processed (i.e., pasturized, homogenized, or blended) or
fluid milk diverted or transferred due to certain catastrophic
circumstances; and
(3) 7 C.F.R. 1301.11--to be consistent with the amended rules
regarding diverted and transferred milk and to add December 1998 as an
additional requirement in the definition of producer.
II. Summary and Analysis of Issues and Comments
At the July 1, 1998 public hearing, the Commission's Regulations
Administrator, Carmen Ross, testified and explained the issues
presented under the current Over-order Price Regulation and why the
proposed rules were needed.5 Mr. Ross provided data
regarding the volume of milk transferred or diverted out of the Compact
regulated area from July 1997 through May 1998.6 This data
showed a clear pattern of an increasing volume of milk being diverted
and transferred out of the Compact regulated area since the inception
of the Over-order Price Regulation. For example, in July 1997, the
first month of the Compact pool, diverted and transferred milk
constituted 34.4 million pounds, or 6.5 percent of the July pool.
However, in February 1998, the diverted and transferred milk volume had
risen to 49.8 million pounds, or 9.8 percent of the February pool. This
trend continued and in May 1998, 53.2 million pounds of milk was
diverted or transferred out of the Compact regulated area, amounting to
9.2% of the May pool.7 Mr. Ross provided the most current
data at the September 2, 1998 hearing which demonstrated that the
volume of milk diverted and transferred out of the
[[Page 65518]]
Compact regulated area continued to rise to 64.3 million pounds,
representing 11.3% of the July 1998 pool, or nearly double the volume
of milk diverted and transferred in July 1997.
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\5\ Carmen Ross, First Public Hearing Transcript (``Tr.'') 9-28.
\6\ Ross, Tr. 17-18.
\7\ Ross Tr. 17-21.
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To address the concern of a steadily increasing volume of milk that
qualifies for the Compact Over-order producer price and is then
diverted and transferred out of the Compact regulated area, the
Commission proposed to amend the Over-order Price Regulation, section
1301.12, which defines producer milk,8 and section 1301.23,
which defines diverted milk, and section 1304.2 relating to
classification of transfers of milk. The effect of these proposed
amendments would be to depool the volume of producer milk that a
handler diverts or transfers, in bulk, outside of the regulated area,
thereby excluding it from the Compact Over-order producer
price.9
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\8\ 63 FR 31945 (June 11, 1998).
\9\ Ross Tr. 14-15.
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The Commission held two public hearings and received testimony and
comments from a total of fifteen individuals, including six
representatives of dairy cooperatives,10 two representatives
from a milk processor,11 two state Commissioners of
Agriculture and one state dairy economist,12 a dairy
farmer,13 and two representatives of the Community
Development and Applied Economics Department of the University of
Vermont.14 In addition, at the request of the Commission,
the Federal Order 1 Market Administrator submitted additional data and
testified at the September 2, 1998 hearing to answer the Commission's
technical questions relating to that data.15
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\10\ Robert Wellington and Carl Peterson representing Agri-Mark;
Dean Ellinwood representing Dairy Farmers of America; Edward
Gallagher representing Dairylea Cooperative, Inc.; Leon Berthiaume
representing St. Albans Cooperative Creamery, Inc.; and Sally Beach
representing Independent Dairyman's Cooperative Association, Inc.
\11\ Neil Marcus and Bill Fitchett from Marcus Dairy.
\12\ Jonathan Healy, Commissioner and William Gillmeister, Dairy
Economist, Massachusetts Department of Food and Agriculture and Leon
Graves, Vermont Commissioner of Agriculture, Food and Markets.
\13\ Kenneth Dibbell.
\14\ Assistant Professors Rick Wackernagel and Charles Nichols.
\15\ Erik Rasmussen, Market Administrator, Federal Milk Order
No. 1.
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Of the total comments received after the first public hearing on
July 1, 1998, two commenters 16 supported the proposed rules
relating to diverted or transferred milk, while eight commenters
17 opposed the total exclusion of diverted and transferred
milk from the Compact pool. Those commenters opposed to the proposed
amendments were most concerned with the seasonal fluctuations of supply
and demand in the New England milk market,18 the vital role
diversions and transfers of milk play in balancing the market to
accommodate those fluctuations,19 and the impact, on both
producers and the market, of totally depooling diverted and transferred
milk.20 However, most of these commenters also recognized
the concerns identified by the Commission regarding the increase in
diversions and transfers of milk out of the Compact regulated area, and
offered some other solutions, including extending the qualification
period for producers 21 and implementing a cap on the volume
of diverted and transferred milk that could qualify for the Compact
payment.22
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\16\ Dibbell Tr. 31; Healy, First Written Comment Period
(``WC'') 3.
\17\ Marcus, Fitchett, Wellington, Ellinwood, Gallagher,
Berthiaume, Graves, and Beach.
\18\ See, e.g., Marcus Tr. 43; Wellington Tr. 63-64, 68, 72;
Ellinwood Tr. 99-100; Gallagher Tr. 119-120; Berthiaume WC 5; Graves
WC 14; and Beach WC 15.
\19\ See, e.g. Marcus Tr. 44, 59; Wellington Tr. 64, 68, 72;
Ellinwood Tr. 100-101 and WC 1; Gallagher Tr. 120-121; Berthiaume WC
5-6; Graves WC 13-14; and Beach WC 15.
\20\ See, e.g. Marcus Tr. 54; Wellington Tr. 65, 67, 69 and WC
11; Ellinwood Tr. 102, 111; Gallagher Tr. 121-123; Berthiaume WC 5,
8; Graves WC 13; and Beach WC 15.
\21\ Wellington, on behalf of Agri-Mark and Dairylea, WC 12;
Berthiaume WC 7; and Graves WC 14.
\22\ Wellington, on behalf of Agri-mark and Dairylea, WC 11;
Ellinwood WC 2; Berthiaume WC 7; and Beach WC 16.
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Nine commenters 23 provided new or supplemental
testimony during the extended public comment period. Of those nine
commenters, four commenters 24 expressed support for a
seasonally adjusted cap on the volume of diverted and transferred milk,
calculated as a percentage of total handler producer receipts. No
commenters opposed a seasonally adjusted cap. One commenter reiterated
his prior suggestion that the qualification period for producers be
extended. 25
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\23\ Rasmussen, Wellington, Marcus, Dibbell, Berthiaume,
Peterson, Gillmeister, Wackernagel and Nichols.
\24\ Wellington Extended Public Hearing Transcript (``ETr.'') 55
, Marcus ETr. 112, Berthiaume ETr. 141 and Gillmeister Extended
Written Comment Period (``EWC'') 2.
\25\ Wellington ETr. 56, 96-97 and EWC 2.
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In the initial public comment period, one commenter supported the
proposed amendments and their intended effect of ``limiting payments of
the compact's over-order producer price to milk that is necessary to
meet the demand of the New England market.'' 26
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\26\ Healy WC 3.
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The concerns expressed by this commenter reflect the concerns
initially identified by the Commission. However, after careful review
of all the testimony and comments received during this rulemaking
proceeding, and as discussed in detail below, the Commission concludes,
as does the commenter,27 that a seasonally adjusted cap on
the total volume of milk diverted and transferred out of the Compact
regulated area appropriately addresses these concerns. The Commission
further concludes that the Over-order Price Regulation appears to be
having its intended result of stabilizing the New England milkshed,
and, therefore, also concludes that a seasonally adjusted cap meets the
dual goals of the Compact of assuring the continued viability of dairy
farming in the Northeast and of assuring consumers of an adequate,
local supply of pure and wholesome milk. Compact Article I, Section 1.
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\27\ Gillmeister EWC 1-3, on behalf of the Massachusetts
Department of Food and Agriculture.
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A. The New England Milkshed
One of the commenters who supported the proposed amendments at the
first hearing stated that the proposals did not go far
enough.28 This commenter further suggested that the
Commission should consider not paying the Compact price for any milk
produced outside of the Compact area.29 Another commenter
was concerned that the Compact payment should only be made on milk
needed to supply the New England market.30
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\28\ Dibbell Tr. 30.
\29\ Dibbell Tr. 30-31.
\30\ Healy WC 3.
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In response to questions from the Commission, one commenter
31 stated that there is never enough milk produced in New
England to meet the New England milk plant demands.32 The
Commission emphasizes that milk produced outside of the Compact
regulated area has traditionally been needed to meet the demand for
milk and milk products in New England. As the Commission previously
concluded:
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\31\ Gallagher Tr.135.
\32\ Gallagher Tr. 136-7.
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According to data, the six state, New England, region draws
approximately seventy percent of the raw product supply needed for
the consumption of all milk products, fluid and manufactured, from
New England farmers. The total volume of milk supplied for the
region is approximately five billion pounds. The predominant
remainder is supplied by New York farmers, who have traditionally
made up a substantial portion of
[[Page 65519]]
the New England milkshed. Less than three percent of the raw milk
supply for the New England market is produced outside of the six
state/New York milkshed.33
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\33\ 62 FR 23039 (April 28, 1997).
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The data submitted in this rulemaking proceeding confirms that the
New England market, Federal Order 1, continues to rely on New York
producers to meet the consumer demand for milk and milk
products.34 Since July 1997, New York producers have
accounted for between 25% and 28% of the total producers supplying the
New England market.35 The data also shows that the total
number of producers supplying the New England market since July 1997 is
still less than the total number of producers in 1995 and
1996.36
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\34\ Rasmussen, New England Milk Market Statistics 1994-1998.
\35\ Rasmussen EWC Tables 2 and 3.
\36\ Rasmussen EWC Table 3.
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Mr. Rasmussen explained that the data reflects that over time,
dairy farms get larger and, with New England urbanizing, there is less
milk and fewer farmers in New England. As the number of dairy farms in
New England continues to decline, milk handlers must look to New York
to replenish their supply, because New England is surrounded on all
other sides by ocean and Canada. Therefore, there is less of a decline
in the number of producers in New York supplying the New England
market.37
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\37\ Rasmussen ETr. 14, 24.
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Additional data compiled by the University of Vermont demonstrates
that Vermont and New York have provided the largest volume of the milk
supply to the New England market for the period of the study 1977-
1997.38 While the volume of milk produced in Vermont has
increased substantially over this time period, the supply from New York
state appears to be more volatile, with a small net increase over the
twenty year period.
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\38\ Wackernagel EWC 3, Figure 1.
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The Commission emphasizes that payment of the Compact Over-order
premium to all producers supplying the New England market, regardless
of location of production, is needed to stabilize the milkshed and
assure a local supply of milk. In implementing the Over-order Price
Regulation, the Commission found that, although milk production and
consumption are in balance in New England, the situation is under
considerable distress, and that it is necessary to at least stabilize,
if not increase, the present, local supply of milk through the price
regulation.39 The Commission also found that ``the present,
distant supply itself must be stabilized as well, to ensure that the
milkshed does not reach further west.'' 40
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\39\ 62 FR 23039-40 (April 28, 1997); 62 FR 29635 (May 30,
1997); 62 FR 62814 (November 25, 1997).
\40\ 62 FR 23040 (April 28, 1997).
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Since the inception of the Over-order Price Regulation, the supply
of milk to the New England market and the Compact pool has steadily
risen.41 The commenters offered several explanations for
this increase in supply, and a simultaneous increase in diversions and
transfers, such as the closing of a manufacturing plant in Hinesburg,
Vermont and a slight increase in production in the region due to
favorable weather conditions, lower grain prices, and good quality
forage.42 A few commenters also observed that the Compact
price regulation has attracted some milk to the New England
market.43 Therefore, the Commission concludes that the price
regulation appears to be having the intended effect of stabilizing the
milkshed and increasing the supply of milk available to the New England
market, thus assuring consumers of a local supply of pure and wholesome
milk.
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\41\ Ross, Second Addendum, EC 1.
\42\ Rasmussen ETr. 22; Wellington ETr. 48, 95; and Berthiaume
ETr. 136.
\43\ Wellington ETr. 91, EWC 10-11; Berthiaume EWC 4;
Gillmeister EWC 2; Wackernagel EWC 4-5; and Nichols EWC 2.
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B. Seasonal/Balancing
Eight commenters 44 who opposed the total exclusion of
diverted and transferred milk in the proposed amendments commented that
diversions and transfers are necessary due to seasonal or other normal
and predictable fluctuations of supply and demand in the milk market,
and are a routine method of balancing the market 45; that
the normal production swing from spring to fall in the supply of milk
is in direct opposition to the normal fluctuation in the demand for
milk 46; that in order to meet the consumer demand for milk
in the low production months, typically in the fall, cooperative
associations and milk handlers must accept and market milk from their
supplying producers in the high production months, typically in the
spring 47; and that handlers must also establish a reserve
pool of milk to meet the New England fluid processing
needs.48
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\44\ Marcus; Pritchett; Wellington; Ellinwood; Gallagher;
Berthiaume; Graves; and Gillmeister.
\45\ Marcus Tr. 43; Ellinwood Tr. 99-100; Wellington Tr. 63-64;
Gallagher Tr. 116; Berthiaume WC 5; Graves WC 13; Beach WC 15; and
Gillmeister EWC 2.
\46\ Marcus Tr. 44; Wellington Tr. 63-64, 68; Ellinwood Tr. 99-
100; Gallagher Tr. 119-120, 131, 133; Berthiaume WC 5-6; Graves WC
14; and Beach WC 15.
\47\ Marcus Tr. 59; Wellington Tr. 63-64, 68; and Berthiaume WC
5.
\48\ Ellinwood Tr. 100.
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As these same commenters explained, cooperative associations and
milk handlers must have a method of balancing the supply of milk at
times when supply exceeds demand.49 Balancing often is
accomplished at a balancing plant, where milk that is not needed to
meet the demand is processed into other marketable products such as
butter and powder.50 Reloading milk and shipping it to
another plant outside of the Compact regulated area (transferring), or
diverting milk to such a plant directly from a farm, also are common
methods of balancing the supply of milk in the New England
market.51 Five commenters 52 noted that the
federal order regulations allow transfers and diversions to meet the
processors' balancing needs.
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\49\ Wellington Tr. 72, WC 11; Gallagher Tr. 131, 133;
Berthiaume WC 5-6; Graves WC 14; and Beach WC 15.
\50\ Beach WC 16; Wellington EWC 1-4.
\51\ Ellinwood WC 1; Wellington Tr. 72, ETr. 34-40, EWC 1-4;
Gallagher Tr. 120
\52\ Ellinwood Tr. 100-101, WC 1; Wellington Tr. 64, WC 10;
Gallagher Tr. 121 and Rasmussen ETr. 17-18.
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One commenter 53 observed that every Class 1 market has
a large butter/powder plant for balancing. However, as this commenter
also explained, when the New England market lost the Hinesburg, Vermont
manufacturing plant, the West Springfield, Massachusetts butter/powder
plant suddenly became a manufacturing plant, thus limiting the capacity
of that plant to balancing the market.
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\53\ Wellington ETr. 40-41.
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The Commission recognizes the normal fluctuations of supply and
demand of milk in the New England market and, as noted above, the
traditional supply of milk to New England from outside the Compact
area. The Commission appreciates the concerns expressed by the
commenters and recognizes the seasonal fluctuations in milk supply and
demand, and also recognizes the importance of balancing plants and
methods in the New England milk market. In recognition of this integral
part of the milk market, the Commission includes in the amended rules a
seasonally adjusted allowance for the total of volume of diverted and
transferred milk as a percentage of a milk handler's total producer
receipts.
While the Commission concludes that the price regulation appears to
be having the desired impact of increasing the supply of milk to the
New England market and thereby stabilizing the
[[Page 65520]]
milkshed, it also concludes that appropriate limits must be established
to prevent increases in milk supply that are not needed for the New
England market.
C. Technical Amendments to the Price Regulation
Five commenters 54 observed that milk coming into the
compact regulated area and being transferred or diverted back out of
the compact regulated area is a problem. Three of these commenters
55 stated that such milk should not receive the compact
payment. Two of these commenters 56 stated that this was a
problem that would be difficult to solve.
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\54\ Dibbell Tr. 30-31; Jonathan Healy WC 3; Leon J. Berthiaume
WC 5-6; Leon Graves WC 13; and Sally Beach WC 15.
\55\ Dibbell Tr. 30; Healy WC 3; and Berthiaume WC 5, 6.
\56\ Graves WC 13; and Beach WC 15-16.
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Eight commenters opposed the proposed amendment of the current
Over-order Price Regulation. However, some of these commenters did
suggest alternative regulatory changes as discussed below.
1. Definition of Producer
Five commenters 57 proposed that the Commission amend
the regulation at 1301.11 which defines ``producer.'' One of these
commenters 58 suggested that the existing rule, at 7 CFR
1301.11(b)(2) limits the handler's ability to replace producers. The
Commission amends this section to delete the current language and to
substitute ``the volume of milk excluded from producer milk pursuant to
section 1304.2.'' This amended language both addresses the concerns
raised by the commenter and also makes this provision consistent with
the amended diversion and transfer provisions adopted by the
Commission.
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\57\ Marcus Tr. at 47; Wellington, on behalf of Agri-Mark and
Dairylea at WC 11; Berthiaume at WC 7; and Graves at WC 14.
\58\ Marcus Tr. at 47.
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The Commission also adds the language ``and December 1998'' to the
provisions of sections 1301.11(b) and (b)(1) to update the current
requirement that a producer must move milk to a pool plant in December
1996 and December 1997 and December 1998. The remaining four commenters
all suggested that the five-month qualification period contained in the
regulation at 1301.11(b) be extended to eight months . One commenter
59 further suggested that the Commission eliminate the
December 1996 and 1997 provisions from this regulation. The Commission
responds that increasing the qualification period cannot be expected to
have a significant impact on the issue of how much milk should be moved
in and moved out of the market.60
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\59\ Berthiaume at WC 7.
\60\ Ross ETr. 149-150.
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In response to a question from the Commission, one commenter
61 observed that extending the qualification requirement
that requires producers to move their milk into the Compact regulated
area on more than one-half of the days on which they move milk would
create higher transportation costs and decrease the balancing options
for that milk. Similarly, Mr. Ross explained that increasing the number
of days per month for qualifying purposes would not address the problem
identified by the Commission and could actually make the situation
worse by causing handlers to then move other milk, which would in turn
create a financial burden on the handlers.62 As a result,
the Commission concludes that no amendment to the qualifying period
provisions of the existing regulation is justified at the present time.
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\61\ Wellington ETr. 96-97.
\62\ Ross ETr. 150-152.
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2. Definition of Producer Milk
The Commission's initial rulemaking notice proposed to amend the
definition of producer milk to clarify that the milk must be physically
moved to a pool plant in the regulated area or be diverted pursuant to
the Commission's regulation.63 Mr. Ross explained that this
amendment will depool producer milk that is moved to plants outside of
the Compact regulated area and will treat all qualified producers the
same.64
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\63\ 63 FR 31943 (June 11, 1998).
\64\ Ross Tr. 13.
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The Commission received no comments on this provision and thus
adopts the amendment as proposed.
3. Diverted and Transferred Milk Provisions
The Commission initially proposed to amend sections 1301.23 and
1304.2 to exclude all milk from the pool which was diverted or
transferred out of the Compact region. During the first public hearing
and comment period, five commenters 65 suggested that the
Commission impose a five percent cap on transferred milk and one of
these commenters 66 suggested the Commission impose a cap on
both diverted and transferred milk. Four of these commenters
67 also stated that if the Commission imposed a cap, then
certain processed milk products, such as skim and skim condense, should
be excluded from the cap, and also, that provision be made to suspend
the cap for an individual cooperative or handler in appropriate
circumstances, such as equipment failure.
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\65\ Ellinwood at WC 2; Wellington on behalf of Agri-Mark and
Dairylea at WC 11; Berthiaume at WC 7; and Beach at WC 16.
\66\ Beach at WC 16.
\67\ Ellinwood at WC 2; Wellington on behalf of Agri-Mark and
Dairylea at WC 11; and Berthiaume at WC 7.
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Three commenters 68 recommended that a five percent cap
on transferred milk be applied to the total volume of milk pooled by
the cooperative or handler, with an exclusion for skim, and skim
condense or other processed fluid milk products. Two commenters also
recommended excluding milk sold for Class I purposes outside of the
compact area.69 The Commission discussed the recommendation
for a five percent cap at its deliberative meeting on August 5, 1998.
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\68\ Wellington WC at 11; Ellinwood WC at 2; and Berthiaume WC
at 7.
\69\ Wellington WC at 11; Berthiaume WC at 7.
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During the second public hearing and comment period, some of those
commenters and an additional commenter 70 refined their
positions and instead proposed that the Commission adopt a seasonally
adjusted allowance for a combined volume of diverted and transferred
milk. These commenters explained in detail, and provided substantial
data to support their arguments, that a seasonally adjusted allowance
would best address the Commission's concerns and accommodate the
realities of the New England milk market, including the possible
negative impact that a five percent cap would have on the primary
balancing plant in the Compact regulated area.71
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\70\ Wellington ETr. 53-4, EWC 12; Marcus ETr. 112; Berthiaume
ETr. 137, 145-6; and Gillmeister EWC 2.
\71\ Rasmussen ETr. 16, 21, 31; Wellington ETr. 41-2, 45, 47,
93, EWC 1-7, 12-13, and Table 9 (supplemental); Marcus ETr. 99, 112;
Dibbell ETr. 129; Berthiaume ETr. 133, 135, 137, EWC 3-4; and
Gillmeister EWC 2-3.
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After careful consideration of the entire record, the Commission
agrees that a seasonally adjusted allowance for diversions and
transfers of milk more appropriately addresses the Commission's
concerns. The Commission also agrees that the seasons should be defined
as follows: Transition months--January, February, July, December;
Spring months--March, April, May, June; Fall months--August, September,
October, November.72
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\72\ Wellington EWC 12; Berthiaume ETr. 141; Gillmeister EWC 2.
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[[Page 65521]]
In setting the allowance for each season, the Commission has
carefully reviewed the data and arguments of the commenters. The
Commission is mindful of the importance of maintaining an allowance
high enough to accommodate the reasonable balancing needs of the market
while at the same time establishing reasonable limits on the amount of
milk supplying the New England market relative to the demand for milk
products within the Compact regulated area. Therefore, the Commission
establishes the following seasonally adjusted allowance: Transition
months--10%; Spring months--13%; Fall months--8%.
The Commission notes that these allowances were recommended by one
commenter,73 although the method adopted by the Commission
is somewhat different than that used by the commenter. The Commission
also notes that these percentages are slightly lower than those
recommended by a commenter,74 and supported by two
commenters.75 The Commission carefully considered the data
provided by Mr. Wellington in Table 9 in his supplemental written
comments. This commenter explained that the data provided in that table
supported a seasonally adjusted allowance of 12% in the Transition
months, 15% in the Spring months and 10% in the Fall
months.76 However, this commenter also acknowledged that the
diversion and transfer volume numbers included in the table reflected
milk transferred on behalf of other handlers, and that the handler
volume used in the chart did not similarly reflect the total volume of
milk handled.77
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\73\ Gillmeister EWC 2-3.
\74\ Wellington ETr. 55, EWC 12.
\75\ Marcus ETr. 112; Berthiaume ETr. 141.
\76\ Wellington ETr. 55, EWC 12.
\77\ Wellington ETr. 55, EWC 11, Table 8.
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The Commission concludes that adjusting the figures in Table 9 to
reflect the percentage of the handler's milk diverted and transferred
relative to the handler's volume for each month and excluding volumes
attributable to other handlers results in appropriate percentage limits
of 10% in the Transition months, 13% in the Spring months and 8% in the
Fall months. The Commission also notes that the data provided in Table
9 include Class 1 transfers 78 which, as discussed below,
are excluded from the allowance calculation.
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\78\ Wellington EWC 11.
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The Commission emphasizes that the amendments regarding diverted
and transferred milk specifically apply to milk received at a pool
plant in the regulated area. These amendments do not affect milk
diverted or transferred to a partially regulated plant having Class 1
disposition in the regulated area. The Commission also emphasizes that
the amendments apply only to bulk diversions and transfers of fluid
milk, and do not apply to packaged milk products.
In addition, the Commission recognizes the importance of
accommodating milk temporarily displaced due to catastrophic
circumstances and adopts a provision for suspending the seasonally
adjusted allowance in circumstances such as fire, flood, storm and
equipment failure which are completely beyond the pool plant operator's
control. The suspension provision requires the operator of the pool
plant (and the handler, in the case of diverted milk) to notify the
Commission of the catastrophic circumstance within two (2) days of the
occurrence.
The Commission also recognizes the commenters' concerns regarding
the treatment of processed milk under the diversion and transfer
provisions. The commenters noted (1) that milk transferred or diverted
for Class I utilization should be excluded from any cap because all
producers benefit from the Class I utilization,79 (2) that
reloads for Class I utilization are for proper long distance
hauling,80 and (3) that processed products such as skim and
condensed milk have separate markets. The Commission recognizes that
these milk products do not present the problem identified by the
Commission, which was acknowledged by several commenters,81
of ``reloaded'' milk, which is brought into a pool plant simply to
qualify for the compact payment. Therefore, the Commission excludes
bulk transfers of skim milk, condensed milk, bulk milk transferred and
classified Class I by a federal market order and milk processed (i.e.
pasturized, homogenized, or blended). All other fluid milk products
transferred in bulk from a pool plant to a plant located outside of the
regulated area, except a partially regulated plant having Class I
disposition in the regulated area, will be subject to the seasonally
adjusted allowance.
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\79\ Marcus Tr. 45, 53, 55, ETr. 111; Ellinwood WC 2; Wellington
WC 11, ETr. 72, EWC 10; Berthiaume WC 5-8, ETr. 138; and Rasmussen
ETr. 21.
\80\ Berthiaume WC 7.
\81\ Ross Tr. 13; Dibbell Tr. 30-31; Healy WC 3; Berthiaume WC
5-6; Graves WC 13; and Beach WC 15.
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If the handler exceeds the diversion and transfer allowance, the
plant operator may select the sources to be excluded. If the plant
operator fails to select the sources to be excluded, then the
transferred milk that is excluded under this rule shall be prorated to
all sources of milk received at that plant. The Commission notes that
this provision is analogous to the federal order system regarding
selection, by the handler, of classification of milk.
In sum, the Commission adopts a seasonally adjusted allowance that
is calculated on the total of all diverted milk, which by definition is
not processed milk, and non-excluded transferred milk, in determining
the volume of milk on which the Compact payment will be made. This
seasonally adjusted allowance is calculated on the total producer
receipts reported by the handler.82 The Commission concludes
that the seasonally adjusted allowance appropriately accommodates the
competing interests and needs of the producers, consumers, cooperative
associations and handlers, in order to assure New England consumers of
an adequate, local supply of pure and wholesome milk throughout the
year.83 The Commission acknowledges the many and varied
concerns raised by the commenters, and will continue to monitor closely
the Over-order Price Regulation, as amended, to assure that the
mission, purposes and objectives of the Compact and the price
regulation are met.
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\82\ Concurring with this method: Wellington ETr. 53-4, EWC 12.
\83\ See, discussion infra at III. a.
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III. Summary of Required Findings
Article V, Section 12 of the Compact directs the Commission to make
four findings of fact before an amendment of the Over-order Price
Regulation can become effective. Each required finding is discussed
below.
a. Whether the Public Interest Will Be Served by the Amendments
The first finding considers whether the amendment of the Over-order
Price Regulation serves the public interest. The Commission previously
has determined that an Over-order Price Regulation serves the public
interest,84 and the Commission reaffirms that determination.
The Commission also finds that the public interest will be served by
amendment of the Over-order Price Regulation to exclude milk from the
pool that is either diverted or transferred in bulk out of the Compact
regulated area in excess of a seasonally adjusted allowance of total
producer receipts, set at 10% in the Transition months of January,
February, July and
[[Page 65522]]
December, 13% of the Spring months of March, April, May and June, and
8% in the Fall months of August, September, October and November. The
Commission further finds that the public interest will be served by
amending the definitions of producer and producer milk to be consistent
with the amended rules regarding diverted and transferred milk and to
further amend the definition of producer to include December 1998 as an
additional requirement.
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\84\ 62 FR 29638 (May 30, 1997); 62 FR 62825 (November 25,
1997); 63 FR 10110 (February 27, 1998).
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The Commission emphasizes that the amendments regarding diverted
and transferred milk do not impact on the New England consumers. The
Over-order Price Regulation is structured so that assessments and
obligations are based on Class I milk distributed in the New England
market. Data submitted by the New England Market Administrator
demonstrates that Class I utilization has been relatively constant over
the last several years, although there has been a slight
decline.85 Therefore, the amount of milk subject to the
Over-order Price Regulation is relatively stable and the cost to the
consumer is defined by only this volume of Class I milk consumed in New
England. The amended rules restricting the volume of diverted and
transferred milk that is eligible for the Compact Over-order payment to
a seasonally adjusted allowance is, therefore, cost-neutral to New
England consumers.
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\85\ Rasmussen, New England Market Statistics 1994-1998.
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b. The Impact on the Price Level Needed To Assure a Sufficient Price to
Producers and an Adequate Local Supply of Milk
The second finding considers impact of the amendments on the level
of producer price needed to cover costs of production and to assure an
adequate local supply of milk for the inhabitants of the regulated
area.86
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\86\ As noted in prior rulemaking proceedings, the Commission
limits its assessment to issues relating to the fluid milk market.
62 FR 29632 (May 30, 1997); 62 FR 62812 (November 25, 1997); and 63
FR 10109 (February 27, 1998).
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The Commission reaffirms its prior findings regarding the
sufficiency of pay prices for milk needed to meet the New England
market demand.87 In adopting these amendments, the
Commission notes that the primary impact of the increase in the pool
beyond the capacity of the New England market, as reflected in the
volume of milk that is diverted and transferred out of the Compact
regulated area, is revealed in a slight depression of the producer pay
price per hundred weight of milk. The Commission concludes that the
diverted and transferred milk amendments will not negatively impact on
the price level paid to producers that is needed to assure an adequate
local supply of milk. The Commission reaffirms its prior finding that
the over-order price level will assure a sufficient price to producers
and an adequate local supply of milk.88
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\87\ 62 FR 29632-29637 (May 30, 1997); 62 FR 62812-62817
(November 25, 1997); and 63 FR 10109-10110 (February 27, 1998).
\88\ 62 FR 29638 (May 30, 1997); 62 FR 62825 (November 25,
1997).
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In reaching this conclusion, the Commission recognizes the seasonal
variation in supply and demand for milk and milk products and the vital
role diversions and transfers play in balancing the New England milk
market. The Commission recognizes that the historical movement of milk
in the New England milkshed involves both movement of milk into the
Compact area from outside of the Compact area, and the
reverse.89 The Commission, in adopting these amendments, is
focusing on the Compact payment to producers who supply milk to the New
England market. The Commission recognizes the many challenges involved
in balancing the supply and demand for milk in the New England market
and therefore builds in a seasonally adjusted allowance on diverted or
transferred milk.
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\89\ See, 62 FR 23039 (April 28, 1997).
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The Commission further notes that the Compact payments to producers
are intended to assure the continued viability of dairy farming in the
northeast. Compact Art. 1, Section 1. The Over-order Price Regulation,
as amended, balances this purpose with the equally important purpose of
assuring an adequate, local supply of pure and wholesome milk for the
Compact area consumers. Compact Art. 1, Section 1. The Compact
specifically charges the Commission to also ``take such action as
necessary and feasible to ensure that the over-order price does not
create an incentive for producers to generate additional supplies of
milk.'' Compact Art. IV, Section 9(f). The Commission concludes that
the amended regulation meets all three of these objectives and best
preserves the integrity of the Compact by appropriately balancing these
objectives.
c. Whether the Major Provisions of the Order, Other Than Those Fixing
Minimum Milk Prices, Are in the Public Interest and Are Reasonably
Designed To Achieve the Purposes of the Order
The third finding requires a determination of whether the
provisions of the regulation other than those establishing minimum milk
prices are in the public interest. The amendments establish a
seasonally adjusted allowance on milk diverted or transferred out of
the Compact region. Therefore, the matter of the public interest is
addressed under the first required finding and not under this finding.
In any event, the Commission finds that the price regulation, as hereby
amended, is in the public interest in the manner contemplated by this
finding.
d. Whether the Terms of the Proposed Amendment Are Approved by
Producers
The fourth finding, requiring a determination of whether the
amendment has been approved by producer referendum pursuant to Article
V, section 13 of the Compact is invoked in this instance given that the
amendments will affect the level of the price regulation on the
producer side. In this final rule, as in the previous final rules, the
Commission makes this finding premised upon certification of the
results of the producer referendum. The procedure for the producer
referendum and certification of the results is set forth in 7 CFR Part
1371.
Pursuant to 7 CFR Part 1371.3, and the referendum procedure
certified by the Commission, a referendum was held during the period of
October 26, 1998 through November 6, 1998. All producers who were
producing milk pooled in the Federal Order #1, or for consumption in
New England during June, 1998, the representative period determined by
the Commission, were deemed eligible to vote. Ballots were mailed to
these producers on or before October 26, 1998 by the Federal Order #1
Market Administrator. The ballots included an official summary of the
Commission's action. Producers were notified that, to be counted, their
ballots had to be returned to the Commission offices by 5:00 p.m. on
November 6, 1998. The ballots were opened and counted in the Commission
offices on November 9, 1998 under the direction and supervision of Mae
S. Schmidle, Vice-Chair of the Commission and designated ``Referendum
Agent.''
Twelve Cooperative Associations were notified of the procedures
necessary to block vote. Cooperatives were required to provide prior
written notice of their intention to block vote to all members on a
form provided by the Commission, and to certify to the Commission that
(1) timely notice was provided, and (2) that they were qualified under
the Capper-Volstead Act. Cooperative Associations were further notified
that the Cooperative
[[Page 65523]]
Association block vote had to be received in the Commission office by
5:00 p.m. on November 6, 1998. Certified and notarized notification to
its members of the Cooperative's intent to block vote or not to block
vote had to be mailed by October 28, 1998 with notice mailed to the
Commission offices no later than October 30, 1998.
Notice of Referendum Results
On November 9, 1998 the duly authorized referendum agent verified
all ballots according to procedures and criteria established by the
Commission. A total of 4,080 ballots were mailed to eligible producers.
All producer ballots and cooperative block vote ballots received by the
Commission were opened and counted. Producer ballots and cooperative
block vote ballots were verified or disqualified based on criteria
established by the Commission, including timeliness, completeness,
appearance of authenticity, appropriate certifications by cooperative
associations and other steps taken to avoid duplication of ballots.
Ballots determined by the referendum agent to be invalid were marked
``disqualified'' with a notation as to the reason.
Block votes cast by Cooperative Associations were then counted.
Producer votes against their cooperative associations block vote were
then counted for each cooperative association. These votes were
deducted from the cooperative association's total and were counted
appropriately. Ballots returned by cooperative members who cast votes
in agreement with their cooperative block vote were disqualified as
duplicative of the cooperative block vote.
Votes of independent producers not members of any cooperative
association were then counted.
The referendum agent then certified the following:
A total of 4,080 ballots were mailed to eligible producers.
A total of 3,006 ballots were returned to the Commission.
A total of 15 ballots were disqualified--late, incomplete or
duplicate.
A total of 2,989 ballots were verified.
A total of 2,966 verified ballots were cast in favor of the price
regulation.
A total of 23 verified ballots were cast in opposition to the price
regulation.
Accordingly, notice is hereby provided that of the verified ballots
cast, 2,989, 99.2%, or 2,966, a minimum of two-thirds were in the
affirmative.
Therefore, the Commission concludes that the terms of the proposed
amendment is approved by producers.
IV. Required Findings of Fact
Pursuant to Compact Article V. Section 12, the Compact Commission
hereby finds:
(1) That the public interest will be served by the amendment of
minimum milk price regulation to dairy farmers under Article IV to: (1)
exclude milk from the pool which is either diverted or transferred, in
bulk, out of the compact regulated area, in excess of a seasonally
adjusted allowance of total producer receipts, set at 10% for the
Transition months of January, February, July and December, 13% for the
Spring months of March, April, May and June and 8% for the Fall months
of August, September, October and November, with specified exclusions;
(2) to amend the definitions of producer and producer milk to be
consistent with the amended provisions regarding diverted and
transferred milk; and (3) to amend the definition of producer to
include December 1998 as a requirement.
(2) That a level price of $16.94 (Zone 1) to dairy farmers under
Article IV will assure that producers supplying the New England market
receive a price sufficient to cover their costs of production and will
elicit an adequate supply of milk for the inhabitants of the regulated
area and for manufacturing purposes.
(3) That the major provisions of the order, other than those fixing
minimum milk prices, are in the public interest and are reasonably
designed to achieve the purposes of the order.
(4) That the terms of the proposed amendments are approved by
producers pursuant to a producer referendum required by Article V.
section 13.
List of Subjects in 7 CFR Parts 1301 and 1304
Milk.
Codification in Code of Federal Regulations
For reasons set forth in the preamble, the Northeast Dairy Compact
Commission amends 7 CFR Chapter XIII as follows:
PART 1301--DEFINITIONS
1. The authority citation for part 1301 continues to read as
follows:
Authority: 7 U.S.C. 7256.
2. Section 1301.11(b) is revised to read as follows:
Sec. 1301.11 Producer.
* * * * *
(b) A dairy farmer who produces milk outside of the regulated area
that is moved to a pool plant, provided that on more than half of the
days on which the handler caused milk to be moved from the dairy
farmer's farm during December 1996, December 1997, and December 1998,
all of that milk was physically moved to a pool plant in the regulated
area. Or: to be considered a qualified producer, on more than half of
the days on which the handler caused milk to be moved from the dairy
farmer's farm during the current month and for five (5) months
subsequent to July of the preceding calendar year, all of that milk
must have moved to a pool plant, provided that the total amount of milk
at a pool plant eligible to qualify producers who did not qualify in
December 1996, December 1997, and December 1998 shall not exceed the
total bulk receipts of fluid milk products less:
(1) Producers receipts as described in paragraph (a) of this
section and producer receipts as described in paragraph (b) of this
section who are qualified based on December 1996, December 1997, and
December 1998; and
(2) The volume of milk excluded from producer milk pursuant to
Secs. 1301.23 (d) and (e), and 1304.2 (c) and (d).
* * * * *
3. Section 1301.12 is revised to read as follows:
Sec. 1301.12 Producer milk.
Producer milk means milk that the handler has received from
producers and is physically moved to a pool plant in the regulated area
or is diverted pursuant to Sec. 1301.23(d). The quantity of milk
received by a handler from producers shall include any milk of a
producer that was not received at any plant but which the handler or an
agent of the handler has accepted, measured, sampled, and transferred
from the producer's farm tank into a tank truck during the month. Such
milk shall be considered as having been received at the pool plant at
which other milk from the same farm of that producer is received by the
handler during the month, except that in the case of a cooperative
association in its capacity as a handler under Sec. 1301.9(d), the milk
shall be considered as having been received at a plant in the zone
location of the pool plant, or pool plants within the same zone, to
which the greatest aggregate quantity of the milk of the cooperative
association in such capacity was moved during the current month or the
most recent month.
4. Section 1301.23 is amended by adding paragraphs (d) and (e) to
read as follows:
Sec. 1301.23 Diverted milk.
* * * * *
[[Page 65524]]
(d) Milk moved, as described in paragraphs (a) and (b) of this
section, from a dairy farmer's farm to a plant located outside of the
regulated area, except a partially regulated plant having Class I
disposition in the regulated area, the volume of milk (including milk
transferred pursuant to Sec. 1304.2(c)) in excess of the percentage of
total producer receipts, pursuant to paragraph (e) of this section,
shall be excluded from producer milk. This paragraph will not apply to
milk normally associated with a pool plant which was caused to be
diverted because the facilities of the pool plant are temporarily
unusable because of fire, flood, storm, equipment failure or similar
extraordinary circumstances completely beyond the pool plant operator
control, provided both the handler and the operator of the pool plant
notify the Commission within two (2) days following such occurrence;
(e) Milk diverted in excess of the following percentage of total
producer receipts shall be excluded from producer milk:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
January, February, July, December............................ 10
March, April, May, June...................................... 13
August, September, October, November......................... 8
------------------------------------------------------------------------
PART 1304--CLASSIFICATION OF MILK
1. The authority citation of part 1304 continues to read as
follows:
Authority: 7 U.S.C. 7256.
2. Section 1304.2 is amended by adding paragraphs (c) and (d) to
read as follows:
Sec. 1304.2 Classification of transfers and diversions
* * * * *
(c) Transfers to plants located outside of the regulated area.
Fluid milk products (not including bulk transfers of skim milk,
condensed milk, bulk milk transferred and classified Class I by a
federal market order and milk processed (i.e., pasturized, homogenized,
or blended) transferred in bulk from a pool plant to a plant located
outside of the regulated area, except a partially regulated plant
having Class I disposition in the regulated area, the volume of milk
(including milk diverted pursuant to Sec. 1301.23(d)) in excess of the
percentage of total producer receipts, pursuant to paragraph (d) of
this section, shall be excluded from producer milk. The transferred
milk excluded pursuant to this paragraph shall be prorated to all
sources of milk received at this plant unless the operator of the plant
selects the sources to be excluded. This paragraph will not apply to
any pool plant in which the facilities are temporarily unusable because
of fire, flood, storm, equipment failure or similar extraordinary
circumstances completely beyond the pool plant operator's control;
provided, the operator of the pool plant notifies the Commission within
two (2) days following such occurrence;
(d) Milk transferred in excess of the following percentages of
total producer receipts shall be excluded from producer milk:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
January, February, July, December............................ 10
March, April, May, June...................................... 13
August, September, October, November......................... 8
------------------------------------------------------------------------
Dated: November 17, 1998.
Kenneth M. Becker,
Executive Director.
[FR Doc. 98-31587 Filed 11-25-98; 8:45 am]
BILLING CODE 1650-01-P
