[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29067]
[[Page Unknown]]
[Federal Register: November 29, 1994]
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Part III
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 1007
Milk in the Georgia and Certain Other Marketing Areas; Recommended
Decision and Opportunity To File Written Exceptions on Proposed
Amendments to Tentative Marketing Agreement and To Order; Proposed Rule
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1007
[Docket Nos. AO-366-A36, et al.; DA-93-21]
Milk in the Georgia and Certain Other Marketing Areas;
Recommended Decision and Opportunity To File Written Exceptions on
Proposed Amendments to Tentative Marketing Agreement and To Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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7 CFR part Marketing area Docket no.
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1007...................... Georgia................... AO-366-A36
1093...................... Alabama-West Florida...... AO-386-A14
1094...................... New Orleans-Mississippi... AO-103-A56
1096...................... Greater Louisiana......... AO-257-A43
1099...................... Paducah, Kentucky......... AO-183-A45
1108...................... Central Arkansas.......... AO-243-A46
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SUMMARY: This recommended decision would combine five Federal milk
order marketing areas with unregulated counties in Arkansas, Georgia,
Mississippi, and Tennessee to form the Southeast marketing area. The
decision is based on industry proposals to merge the individual
marketing areas so as to more equitably divide the markets' proceeds in
what essentially has become a single, large market with significantly
overlapping sales and procurement areas.
DATES: Comments are due on or before December 29, 1994.
ADDRESSES: Comments (six copies) should be filed with the Hearing
Clerk, Room 1083, South Building, United States Department of
Agriculture, Washington, DC 20250.
FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,
USDA/AMS/Dairy Division, Order Formulation Branch, Room 2971, South
Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932.
SUPPLEMENTARY INFORMATION: This administrative action is governed by
the provisions of Sections 556 and 557 of Title 5 of the United States
Code and, therefore, is excluded from the requirements of Executive
Order 12866.
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the
Agency to examine the impact of a proposed rule on small entities.
Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural
Marketing Service has certified that this action will not have a
significant economic impact on a substantial number of small entities.
The amendments would promote orderly marketing of milk by producers and
regulated handlers.
The amendments to the rules proposed herein have been reviewed
under Executive Order 12778, Civil Justice Reform. They are not
intended to have a retroactive effect. If adopted, the proposed
amendments would not preempt any state or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under section
608c(15)(A) of the Act, any handler subject to an order may file with
the Secretary a petition stating that the order, any provision of the
order, or any obligation imposed in connection with the order is not in
accordance with the law and requesting a modification of an order or to
be exempted from the order. A handler is afforded the opportunity for a
hearing on the petition. After a hearing, the Secretary would rule on
the petition. The Act provides that the district court of the United
States in any district in which the handler is an inhabitant, or has
its principal place of business, has jurisdiction in equity to review
the Secretary's ruling on the petition, provided a bill in equity is
filed not later than 20 days after the entry of the ruling.
Prior Documents in This Proceeding
Notice of Hearing: Issued September 3, 1993; published September
10, 1993 (58 FR 47653).
Supplemental Notice of Hearing: Issued October 13, 1993; published
October 15, 1993 (58 FR 53436).
Extension of Time for Filing Briefs: Issued January 24, 1994;
published February 3, 1994 (59 FR 5132).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
recommended decision with respect to proposed amendments to the
tentative marketing agreements and the orders regulating the handling
of milk in the Georgia and certain other marketing areas. This notice
is issued pursuant to the provisions of the Agricultural Marketing
Agreement Act and the applicable rules of practice and procedure
governing the formulation of marketing agreements and marketing orders
(7 CFR part 900).
Interested parties may file written exceptions to this decision
with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC
20250, by the 30th day after publication of this decision in the
Federal Register. Six copies of the exceptions should be filed. All
written submissions made pursuant to this notice will be made available
for public inspection at the office of the Hearing Clerk during regular
business hours (7 CFR 1.27(b)).
The proposed amendments set forth below are based on the record of
a public hearing held in Atlanta, Georgia, on November 1-5, 1993,
pursuant to notices of hearing issued September 3, 1993 (58 FR 47653),
and October 13, 1993 (58 FR 53436).
The material issues on the record of hearing relate to:
1. Interstate commerce, merger of marketing areas under one order,
and expansion of the marketing area.
2. Provisions of the merged order with respect to:
(a) Milk to be priced and pooled;
(b) Classification of milk;
(c) Pricing of milk;
(d) Payments to producers; and
(e) Administrative provisions.
Findings and Conclusions
The following findings and conclusions on the material issues are
based on evidence presented at the hearing and the record thereof:
1. Interstate Commerce, Merger of Marketing Areas Under One Order, and
Expansion of the Marketing Area
The handling of milk in the proposed merged and expanded marketing
area is in the current of interstate commerce and directly burdens or
obstructs interstate commerce in milk and milk products. Interstate
commerce is involved in both the procurement and sales of fluid milk
and dairy products by handlers operating plants in the proposed
marketing area.
The record evidence clearly shows the movement of bulk milk from
Georgia to Alabama and Tennessee; from Alabama to Georgia, Mississippi,
Louisiana, and Tennessee; from Louisiana to Texas, Mississippi, and
Alabama; from Texas to Arkansas, Louisiana and Mississippi; from
Tennessee to Georgia, Alabama, Kentucky, and Mississippi; from Kentucky
to Alabama, Mississippi, and Tennessee; and from Arkansas to Georgia,
Tennessee, and Mississippi. In addition, the record indicates that
packaged fluid milk products regularly move across States into each of
the separate marketing areas involved in this proceeding.
The proposed merged and expanded marketing area, designated as the
``Southeast'' marketing area, is shown on the map entitled ``Southeast
Marketing Area.\1\ Table No. 1 is a map guide for the plants that
correspond to the numbers shown on the map. The proposed Southeast
marketing area includes the present adjacent marketing areas of Orders
7, 93, 94, and 96; the Central Arkansas (Order 108) marketing area; the
northeastern Georgia county of Rabun; the northwestern Mississippi
counties of Canola, De Soto, Lafayette, Marshall, Tate, and Tunica; all
of the territory within the State of Tennessee that is not included
within the Tennessee Valley Federal marketing area; and all of the
presently unregulated counties in the State of Arkansas. The proposed
merged order would use the part number for the present Georgia order,
part 1007. The amended Part 1007, upon issuance, would supersede Parts
1093, 1094, 1096, and 1108.
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\1\For a copy of the map, contact the person listed in ``For
Further Information Contact'' at the beginning of this preamble.
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Although the present five orders would no longer exist upon
effectuation of the Southeast order, this merger action is not intended
to preclude the completion of those procedures that would otherwise
have existed under the separate orders with respect to milk handled
prior to the effective date of the merger. Such procedures, which would
need to be carried out after the merger date, include the announcement
of certain class prices, submission of reports, computation of uniform
prices, payment of obligations and verification activities. The
provisions of the merged order would apply only to that milk handled
after the effective date of the merger.
Table No. 1.--Map Guide for Plants Located in the Southeast Marketing Area
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No. Plant name Location Zone
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1............................. Foremost Dairy, Inc...................... Shreveport, LA............ 7
2............................. Borden, Inc.............................. Monroe, LA................ 7
3............................. Borden, Inc.............................. Lafayette, LA............. 12
4............................. Borden, Inc.............................. Baton Rouge, LA........... 12
5............................. Dairy Fresh of Louisiana................. Baker, LA................. 12
6............................. Kleinpeter Farms Dairy................... Baton Rouge, LA........... 12
7............................. Mid-America Dairymen, Inc................ Kentwood, LA.............. 11
8............................. Dairymen, Inc............................ Franklinton, LA........... 11
9............................. Superbrand Dairy Products, Inc........... Hammond, LA............... 12
10............................ Barbe's Dairy............................ Westwego, LA.............. 12
11............................ Schepps-Foremost......................... New Orleans, LA........... 12
12............................ McClendon Cheese......................... Booneville, MS............ 4
13............................ Avent's Dairy, Inc....................... Oxford, MS................ 4
14............................ Barber Pure Milk Company................. Tupelo, MS................ 4
15............................ Brookshire Dairy Prod., Inc.............. Columbus, MS.............. 6
16............................ LuVel Dairy Prod., Inc................... Kosciusko, MS............. 6
17............................ Flav-O-Rich, Inc......................... Canton, MS................ 7
18............................ Borden, Inc.............................. Jackson, MS............... 8
19............................ McClendon Cheese......................... Newton, MS................ 8
20............................ Dairy Fresh Corporation.................. Hattiesburg, MS........... 10
21............................ Shoals Cheese............................ Florence, AL.............. 4
22............................ Dasi Products, Inc....................... Decatur, AL............... 4
23............................ Meadow Gold Dairies, Inc................. Huntsville, AL............ 4
24............................ Meadow Gold Dairies, Inc................. Gadsden, AL............... 5
25............................ Barber Pure Milk Company................. Oxford, AL................ 6
26............................ Baker and Sons Dairy..................... Birmingham, AL............ 6
27............................ Barber Pure Milk Company................. Birmingham, AL............ 6
28............................ Barber Ice Cream......................... Birmingham, AL............ 6
29............................ Flav-O-Rich Ice Cream.................... Sylacauga, AL............. 6
30............................ Dairy Fresh Ice Cream.................... Greensboro, AL............ 7
31............................ McClendon Cheese......................... Uniontown, AL............. 7
32............................ Superbrand Dairy Products, Inc........... Montgomery, AL............ 8
33............................ Flav-O-Rich, Inc......................... Montgomery, AL............ 8
34............................ Barber Pure Milk Company................. Montgomery, AL............ 8
35............................ Dairy Fresh Corporation.................. Cowarts, AL............... 10
36............................ Barber Pure Milk Company................. Mobile, AL................ 12
37............................ Dairy Fresh Corporation.................. Prichard, AL.............. 12
38............................ Southern Ice Cream....................... Marrietta, GA............. 6
39............................ Kraft.................................... Atlanta, GA............... 6
40............................ Peeler Jersey Farms, Inc................. Athens, GA................ 6
41............................ New Atlanta Dairies, Inc................. Atlanta, GA............... 6
42............................ Flav-O-Rich, Inc......................... Atlanta, GA............... 6
43............................ Borden, Inc.............................. Macon, GA................. 7
44............................ Kinnett Dairies, Inc..................... Columbus, GA.............. 7
45............................ Kinnett Ice Cream........................ Columbus, GA.............. 7
46............................ Hershey Chocolate, U.S.A................. Savannah, GA.............. 9
47............................ Fleming Companies, Inc................... Nashville, TN............. 2
48............................ Meadow Gold Ice Cream.................... Nashville, TN............. 2
49............................ Purity Dairies, Inc...................... Nashville, TN............. 2
50............................ Cumberland Creamery, Inc................. Antioch, TN............... 2
51............................ Heritage Farms Dairy..................... Murfreesboro, TN.......... 2
52............................ Dairymen, Inc............................ Lewisburg, TN............. 2
53............................ Turner Dairies........................... Covington, TN............. 2
54............................ Forest Hill Dairy........................ Memphis, TN............... 3
55............................ Harbin Mix............................... Memphis, TN............... 3
56............................ Borden, Inc.............................. Little Rock, AR........... 4
57............................ Coleman Dairy............................ Little Rock, AR........... 4
58............................ Gold Star Dairy, Inc..................... Little Rock, AR........... 4
59............................ Humphrey's Dairy......................... Hot Springs, AR........... 4
----------------------------------------------------------------------------------------------------------------
The marketing area proposed herein is a combination of several of
the proposals presented at the hearing. A group of four cooperative
associations, comprised of Dairymen, Inc., Gulf Dairy Association,
Inc.,\1\a Southern Milk Sales, Inc., and Carolina Virginia Milk
Producers Association, Inc., proposed the merger of the marketing areas
of Orders 7, 93, 94, 96, together with the former Nashville, Tennessee
(Order 98), marketing area,\2\ and the four unregulated Tennessee
counties of Franklin, Lincoln, Moore, and Van Buren. In this decision,
these cooperatives will be referred to as the ``cooperative
coalition,'' and their proposal will be referred to as Proposal No. 1.
At the time of the hearing, these groups represented approximately 54
percent of the producers and 55 percent of the milk pooled under Orders
7, 93, 94, and 96.
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\1\aEffective March 1, 1994, and September 1, 1994, Gulf
Dairy Association and Dairymen, Inc., respectively, became part of
Mid-America Dairymen, Inc. (Mid-Am).
\2\Official notice is taken of the termination of the former
Memphis, Tennessee (Part 1097), and Nashville, Tennessee (Part 1098)
Federal milk marketing orders effective July 31, 1993. The marketing
areas of these former orders may be found in Secs. 1097.2 and 1098.2
of 7 CFR, revised as of January 1, 1992 and 1993, respectively.
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Malone & Hyde Dairy (aka Fleming Dairy), Nashville, Tennessee,
proposed expanding the area proposed by the cooperative coalition by
including the one remaining unregulated county in Georgia (i.e., Rabun
County), the six unregulated counties between the Tennessee Valley
marketing area and the former Nashville marketing area (four of which
were also included in Proposal No. 1), the former Memphis, Tennessee
(Order 97), marketing area, and the remaining unregulated Tennessee
counties that are bordered on the east by former Order 98, on the west
by former Order 97, on the north by Order 99, and on the south by Order
94. Malone & Hyde Dairy hereinafter will be referred to as ``Fleming
Dairy,'' and their proposal will be referred to as Proposal No. 9.
Arkansas Dairy Cooperative Association, Inc., which also will be
referred to as ``ADCA,'' proposed including the Central Arkansas
marketing area and the former Memphis marketing area in the merged
order proposed by the cooperative coalition. Their proposal will be
referred to as Proposal No. 2.
Finally, Associated Milk Producers, Inc., or ``AMPI,'' proposed and
testified in support of a proposal (i.e., Proposal No. 13) to merge the
former Memphis marketing area with the Paducah, Kentucky, and Central
Arkansas marketing areas to form a ``Mid-South'' marketing area. Under
this proposal, the marketing area also would include all presently
unregulated counties in Arkansas, the unregulated Missouri county of
Dunklin, and the two unregulated Texas counties of Bowie and Cass.
Testimony in Support of Proposal No. 1
The Vice President of Dairymen, Inc., testified on behalf of the
cooperative coalition in support of Proposal No. 1.
The thrust of his testimony was that fluid milk processors in the
proposed merged marketing area had increasingly expanded their
distribution to serve larger geographic areas and, as a result, a
larger order is now needed to maintain market stability, to insure that
producers in the proposed marketing area would be able to share pro
rata in the classified uses of their milk, and to provide assurance to
handlers that their competitors were paying at least the order's
minimum prices regardless of where their milk supply originated.
He also stated that a merged order was in the public's interest
because it would establish orderly marketing conditions for producers
and handlers in the marketing area and assure a continuing, adequate
supply of high quality milk.
The Chairman of the Louisiana Dairy Advisory Committee of the
Louisiana Farm Bureau Federation testified that the proposal was
significant because it could eliminate price disparities among
producers in the Southeast, facilitate the movement of milk to where it
is needed, and provide a more equitable sharing among producers of
higher valued fluid milk sales.
The division manager for milk procurement for The Kroger Company
testified that Heritage Farms Dairy, a Kroger Company plant located in
Murfreesboro, Tennessee, also expressed qualified support for the
merger of milk orders in the Southeast, but said that Proposal No. 1
fell short of addressing all the problems or answering all the
questions facing Federal milk marketing orders in the Southeast. He
said that markets not contained in this proceeding present challenges
that need to be addressed at a future hearing.
Testimony in Opposition to Proposal No. 1
A consultant for Barber Pure Milk Company and Dairy Fresh
Corporation, testified that Barber Pure Milk Company, a handler under
Orders 7, 93, and 94, and Dairy Fresh Corporation, a handler under
Orders 7, 93, 94, and 96, opposed Proposal No. 1 because it did not
include Orders 5 (Carolina) and 11 (Tennessee Valley). He stated that,
in May 1993, 52 percent of all Class I sales in the Order 7 marketing
area were made by plants pooled on other orders, with 26.4 percent and
11.6 percent from Orders 5 and 11, respectively.
With respect to raw milk procurement, the Barber/Dairy Fresh
spokesman testified that Order 7 and 93 handlers competed with Order 5
and 11 handlers for their milk supply. Because of the intermingling of
producers among these orders, the milk of some producers is shipped
alternatively between Orders 7 and 5 handlers, he said, and differences
in utilization in these markets result in different pay prices for milk
of neighboring producers, creating instability in the milk supply.
Further, to create a large marketing area including most of five or six
states with small orders nearby could lead to undesirable pooling
practices, he added.
A representative for Kinnett Dairies (Kinnett) in Columbus,
Georgia, testified that Kinnett purchased raw milk from a group of
independent producers located in Georgia, Alabama, and Tennessee, and
also purchased a portion of its raw milk needs from Carolina-Virginia
Milk Producers Association, Charlotte, North Carolina. He stated that
while Kinnett generally supported the concept of merging Federal Orders
7, 93, 94, and 96, with the area covered by the terminated Nashville
order, it was opposed to Proposal No. 1 because it did not include the
Tennessee Valley and Carolina orders (Orders 11 and 5, respectively).
He explained that in August 1993--after the Kroger plant at
Murfreesboro, Tennessee, and the Fleming Dairy plant at Nashville,
Tennessee, became regulated under Order 7--35.4 percent of the Class I
disposition on Order 7 was marketed by other order distributing plants.
He pointed out that this was a higher percentage of other order Class I
sales than that accounted for by any of the other orders involved in
the merger proceeding.
Testimony in Support of Proposal No. 9
The assistant operations manager for Fleming Dairy, Nashville,
Tennessee, testified in support of Proposal No. 9. He explained that
the Fleming Company operated two distributing plants: One plant located
in Nashville, Tennessee, and a second plant located in Baker,
Louisiana, which is jointly owned with Dairy Fresh of Alabama.
The Fleming spokesman testified that Fleming's Nashville plant
distributed approximately 25 million pounds of Class I and Class II
dairy products per month in the former Nashville and Memphis Federal
order marketing areas, as well as in the marketing areas of Order 46
(Louisville-Lexington-Evansville), Order 99 (Paducah), Order 108
(Central Arkansas), Order 106 (Southwest Plains), Order 94 (New
Orleans-Mississippi), Order 93 (Alabama-West Florida), Order 6 (Upper
Florida), Order 7 (Georgia), Order 5 (Carolina), and Order 11
(Tennessee Valley). He stated that Fleming procured most of its raw
milk supply from dairy farmers located in central Tennessee and south
central Kentucky, with approximately 55 percent of Fleming's raw milk
supply purchased from Kentucky dairy farmers and 45 percent purchased
from Tennessee dairy farmers. In addition to purchasing milk from
independent producers, Fleming purchases raw milk from Carolina-
Virginia Milk Producers and other dairy cooperatives and proprietary
handlers, he added.
The witness testified that a southeast merger which does not
include the Chattanooga area will result in blend price differences
between the Tennessee Valley order and the new Southeast order which
will cause problems where the two orders' procurement areas overlap. He
said the Department should address this potential problem of blend
price differences by considering the merger of the Louisville order
with the Tennessee Valley order and possibly the Carolina order in the
very near future and that the implementation of such a merger should
coincide with the merger of other Federal orders in the Southeast.
The Fleming spokesman stated that the former Memphis marketing area
should be included in the merged order because Fleming Dairy has
significant sales in that area. However, the merged order should not
include several Kentucky counties in former Order 98, he said, because
those counties do not have a significant level of milk sales from
Nashville distributing plants. He stated there were no distributing
plants in that area, but there was a cheese plant there that could
attach unnecessary milk to the market if that plant was in the
marketing area.
Testimony in Support of Proposal No. 2 and in Opposition to Proposal 13
The general manager of the Arkansas Dairy Cooperative Association,
Incorporated, testified that ADCA, which has 113 dairy farmer members
located within the State of Arkansas, was formed in 1991 by its members
to provide an alternative to Associated Milk Producers, Inc. (AMPI),
the only outlet then available for their milk. He indicated that ADCA
sold its milk to the Borden, Incorporated, plant in Little Rock, the
Turner Dairies plants in Memphis and Covington, Tennessee, and the
Turner Dairy plant in Fulton, Kentucky.
The witness stated that ADCA supported the merger of Orders 7, 93,
94, 96, 97, 98, and 108, and that ADCA also supported the inclusion of
presently unregulated counties south and west of the present Central
Arkansas marketing area, as well as two unregulated Arkansas counties
(Mississippi and Crittenden) on the eastern edge of the Central
Arkansas marketing area. He said that the sales of Little Rock plants
in the former Memphis area and the overlap of procurement areas for the
two markets supported the adoption of ADCA's proposal.
The ADCA spokesman indicated that a larger merged market would
provide market and regulatory stability for ADCA in the future. He
emphasized that since ADCA's formation, AMPI had successfully
terminated the Memphis order, attempted to terminate the Paducah order,
terminated the base-excess plan on Order 108, and now was attempting to
establish a new Mid-South order which it could dominate.
The witness stated that with AMPI's proposed Mid-South order, ADCA
would be at the whim of AMPI management with respect to whether there
is an order at all, or for how long there is an order. He said that
situation would be intolerable for ADCA and would create highly
disorderly marketing conditions. He concluded that a seven-market
(i.e., including former Orders 97 and 98) merged order would eliminate
this problem.
A dairy farmer from Guy, Arkansas, who farms 300 acres and milks
200 cows, also testified in support of the inclusion of Central
Arkansas in the merged southeastern order and in opposition to the
AMPI's proposal to form a Mid-South order. The witness, who is the
immediate past president of the Board of Directors of Arkansas Dairy
Cooperative Association, Inc., stated that he was speaking on behalf of
himself, the ADCA Board of Directors, and the 113 members of ADCA.
Testimony in Support of Proposal No. 13
A spokesman representing the Associated Milk Producers,
Incorporated, Southern Region, Arlington, Texas, stated that his
testimony in support of Proposal No. 13 was on behalf of the Southern
Region of AMPI, Mid-America Dairymen, Inc. (Mid-Am), and Dairymen, Inc.
(DI), co-proponents of Proposals 13, 14, and 15.
The AMPI spokesman testified that in September 1993 AMPI pooled
18.4 million pounds of milk in the Central Arkansas market, a quantity
which represented 50.1 percent of the milk pooled on the order during
that month. He said the 387 AMPI members who produced that milk
represented about 69 percent of the total number of dairy farmers on
the market during September.
According to the witness, AMPI supplied the Turner Dairy Covington
plant, which, since the termination of Order 97, had been a partially
regulated distributing plant. He said that in September 1993 AMPI
supplied about 3.2 million pounds of milk to the Covington plant but
could not divert the milk of any producer from the plant because it was
not a fully regulated facility.
The witness also testified that AMPI provided supplemental milk to
the Turner plant in Fulton, Kentucky, jointly with D.I. and Mid-Am.
During September 1993, he said the three cooperatives supplied about
5.2 million pounds of the milk required by Turner to operate the Fulton
facility.
The AMPI representative said that the supply situation at the
Fulton facility had changed significantly in recent years. He noted
that through 1982 the plant was completely supplied and balanced by
cooperative milk and that beginning in 1983 a total of 4.41 percent of
the milk came from independent producers. The percentage of supply to
the Fulton facility increased every year since then, he said, except
for 1986. For the first 10 months of 1993, the percentage of
independent supply was almost 47 percent of the handlers' needs, he
added. He stressed that although the Turner plant had changed its
source of supply over the last 10 years, the facility continued to rely
on cooperative associations to balance its supply.
The AMPI witness pointed out that throughout 1993 most of the
Fulton supply originated from Kentucky, Missouri, and Tennessee. In
September 1993, he noted, 93.5 percent of the Fulton supply came from
these areas.
The spokesman also observed that Exhibits 5 and 31, which contain
data introduced by the market administrators of the respective orders,
indicate a significant overlap in procurement among the areas proposed
for merger. He noted that in May 1993, for instance, 8.2 million pounds
of the 22.1 million pounds of producer milk pooled on the Memphis order
came from Arkansas producers (just over 37 percent) and that another 30
percent came from nearby Tennessee counties from which 6.6 million
pounds of milk were pooled on the Central Arkansas order.
With respect to the Central Arkansas order, the witness testified
that in May 1993 about 6.5 percent of the producer milk originated in
nearby counties in Kentucky and Tennessee while 69.1 percent of the
producer milk pooled on the order originated in Arkansas. Most of the
remainder of the milk originated in Missouri and Texas, he said.
The AMPI spokesman testified that route disposition in the Memphis
area has generally consisted of fluid milk products from about ten
handlers under other Federal orders. He said that handlers regulated
under Orders 99 and 108 consistently distribute fluid milk products on
routes in the Memphis area.
In Central Arkansas, route disposition from handlers regulated
under other Federal orders, including Memphis and Paducah, has ranged
from 28.7 percent in January 1990 to 49.6 percent in March 1993,
according to the witness. He noted that specific percentages for route
disposition by Order 97 and 99 handlers cannot be included because less
than three handlers are involved.
With respect to the Paducah order, the witness said that at the
current time that order operates as an individual-handler pool and
that, as such, the order promotes instability among similarly situated
producers because blend prices under the Paducah order exceed
significantly those of surrounding orders. Surrounding markets must
carry the burden of balancing the supply of the single plant operator
under that order, he said.
The witness testified that blend prices generated under the Paducah
order are unreasonable given the significant overlap of supply and
distribution patterns that exist today. He said the situation was very
similar to that of the Milwaukee individual handler pool prior to its
inclusion in the Chicago Regional pool in 1968 and referenced the final
decision (33 FR 7516) in that proceeding.
The AMPI spokesman testified that a situation similar to that
described in the 1968 decision is currently at play in the Paducah milk
market. He said under the proposed Mid-South order, however, producers
will share pro rata in the returns from the sale of milk utilized in
all classes; all producers will carry their fair share of lower prices
of reserve milk not needed at any particular time for fluid purposes.
The witness indicated that the fluid sector of the dairy industry
has evolved to fewer, but larger, handlers who distribute their
products over an increasingly larger territory. He predicted that this
trend will likely continue in the future. He concluded that whenever
consolidation of areas is considered, the Department must look at the
area where the significant majority of the overlap occurs in sources
and in distribution to delineate merged marketing areas.
Testimony in Opposition to Proposal No. 13
Two dairy farmers from Martin, Tennessee (Weakley County),
testified in opposition to the merger of Order 99 with any other order.
Both of these witnesses indicated that they were independent dairy
farmers delivering their milk to the Turner plant in Fulton, Kentucky.
They stated that they were opposed to making any change to Order 99
because it would lower the price to dairy farmers delivering milk to
the Fulton plant.
Testimony in Support of Other Merger Combinations
A consultant appearing on behalf of Southern Foods Group, Inc.
(SFG), testified that SFG supported the widest possible merger of
orders under consideration. He said the proposed marketing area should
include not only the area covered by Proposal 1, but also the marketing
area proposed for inclusion by both Proposals 2 and 9. He stated that
there was ample evidence of milk handlers from those additional areas
(i.e., former Order 97 and Order 108) competing with handlers in the
marketing area encompassed by Proposal 1 to support the inclusion of
those areas in the merged order.
This witness testified that SFG owns and operates six fluid
processing plants in Texas and Louisiana. The plants owned by SFG in
Louisiana are the Foremost operation in Shreveport (regulated under
Order 96) and the Brown's Velvet plant in New Orleans, which is
regulated by Order 94.
The witness introduced a table showing the ratio of other order and
partially regulated plants to pool distributing plants. He pointed out
that the table showed that the ratio is greater than 2:1 for all of the
present orders under consideration at this hearing, except for Greater
Louisiana. The Georgia order had a better than 6:1 ratio, he said,
while Memphis and Central Arkansas had 5:1 and 3:1 ratios,
respectively.
The SFG spokesman stated that there was ample justification for a
single large order based solely on the existing inter-order handler
competition, the ratio of nonpool to pool plants in the separate
orders, and the volume of out-of-area shipments packaged products as
shown in hearing exhibits. He said the Department should not create a
new merged order without including all areas which are logically part
of it, particularly if that would leave small orders right on the
border of the new large order.
The witness also focused on the ability of the market administrator
to collect and disseminate meaningful statistical data as a basis for
supporting a merger of orders. He pointed out that confidentiality
rules do not permit the market administrator to publish data for a zone
or an order if less than three regulated handlers are included in that
zone or order. More meaningful data and less cumbersome data can be
released for a merged marketing area, he concluded.
The witness remarked that while SFG did not contest the idea of
including Shreveport, Lake Charles, and the rest of western Louisiana
in the new merged marketing area, it was important to note that
handlers in Shreveport and Lake Charles sell significant quantities of
milk into east Texas in competition with east Texas handlers and that
east Texas handlers sell significant quantities of milk into western
Louisiana.
He also pointed out that the record data showed that significant
quantities of bulk milk from Texas were received at Louisiana plants
and that the surplus Texas milk was available for reserve use in
Louisiana. The existence of that reserve supply, he said, is a factor
in the analysis of proper pricing in the new proposed order.
A spokesman testifying on behalf of Gold Star Dairy, Little Rock,
Arkansas, stated that Gold Star supported the merger of the Federal
orders based on the proposals before the Secretary. He emphasized that
the proposed mergers in this hearing ``were not big enough for Gold
Star,'' commenting that Gold Star's flexibility would be limited if it
were not included in a much larger order.
Goldstar's representative said that based upon September
marketings, Gold Star would be pooled under the Texas order in the
event of a five-order merger and would be regulated under the proposed
Gulf States order in the event of a seven-market merger. It would not
be pooled under the proposed Mid-South order based upon sales, he
added. He cautioned, however, that much of Gold Star's sales are to
wholesalers so that the loss of one customer could determine under
which order the plant is regulated.
The witness stated that Gold Star has a manufacturing plant in
Clovis, New Mexico, in addition to its bottling plant in Little Rock.
He said that the company also has a bottling agreement with the Flav-O-
Rich Company to distribute products out of their Atlanta, Georgia,
facility.
The witness indicated that Gold Star did not wish to be a high
utilization plant regulated and pooled in a low utilization order
because eventually it would be required to pay more for its milk. He
added that Gold Star does not wish to be part of an order with a base-
excess plan because it would limit Gold Star's flexibility in obtaining
supplemental supplies during the base-excess months. He said that the
proposed base-excess plan, coupled with the proposed ``dairy farmer for
other markets'' provision, potentially builds barriers to the movement
of milk. Gold Star's unique location outside the marketing area makes
it vulnerable to those barriers, he said. He remarked that the fact
that such provisions are needed to protect year-round supplies from
pool riders indicates that the merger is too small.
The Record Supports a Southeast Federal Milk Marketing Order
The evidence in this record clearly indicates the need to merge all
but one of the separate orders in this proceeding into a ``Southeast''
order that will encompass all of the existing marketing areas of these
orders as well as the presently unregulated territory specified at the
outset of this discussion.The basis for reaching this conclusion is
threefold: (a) There is a clear overlap in milk production areas--not
between every order with every other order, but significant enough to
link the orders together; (b) there is a clear overlap in the
distribution of packaged fluid milk products by handlers regulated
under the individual orders; and (c) there is an obvious need to insure
marketing stability for all producers within the proposed marketing
area. Since there was overwhelming support for the merger of Orders 7,
93, 94, 96, and former Order 98, and a clear unanimity of opinion
expressed with regard to the overlap of milk production and sales in
those areas, this discussion will focus primarily on the need to
combine Proposals 1, 2, 9, and 13 to form one order comprised of
existing orders 7, 93, 94, 96, and 108, the two orders terminated in
1993 (Orders 97 and 98), and the unregulated territory in Georgia,
Tennessee, and Arkansas.
a. Overlap in milk production areas. The overlap in milk production
areas among two or more orders often results in producer unrest and
market instability when blend prices differ to any extent between the
orders. This happens because producers are generally aware of the
prices being received by their neighbors and seek to find the most
lucrative market for themselves. Sometimes, this may result in a
producer leaving the cooperative association with which he or she has
been associated or switching from one proprietary handler to another.
It may also result in producers entering into business relationships
with handlers of questionable financial stability, which could lead to
the problem of handler defaults described on the hearing record.
The difference in two orders' blend prices at a particular location
may be caused by a variety of factors, including order provisions,
institutional factors, and the location of surplus manufacturing
facilities, as well as obvious differences in class prices.
In the States of Louisiana, Mississippi, Alabama, and Georgia, the
blend prices are greatly influenced by the presence of DI's butter-
powder manufacturing plant at Franklinton, Louisiana, and Mid-America
Dairymen Association's cheese plant at Kentwood, Louisiana, both of
which are Order 94 pool plants that process surplus milk into lower
valued Class III and III-A products. The influence of these plants on
blend prices in this region is evident when comparing the difference in
Class I utilization between Order 94 and its neighbors: Orders 7, 96,
and 93. As can be seen from Table 2, in 1991 the average Class I
utilization for Order 94 was 69.7 percent, compared to 74.6 percent for
Order 7, 80.4 percent for Order 96, and 79.7 percent for Order 93. A
similar comparison of the utilization percentages contained in Table 2
shows that this pattern continued in 1992 and during the first seven
months of 1993.
Table 2.--Percent Class I Utilization of Producer Milk by Federal Order, 1991-1993
----------------------------------------------------------------------------------------------------------------
Order 7 Order 93 Order 94 Order 96 Order 97 Order 98 Order 99 Order 108
----------------------------------------------------------------------------------------------------------------
1991............ 74.6 79.7 69.7 80.4 73.7 80.2 78.6 73.3
1992............ 76.5 76.9 68.2 78.9 69.2 80.8 82.6 63.9
1993\1\......... 80.4 76.1 59.1 69.9 59.8 80.4 87.4 58.7
----------------------------------------------------------------------------------------------------------------
\1\January-July.
The extremely high utilization of the Paducah market (Order 99),
which increased from 78.6 percent in 1991 to 87.4 percent during the
first nine months of 1993, can be attributed to the fact that there is
only one handler, Turner Dairy, with a pool plant under that order and
to the institutional changes that have occurred in that market,
particularly the growth of a non-member milk supply and a corresponding
reduction in cooperative association milk. Consequently, the single
plant operator in that market has an incentive to keep the utilization
as high as possible so as to generate a high blend price for its non-
member producers. From a different perspective, it means keeping any
reserve supplies associated with the plant to a minimum. This situation
is far different from a market with manufacturing facilities, such as
Order 94, which is handling a disproportionate share of the region's
reserve supplies. It is noteworthy that as the Class I utilization of
the Paducah order increased by 19 points from 1991 to 1993, the Class I
utilizations of the neighboring Central Arkansas and Memphis orders
dropped by 14 points.
The differences in blend prices resulting from these utilizations
can be seen in Table 3, which compares average blend prices for 1991,
1992, and the first 7 months of 1993. With respect to Orders 97, 99,
and 108, it should be noted that the higher Class I utilization for the
Paducah order more than offset the fact that its Class I price was 38
cents lower than the Class I price for Orders 108 and 97.
Table 3.--Blend Prices by Federal Order, 1991-1993
----------------------------------------------------------------------------------------------------------------
Order 7 Order 93 Order 94 Order 96 Order 97 Order 98 Order 99 Order 108
----------------------------------------------------------------------------------------------------------------
1991............ $13.35\1\ $13.71\1\ $13.51 $13.84\1\ $12.88 $12.75 $12.67 $12.90
1992............ 14.64\1\ 14.83\1\ 14.63 15.01\1\ 13.94 13.99 14.02 13.86
1993\2\......... 14.37\1\ 14.52\1\ 14.05 14.32\1\ 13.31 14.03 13.62 13.32
----------------------------------------------------------------------------------------------------------------
\1\Order 7 price adjusted to southern zone, Order 93 price adjusted to Zone IV, and Order 96 price adjusted to
Zone III to be comparable to Order 94, which is reported for the highest-priced, southernmost zone.
\2\January-July.
The blend prices shown in Table 3 for Orders 7, 93, and 96 were
adjusted to the highest-priced, southernmost zone, to be comparable
with the Order 94 blend price, which is reported in that way. The lower
utilization of Order 94 is evidenced by its blend price, which is far
below that of Order 93 on the east or Order 96 on the west.
When price differences are related to location, there may be
adequate grounds for justifying such differences. When they occur
within a common production area, however, they cause market
instability. Data in this record show many common production areas
which are subject to significantly different blend prices.
Production data in the record shows a heavy production area in
southern Mississippi and in the ``Florida parishes'' of Louisiana north
of New Orleans. Milk from this area moves to Orders 96, 94, and 93. The
record also indicates there is a very pronounced overlap in production
areas between Orders 7 and 93 throughout northern Georgia. The
production area for the Georgia market also overlaps the procurement
area for the former Nashville market in southeastern Tennessee. In
addition, the counties throughout central Tennessee provide a
significant share of the milk supply for Order 93 as well as former
Order 98.
Table 4 shows the number of counties in various States from which
producer milk was supplied to various combinations of orders. The table
shows, for example, that in May 1993 there were 14 Arkansas counties
from which producer milk was supplied to Orders 97 and 108; that the
Memphis and Paducah orders shared a common supply area in four
Tennessee counties, four Kentucky counties, three Arkansas counties,
and four counties in south central Missouri; and that, in aggregate,
the production area for Orders 93 and 98 overlapped in 38 counties in
four different States. Order combinations that were left out of the
table--for example, 108/96--had no production counties in common.
Table 4.--Number of Counties in Designated States Providing Milk to Specified Federal Order Markets in May 1993
--------------------------------------------------------------------------------------------------------------------------------------------------------
State 97/108 97/98 97/99 97/94 108/94 108/99 7/93 93/94 94/96 93/98 7/98
--------------------------------------------------------------------------------------------------------------------------------------------------------
AR................................................... 14 ....... 3 3 3 3 ....... ....... ....... ....... .......
MO................................................... 8 ....... 4 4 5 4 ....... ....... ....... ....... .......
TN................................................... ....... 1 4 2 ....... ....... ....... 1 ....... 26 5
KY................................................... ....... ....... 4 2 ....... ....... ....... ....... ....... 2 .......
MS................................................... ....... ....... ....... 2 ....... ....... ....... 20 7 ....... .......
GA................................................... ....... ....... ....... ....... ....... ....... 33 ....... ....... 6 14
AL................................................... ....... ....... ....... ....... ....... ....... ....... 2 ....... 4 .......
FL................................................... ....... ....... ....... ....... ....... ....... ....... 1 ....... ....... .......
LA................................................... ....... ....... ....... ....... ....... ....... ....... 1 19 ....... .......
TX................................................... ....... ....... ....... ....... ....... ....... ....... ....... 1 ....... .......
Total................................................ 22 1 15 13 8 7 33 25 27 38 19
--------------------------------------------------------------------------------------------------------------------------------------------------------
In each of the overlapping production areas referenced above, a
pricing disparity problem either presently exists or potentially could
exist as a result of the difference in the blend prices prevailing in
those areas. A single merged marketing area will largely eliminate this
problem, but it will, of course, persist to some extent wherever the
merged marketing area abuts a neighboring marketing area (i.e., the
Texas order, the Southwest Plains order, the Louisville-Lexington-
Evansville order, the Tennessee Valley order, the Carolina order, and
the Upper Florida order).
b. Overlap in sales distribution areas. Market instability may
occur when handlers in one marketing area have significant distribution
in another order's marketing area. Problems may arise because of Class
I price misalignment between orders resulting in an undue price
advantage for a handler in another market. Problems also arise when a
handler in one marketing area has enough sales in another order's
marketing area to become regulated under such other order. If the blend
prices differ significantly at the plant's location, the handler may be
forced to pay over-order charges to maintain its local milk supply,
which, in turn, could put it at a competitive disadvantage vis-a-vis
its competitors in the marketing area where it is located.
Data in the record indicate a significant overlap in distribution
areas within the proposed Southeast marketing area.
In August 1993, 37.5 percent of the route disposition in Order 108
came from plants regulated under Orders 7, 49, (Indiana), 99, 106, and
126. These sales came from the following plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Fleming Dairy, Nashville, Tennessee............ 7
Heritage Farms, Murfreesboro, Tennessee........ 7
Gold Star Dairy, Little Rock, Arkansas......... 126
Turner Dairies, Fulton, Kentucky............... 99
Others......................................... 106, 126, 49
------------------------------------------------------------------------
In July 1993, during the last month of the Memphis order, the
percentage of route disposition represented by other order plants was
30 percent of the total route disposition in the marketing area. These
sales came from the following plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Fleming Dairy, Nashville, Tennessee............ 98
Heritage Farms, Murfreesboro, Tennessee........ 98
Gold Star Dairy, Little Rock, Arkansas......... 126
Turner Dairies, Fulton, Kentucky............... 99
Avents Dairy, Oxford, Mississippi.............. 94
Borden, Inc., Little Rock, Arkansas............ 108
Others......................................... 106, 126, 49
------------------------------------------------------------------------
The Paducah market also has an extremely high ratio of Class I
sales represented by other order and partially regulated plants. In
July 1993, 67 percent of the Class I sales in the Paducah marketing
area originated from other order and partially regulated plants. These
sales came from the following plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Fleming Dairy, Nashville, Tennessee............ 98
Heritage Farms, Murfreesboro, Tennessee........ 98
Purity Dairies, Nashville, Tennessee........... 98
Others......................................... 32, 46, 49
------------------------------------------------------------------------
In the Georgia marketing area, other order and partially regulated
distributing plants accounted for nearly 34 million pounds of Class I
sales in August 1993. These sales, which represented roughly 28 percent
of the total Class I sales that month, came from the following plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Baker and Sons Dairy, Inc., Birmingham, AL..... 93
Barber Pure Milk Company, Birmingham, AL....... 93
Barber Pure Milk Company, Mobile, AL........... 93
Dairy Fresh Corporation, Cowarts, AL........... 93
Flav-O-Rich, Inc., Montgomery, AL.............. 93
Meadow Gold Dairies, Inc., Gadsden, AL......... 93
Superbrand Dairy Products, Montgomery, AL...... 93
Gold Star Dairy, Inc., Little Rock, AR......... 126
Others......................................... 2, 5, 6, 11, 13, 49,
131
------------------------------------------------------------------------
In the Alabama-West Florida market, Class I sales accounted for by
other order and partially regulated plants in August 1993 totaled 15.4
million pounds or 17 percent of total Class I sales that month. These
sales came from the following plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Borden, Inc., Macon, Georgia................... 7
Flav-O-Rich, Inc., Atlanta, GA................. 7
Fleming Companies, Inc., Nashville, TN......... 7
Heritage Farms Dairy, Murfreesboro, TN......... 7
Flav-O-Rich, Inc., Atlanta, GA................. 7
Kinnett Dairies, Inc., Columbus, GA............ 7
Superbrand Dairy Products, Inc., Greenville, SC 7
Avent's Dairy, Inc., Oxford, MS................ 94
Barber Pure Milk Company, Tupelo, MS........... 94
Borden, Inc., Jackson, MS...................... 94
Turner Dairies, Fulton, Kentucky............... 99
Gold Star Dairy, Inc., Little Rock, AR......... 126
Others......................................... 11, 46, 49, 131
------------------------------------------------------------------------
Class I sales by other order and partially regulated distributing
plants in August 1993 accounted for 12 million pounds of Class I sales
in the New Orleans-Mississippi marketing area or roughly 22 percent of
the total Class I sales that month. These sales came from the following
plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Fleming Companies, Inc., Nashville, TN......... 7
Heritage Farms Dairy, Inc., Murfreesboro, TN... 7
Barber Pure Milk Company, Mobile, AL........... 93
Brookshire Dairy Products Co., Columbus, MS.... 93
Dairy Fresh Corporation, Prichard, AL.......... 93
Flav-O-Rich, Montgomery, AL.................... 93
Meadow Gold Dairies, Inc., Huntsville, AL...... 93
Superbrand Dairy Products, Montgomery, AL...... 93
Borden, Inc., Lafayette, Louisiana............. 96
Dairy Fresh of LA, Baker, LA................... 96
Kleinpeter Farms Dairy, Baton Rouge, LA........ 96
Turner Dairies, Fulton, Kentucky............... 99
Forest Hill Dairy, Memphis, TN................. 108
Gold Star Dairy, Inc., Little Rock, AR......... 126
Others......................................... 13, 49, 139
------------------------------------------------------------------------
Finally, in August 1993, other order and partially regulated
distributing plants accounted for 16.3 million pounds of Class I sales
in the Greater Louisiana marketing area or roughly 40 percent of the
total Class I sales that month. These sales came from the following
plants:
------------------------------------------------------------------------
Plant/Location Federal order
------------------------------------------------------------------------
Borden, Inc., Baton Rouge, LA.................. 94
Borden, Inc., Jackson, MS...................... 94
Brown's Velvet Dairy Prod, Inc., New Orleans... 94
Dairy Fresh Corp., Hattiesburg, MS............. 94
Superbrand Dairy Products, Inc., Hammond, LA... 94
Borden, Inc., Conroe, Texas.................... 126
Borden, Inc., Tyler, Texas..................... 126
Gold Star Dairy, Inc., Little Rock, AR......... 126
Southwest Dairy, Tyler, Texas.................. 126
Vandervoorts Dairy, Fort Worth, TX............. 126
------------------------------------------------------------------------
The Class I sales data discussed above indicate clearly that each
of the markets involved in this proceeding is closely integrated with
neighboring Federal order markets. However, it still leaves open the
question of how best to combine these orders because sales data alone
do not provide sufficient guidance to answer this question.
c. Market stability. The third factor that must be considered in
determining the appropriate marketing area is the need to insure market
stability, a prime objective of the Agricultural Marketing Agreement
Act.
The record testimony paints a picture of a rapidly evolving
industry. The marketing of milk products continues to change with ever-
wider distribution areas, centralized operations, inter-handler
marketing agreements, two-way containers, back-hauling arrangements,
plant closings, and changes in ownership, among others. As handlers
widen their distribution patterns, blend prices are buffeted by the
changing Class I utilization that a large plant can cause in a
marketwide pool. The shifting of a plant from one order to another can,
and does, result in handlers being placed in a position where they can
no longer hold on to their milk supply. Most of these changes were
described in the record; some were not. Official notice is taken of the
closing of Guth Dairy in Lake Charles, Louisiana; Acadia Dairy in
Thibodaux, Louisiana; and Walker Resources in Metairie, Louisiana; and
the minority financial interest acquired by Mid-America Dairymen, Inc.,
in Southern Foods Group effective February 17, 1994.
On the producer side, there have also been significant changes in
marketing arrangements. Producers have left their cooperative
associations, formed new cooperative associations, and merged existing
cooperatives. Official notice was previously taken of the merger of
Gulf Dairy Cooperative Association and Mid-America Dairymen, Inc.,
effective March 1, 1994.
The record evidence in this proceeding--specifically, the overlap
of procurement and sales areas, together with the need for stability in
a rapidly changing marketing environment--lead us to conclude that
orderly marketing will best be served by a market that is large enough
to equitably share the region's reserve supplies, to provide regulatory
stability for the plants in this area, and to provide producers with
the freedom to market their milk in whatever manner and to whomever
they wish.
Although there are many instances of plants that are located in one
market, but regulated in another market, there are also many price
alignment problems that result from these situations.\3\ It is best, if
possible, to avoid them. The Gold Star plant would enjoy a more stable
marketing environment if it were located in the Southeast marketing
area, instead of the Mid-South marketing area proposed by AMPI.
---------------------------------------------------------------------------
\3\Official notice is taken of the suspension of certain
provisions of the Greater Louisiana order effective November 1,
1993, (58 FR 63031) to keep a Lake Charles, Louisiana, plant from
becoming regulated under the Texas order, under which the plant
would have experienced a sharp reduction in its blend price.
---------------------------------------------------------------------------
The larger Southeast market will give producers in the Central
Arkansas and former Memphis markets more choices in marketing their
milk. At present, there are a limited number of distributing plants
available to producers in those markets and those that are available
are primarily supplied by AMPI. Under the merged order, however,
producers will have a choice of many different handlers and
cooperatives through which to market their milk. With a uniform set of
regulations applicable to the larger market, it will be easier for
producers to supply different handlers at different times of the year
without fear of being shut out of the market because of separate base
and excess plans that are now, or have in the past, been applicable to
several of the individual orders involved in the merger.
As indicated in the record, the Paducah market is, for all intents
and purposes, an individual handler pool. Producers that are fortunate
enough to have a market with Turner Dairies enjoy extremely high blend
prices and a stable marketing environment. Their neighbors, on the
other hand, who are not part of Turner Dairies' nonmember supply but
instead belong to cooperative associations such as AMPI, Mid-Am, DI, or
ADCA, must move their milk to whatever market is available to them and,
according to the testimony of Turner producers who have compared milk
checks, receive less money for their milk. This is not the essence of a
marketwide pool: to preserve a market for one group of producers, while
their neighbors, who balance the Class I needs of the market, must ship
their milk hundreds of miles away and receive lower prices for it. In
fact, the fluid market and the reserve market should be shared equally
among all producers in a marketwide pool.
The Paducah market is not equitably distributing returns to
producers supplying that market, and it should be considered for
incorporation within a larger market, but it should not be incorporated
in the proposed Southeast market. An analysis of the Federal order
exhibits entered into the record indicates that in August 1993 there
were 11.5 million pounds of milk pooled under Order 99, of which 88.4
percent were Class I. Since Turner Dairies' Fulton, Kentucky, plant was
the only pool plant that month, its Class I sales were approximately
10.2 million pounds (i.e., .884 x 11.5). The exhibits also show that
there were 2.0 million pounds of Class I sales in the marketing area
from the Fulton plant, leaving about 8.2 million which were distributed
in other marketing areas. Although the exact distribution of these 8.2
million pounds was not shown in the record, it is known from the
exhibits that there was distribution from this plant into the Central
Arkansas, Memphis, New Orleans-Mississippi, and Alabama-West Florida
marketing areas. If this pattern of distribution were to continue under
the proposed Southeast order, the Fulton, Kentucky, plant would become
regulated under that order.
According to the data in the hearing record, in July 1993--the most
recent month in which separate data for the Nashville market was
available--33 percent of the Class I sales in the Paducah marketing
area were made by Turner Dairies, Fulton, Kentucky; 22 percent of the
sales were made by handlers regulated under Order 32; 18 percent of the
Class I sales were made by Nashville area plants; and the remaining 27
percent of Class I sales were made by plants that were regulated under
Orders 46 or 49 (Indiana), or by handlers that were partially regulated
or unregulated. With this distribution pattern, the Paducah marketing
area may fit more appropriately with one of these other orders than it
does with the proposed Southeast marketing area.
The Memphis market in July 1993, its last month of operation,
resembled the Paducah market in having only Turner Dairies plants. In
addition to its Memphis plant, Turner Dairies also operated a plant at
Covington, Tennessee, 36 miles northeast of Memphis. Unlike the Paducah
market, a majority of the other order sales in the Memphis market is
from handlers that would be regulated under the proposed Southeast
order. Also, there is a significant overlap in procurement areas
between the Memphis order and the Central Arkansas and New Orleans-
Mississippi orders. There is clearly sufficient evidence in the record
to warrant regulation of the Memphis area as part of the Southeast
marketing area.
In August 1993, the Central Arkansas market had four fully
regulated distributing plants: the Borden, Inc., plant in Little Rock;
the Forest Hill Dairy Plant (i.e., Turner Dairies) that was regulated
under the Memphis order in July 1993; Coleman Dairy, Inc., in Little
Rock; and Humphrey's Dairy in Hot Springs, 55 miles southwest of Little
Rock.
Before it shifted to the Texas order in January 1993, the Gold Star
plant also was regulated under the Central Arkansas order. During
December, its last month under Order 108, there were 49.1 million
pounds of producer milk pooled under that order; in January the pounds
of producer milk dropped to 24.9 million pounds. There was a similar
drop in Class I producer milk, from 30.2 million pounds in December
1992 to 15.4 million pounds in January 1993.
In August 1993, there were 38.4 million pounds of producer milk
pooled under the Central Arkansas order, including the producer milk of
Forest Hill Dairy (i.e., Turner Dairies), which had been pooled under
Order 97. Combining this amount with the 11.5 million pounds of
producer milk pooled under the Paducah market that month yields a
combined total of approximately 50 million pounds, which would have
made it one of the smallest Federal order markets that month.
The point of this comparison is to show that, if the AMPI proposal
had been adopted, it would have created a market that would not have
provided the marketing stability that is needed in this area. In fact,
it is very likely that the proposed Mid-South market would have been
the subject of another lengthy merger proceeding within the near
future.
The Southeast marketing area adopted in this decision encompasses
all of the areas involved in this proceeding, with the exception of the
Kentucky portion of the former Nashville, Tennessee, order, the Texas
counties of Cass and Bowie, the Missouri county of Dunklin, and the
Paducah marketing area. This excluded area (other than the already
discussed Paducah area), and the previously unregulated area in
Tennessee, Missouri, Georgia, Arkansas, and Texas that has been
included, are discussed below.
Kentucky Portion of Former Nashville Marketing Area
The Kentucky counties of Allen, Barren, Metcalf, Monroe, Simpson,
and Warren, and the Fort Campbell military reservation should not be
included in the Southeast marketing area.
Proponents of Proposal No. 1 indicated that they had included these
counties in their proposal because they had been in the previously
regulated Nashville marketing area.
There are no plants in these counties, except the Glasgow Cheese
Plant, which, according to the record, is not capable of supplying the
market because it does not have a Grade A receiving facility.
These counties are surrounded on three sides by the Louisville-
Lexington-Evansville order. There are no distributing plants in these
counties, and there are no significant population centers, other than
Bowling Green (population: 42,017) and Fort Campbell. According to the
witness for Fleming Dairy in Nashville, there are no significant sales
in these counties from Nashville distributing plants.
In view of their northernmost location and their proximity to the
Order 46 marketing area, the Fort Campbell Military Reservation and the
six Kentucky counties that were part of the Nashville marketing area
should not be included in the Southeast marketing area, but instead
should be left unregulated at this time. There are no plants that would
be unregulated by their exclusion from the marketing area.
The Georgia County of Rabun
This county, in the extreme northeast portion of the State of
Georgia within the Chattahoochee National Forest, is surrounded on the
west and south by the Georgia marketing area and on the east and north
by the Carolina marketing area. There are no milk plants located within
the county and no change in the regulatory status of any plant would
occur as a result of its inclusion in the Southeast marketing area. It
should be included in the marketing area for administrative
convenience.
The Tennessee Counties of Van Buren, Bledsoe, Grundy, Franklin,
Lincoln, and Moore
These previously unregulated counties are located between the
Tennessee Valley marketing area on the east, the terminated Nashville
marketing area on the west, and the Alabama-West Florida marketing area
on the south. This is a sparsely populated area from which milk is
produced for the Nashville and Alabama-West Florida markets. There are
no milk plants in these counties and no now-unregulated plants outside
of these counties would be regulated by the inclusion of these counties
in the marketing area. This area should also be included in the
proposed marketing area.
The Tennessee Counties of Henry, Carroll, Benton, Decatur, Henderson,
Chester, and McNairy
These seven counties, bordered on all sides by the proposed
Southeast marketing area, should also be part of the marketing area.
There are no milk plants in this area, nor are there any plants that
would become regulated as a result of their addition to the marketing
area. Since they would be bordered on all sides by other parts of the
marketing area, no useful purpose would be served in leaving them out
of the marketing area.
The Unregulated Arkansas Counties
These counties, which were proposed by AMPI for inclusion in the
Mid-South marketing area, should be included in the Southeast marketing
area. There are no distributing plants in these counties, and no new
plants will become regulated as a result of the inclusion of these
counties in the marketing area.
The Unregulated Texas Counties of Bowie and Cass
The Texas counties of Bowie and Cass should not be included in the
Southeast marketing area. The apparent reason for including these
counties in the proposed Mid-South marketing was for administrative
convenience since these two unregulated Texas counties would have been
surrounded by regulated area. This is a good reason to include these
two counties but they may, in fact, be more closely associated with the
Texas market. Rather than introduce the State of Texas into the
Southeast marketing area for the sake of two counties that do not
include any distributing plants, the counties of Bowie and Cass should
be left unregulated for possible inclusion in the Texas marketing area
when the opportunity presents itself.
Similarly, since the Paducah marketing area has not been included
in the Southeast marketing area, there is no point in adding one
Missouri county to the marketing area for the sake of map-drawing
convenience. Therefore, Dunklin County, Missouri, should not be part of
the Southeast marketing area.
2(a). Milk to be Priced and Pooled
It is necessary to designate what milk and which persons would be
subject to the merged order. This is accomplished by providing
definitions to describe the persons, plants, and milk to which the
applicable provisions of the order relate.
The definitions included in the order serve to identify the
specific types of milk and milk products to be subject to regulation
and the persons and facilities involved with the handling of such milk
and milk products. Definitions relating to handling and facilities are
``route disposition,'' ``plant,'' ``distributing plant,'' ``supply
plant,'' ``pool plant,'' and ``nonpool plant.'' Definitions of persons
include ``handler,'' ``producer-handler,'' ``producer,'' and
``cooperative association.'' Definitions relating to milk and milk
products include ``producer milk,'' ``other source milk,'' ``fluid milk
product,'' ``fluid cream product,'' ``filled milk,'' and ``product
prices.''
Several of these definitions were of particular issue at the
hearing: i.e., ``route disposition,'' ``pool plant,'' ``producer-
handler,'' and ``producer.'' All of the remaining definitions are
patterned after those contained in one or more of the orders involved
in this proceeding. Official notice of the final decisions setting
forth the need and basis of such provisions was taken at the hearing. A
discussion of those definitions that were of particular issue at the
hearing, as well as those that involve substantive modifications, is
set forth below.
Route Disposition: Sec. 1007.3
The route disposition definition sets forth the type of deliveries
that are considered in determining whether a distributing plant
qualifies for pooling under the order.
As proposed in Proposal No. 1, route disposition means any delivery
to a retail or wholesale outlet (except to a plant) either direct or
through any distribution facility (including disposition from a plant
store, vendor or vending machine) of a fluid milk product classified as
Class I milk. This definition should be modified slightly to include,
for the limited purpose of determining pool plant qualification,
packaged fluid milk products that are transferred from a plant with
route disposition in the marketing area to a distributing plant if such
transfers are classified as Class I milk.
This language, which is also included in the Eastern Colorado
Federal milk order (See Sec. 1137.3) is necessary to preclude a plant
from becoming partially regulated because it ships significant
quantities of packaged fluid milk products to another distributing
plant, which then distributes those fluid milk products to retail and
wholesale outlets. This precise situation has occurred in the
neighboring Southwest Plains order, where a previously fully regulated
plant failed to qualify as a pool plant because it shipped more than 50
percent of its packaged fluid milk products to a distributing plant
which it operated in another city.\4\ As a partially regulated plant
with a Class I utilization higher than the market average, the handler
was in a position to pay its producers a price in excess of the order's
blend price. In addition, during one month AMPI was required to depool
milk that it had diverted from the plant in order to insure that the
plant qualified as a pool plant. This resulted in financial loss to the
cooperative.
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\4\Official notice is taken of the suspension of certain
provisions of the Southwest Plains order effective February 1, 1994
(59 FR 11180).
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To prevent this situation from occurring in the Southeast marketing
area, the route disposition definition should include, for the limited
purpose of determining pool plant qualification, packaged fluid milk
products that are transferred from a plant with route disposition in
the marketing area to a distributing plant if such transfers are
classified as Class I milk.
As a general application of the order, packaged fluid milk products
that are transferred from one handler to another will be treated as an
interhandler transfer. Thus, each transaction should be properly
identified and specifically reported as such to the market
administrator. This will facilitate orderly operations and avoids
ambiguous or dual reports.
The modified route disposition definition adopted herein will not
change this treatment. It merely provides that such transfers, which
are classified as Class I and emanate from a plant with route
disposition in the marketing area, shall be considered as route
disposition from the transferor plant, rather than the transferee
plant, for the single purpose of qualifying the transferor plant as a
pool distributing plant under Sec. 1007.7(a).
Plant: Sec. 1007.4
A plant definition should be included in the merged order to remove
any uncertainty with respect to what constitutes a plant and what
constitutes a reload point.
The cooperative coalition's proposed plant definition is identical
to the definition now found in Order 93. Order 96 contains a slightly
different plant definition, while Orders 7, 94, and 108 do not define
this term.
The cooperatives' proposed definition should be adopted for the
merged order. The proposal defines plant as the land, buildings,
facilities, and equipment constituting a single operating unit or
establishment at which milk or milk products, including filled milk,
are received, processed, or packaged. Separate facilities without
stationary storage tanks that are used only as a reload point for
transferring bulk milk from one tank truck to another or separate
facilities used only as a distribution point for storing packaged fluid
milk products in transit for route disposition would not be a plant
under this definition.
There was no opposition to this proposal at the hearing or in the
briefs that were filed. This definition is widely used in other Federal
orders and is familiar to the industry. It should be included in the
merged order.
Pool Plants: Sec. 1007.7
Essential to the operation of a marketwide pool is the
establishment of minimum performance standards to distinguish between
those plants substantially engaged in serving the fluid needs of the
regulated market and those plants that do not serve the market in a way
or to a degree that warrants their sharing in the Class I utilization
of the market. The pooling standards that are contained in the attached
order would carry out this concept under present marketing conditions.
Distributing Plants: Sec. 1007.7(a)
To be pooled under the merged order, a distributing plant's total
route disposition each month must be equal to 50 percent or more of the
fluid milk products physically received at the plant or diverted from
the plant during the month. In addition, the plant's daily average
route disposition in the marketing area must be equal to at least 1,500
pounds per day or 10 percent of the plant's receipts of fluid milk
products, except filled milk, physically received at the plant or
diverted from it during the month.
Citing an expected Class I utilization under the merged order that
is likely to exceed 68 percent during all months of the year, the
cooperative coalition proposed a total route disposition requirement of
50 percent each month of the year and an in-area route disposition
requirement of 10 percent. These requirements are similar to those of
the five existing markets, except for the Georgia market, which has a
15 percent in-area requirement. These standards are reasonable and
should be adopted for the merged order.
Lock-In Provision: Sec. 1007.7(f)(2)
With a 10 percent in-area route disposition requirement, it is
possible that a distributing plant may meet the pooling standards of
more than one order. A question then arises concerning under which
order the plant should be regulated. Under Proposal No. 1, a
distributing plant that met the order's pooling standards would be
regulated under the Southeast order if the plant is located in the
Southeast marketing area. This is a sensible provision to have in this
area and should be adopted. The lock-in is accomplished by not
excluding within Sec. 1007.7(f)(2) a plant located in the marketing
area that would otherwise be regulated under another order by virtue of
the fact that it had greater sales in such other marketing area.
Testifying in support of the lock-in provision, the spokesman for
the cooperative coalition stated that this provision differs slightly
from the traditional Federal order method of determining where a
distributing plant should be regulated when the plant qualifies for
pooling under more than one order. He explained that the traditional
method provides that a plant should be pooled under the order in which
it has the most sales. The principle behind that rule, he added, was to
insure that all handlers having sales in an order area were subject to
the same price and other regulatory provisions as their competition.
The coalition's witness stated that with the advent of processing
plants with sales distribution over wide geographic areas, the
traditional method of pooling distributing plants is outdated. He said
that another, and equally important, reason for adopting a lock-in
provision is to minimize any inequities which may occur between
producers located within the same geographic supply area. These
inequities are created when a distributing plant is located within one
marketing area, obtains its milk supply within that marketing area, but
is regulated by another Federal order.
The witness referred to an exhibit which compared blend prices
under the Greater Louisiana and the adjacent Texas orders. He noted
that the Greater Louisiana order blend prices, f.o.b. Lake Charles and
Shreveport, Louisiana, have been substantially above the Texas order
prices at similar locations. He said that the 73 to 77 cents per
hundredweight average difference in blend prices between the two
orders, considering the overlap of supply for both plants, would create
unstable and disruptive marketing conditions in the proposed merged
order supply area and that these differences in producer pay prices
would create difficulties in maintaining sales and attracting adequate
supplies of milk for handlers under the merged order.
In its brief, Southern Foods Group urged the Secretary to reject
any lock-in provisions, arguing that it was philosophically opposed to
a lock-in provision, unless the provision is designed to avoid
switching the regulation of a plant from one market to another on a
frequent basis. It stated that ``in general, a plant should be
regulated where it has a plurality of its milk distribution since that
is where it is competing the most against other regulated handlers.''
The brief also stated that the problem experienced by Guth Dairy, Lake
Charles, Louisiana (See footnote No. 3), is irrelevant because that
plant has gone out of business. Finally, focusing on Gold Star Dairy in
Little Rock, SFG argued that, if that plant has greater sales in the
Texas marketing area than in the Southeast marketing area, it should be
regulated under the Texas order.
The question of where to regulate a plant that meets the standards
of more than one order may actually depend upon the circumstances
involved. While SFG holds that the plant should be regulated in the
market in which it mostly competes for sales, problems that have
surfaced in the past year in the Greater Louisiana, Tennessee Valley,
and Louisville-Lexington-Evansville orders would indicate that a
handler's procurement area may be more important than its distribution
area in determining where the plant should be regulated.
Given proper Class I price alignment between two orders (i.e., the
same Class I price at a given location regardless of which order a
plant is regulated under), a plant which meets the pooling standards of
more than one order will be in a better position to procure a milk
supply by being regulated in the marketing area in which it is located
unless it is shipping milk into a market which is generating a higher
blend price at the plant's location. Even with the higher blend price
under the other order, however, it may still not be appropriate to
regulate the plant under the higher-priced market if, in doing so, it
causes disorderly marketing conditions in the market where the plant is
located.
With the exception of the Upper Florida market, the Southeast
marketing area is surrounded by markets with equal or lower prices. In
addition, it is expected that the Class I utilization of the Southeast
market will exceed the utilization of these surrounding markets with
the exception of the Upper Florida market. Consequently, the blend
price at any location within the Southeast marketing area is likely to
be higher than the blend price at that location under any of the
surrounding orders.
As indicated, the sole exception to this statement is in southern
Georgia or southern Alabama, where there are no plants at the present
time that would qualify for pool status in the Upper Florida market. In
view of this, the lock-in provision proposed for the Southeast market
is a prudent measure that will avoid the disorderly marketing
conditions that result when a plant becomes regulated in a lower blend
price market or switches back and forth between two orders.
Under the proposed Southeast order, a plant that qualifies as a
pool distributing plant and which is located within the marketing area
will be regulated under this order even if it has greater sales in
another order's marketing area. The adjacent Texas, Southwest Plains,
Paducah, Louisville-Lexington-Evansville, and Upper Florida orders
contain provisions (Secs. 1126.7(f)(4), 1106.7(f)(2), 1099.7(c)(3),
1046.7(e)(3), and 1006.7(d)(3), respectively) that will conform to this
provision by yielding regulation of the plant to the Southeast order.
However, Secs. 1005.7(d)(3) and 1011.7(d)(3) of the Carolina and
Tennessee Valley orders, respectively, do not contain this type of
provision, setting up a potential conflict with Sec. 1007.7(f)(3),
which will only release a plant that has more sales in another
marketing area if the plant is not located in the Southeast marketing
area.
At the present time, there is no distributing plant in the
Southeast marketing area that has, or is likely to have, more sales in
the Carolina or Tennessee Valley marketing areas than in the Southeast
marketing area. Should this situation change, however, and a plant
located in the Southeast marketing area does develop more route
disposition under Order 5 or 11 than under Order 7, the plant should
remain regulated under Order 7 notwithstanding the provisions of Orders
5 and 11.
The Southeast order should also contain a provision releasing a
plant from regulation if the other order contains a provision that
requires regulation of the plant because of its location within that
order's marketing area. For example, the Louisville-Lexington-
Evansville order, in Sec. 1046.7(e)(2)(ii), requires regulation of a
distributing plant if the plant meets the pooling standards of
Sec. 1046.7(a), is located in the marketing area, and is subject to a
Class I price under Order 46 that is not less than the Class I price
under another order in which it also qualifies as a pool plant and in
which marketing area it has more route disposition. Accordingly, a
paragraph is included in the proposed Southeast order,
Sec. 1007.7(e)(4), which recognizes the jurisdiction of Order 46 to
regulate such a plant.
Multiple Order Pooling
At the hearing, Gold Star suggested another way of handling a plant
with sales in more than one market. It suggested prorating the plant's
sales among the markets in which it qualifies for pooling and has at
least 25 percent of its sales. Producers supplying the plant would
receive a weighted average price based upon the blend prices of the
various markets in which the plant so qualifies.
This proposal should not be adopted. It would result in paying
producers different prices in a common supply area--one of the problems
cited for merging these orders--and it would be cumbersome to
administer. With this merger and perhaps others to follow, the
regulatory problems experienced with large plants distributing over
wide areas should be significantly diminished.
Unit Pooling: Sec. 1007.7(d)
Barber Pure Milk Company (Barber) and Dairy Fresh Corporation
(Dairy Fresh) proposed the ``unit pooling'' of a distributing plant and
one or more other plants. Under their proposal, a unit consisting of
one distributing plant and one or more additional plants of a handler
at which Class I and/or Class II products only are processed and
packaged would be considered as one plant for the purpose of meeting
the pool distributing plant requirements if all of the plants in the
unit were located within the marketing area, and if, prior to the first
of the month, the handler operating such plants filed a written request
for unit pooling with the market administrator. The proposal would
permit only one unit per handler, require that all plants in a unit be
located in the marketing area, and exclude plants producing frozen
desserts from being part of a unit.
Barber's spokesman testified that Barber Pure Milk Company operates
two non-pool plants that process and package Class II products, one
located in Montgomery, Alabama, and the other located in Oxford,
Alabama. The Montgomery plant processes dessert and ice cream mix and
buttermilk for baking and currently receives about 700,000 pounds of
milk from producers per month. The Oxford plant processes and packages
cottage cheese, sour cream, and sour cream dip and receives about
400,000 pounds of milk from producers each month.
The witness stated that, up until early 1992, Barber operated four
plants on the Alabama-West Florida order, located at Birmingham,
Mobile, Montgomery, and Oxford, Alabama, which is 60 miles east of
Birmingham. Each of the four plants engaged in the manufacture of Class
II products in varying degrees. He said that, for efficiency purposes,
the Class I processing and packaging at the Montgomery and Oxford
plants was moved to the Birmingham and Mobile plants, while the Class
II processing and packaging at the Birmingham and Mobile plants was
moved to the Montgomery and Oxford plants.
The Barber witness stated that to accommodate this economical
specialization of plant operations, and not create any chaos in the
marketplace, it was necessary to make some changes in the order. If the
unit pooling proposal is not adopted, he said, it will become necessary
to incur unnecessary costs of moving milk to pool distributing plants,
unloading the milk, reloading the milk, and transporting it back to the
Class II specialty plants. He noted that the diversion provisions will
accommodate the movement of some of the needed milk directly from the
farm to the Class II plants, but not all of the milk required.
The Barber witness testified that the milk supply for the Oxford
plant comes from six producers located in the Alabama counties of
Calhoun, Etowah, and Talladega who produce approximately 500,000 pounds
of milk per month or about 80 percent of the plant's requirements. He
said that without the unit pooling provision, about two-thirds of this
milk could be diverted to the Oxford plant, but the remaining third
would have to be delivered to the Birmingham pool plant, unloaded at
the plant, reloaded, and hauled the 60 miles back to Oxford. The
additional cost involved in this, he estimated, was approximately 47
cents per hundredweight or $225 per load.
This witness also testified that milk to supply the Montgomery
plant of approximately 700,000 pounds per month is located in northern
Alabama and Tennessee and must be transported through the city of
Birmingham on its way to Montgomery. There is no additional hauling
cost if the milk is received at Birmingham; however, the cost of
receiving the milk, washing the truck, and reloading the milk adds an
additional .20 cents per hundredweight to the cost of the milk at
Montgomery or an additional $95 for each load of milk received at
Birmingham and then transferred to Montgomery.
The witness stated that unit pooling should not be rejected because
of concerns about attracting additional supplies of milk to the market
for Class II products. He said that the production of Class II products
was demand driven and that no additional quantity beyond the demand
would be produced by the specialized plants. Nevertheless, to allay any
concerns that these plants would be used for surplus disposal, he said
the proposal restricts unit pooling to plants which produce Class I and
II products only, excluding ice cream.
In its proposal concerning the proposed Mid-South marketing area,
AMPI also proposed the unit pooling of plants that are located within
the marketing area. Unlike the Barber/Dairy Fresh proposal, the AMPI
proposal did not exclude plants making ice cream from the unit.
In its post-hearing brief, the Fleming Companies urged that unit
pooling be rejected. It stated that pool performance standards should
be fixed so that each producer, each plant, and each supply
organization demonstrate a close association with the Class I
requirements of the market.
The unit pooling proposals make economic sense and should be
adopted for the merged marketing area, but with certain restrictions.
The order's pooling standards insure that each distributing plant
and each unit of plants consisting of at least one distributing plant
perform at the same minimum level to be eligible for pool plant status.
The total route disposition requirement--50 percent each month of the
year--recognizes that not all of the plant's receipts will be needed
for Class I use. That standard permits up to 50 percent of the plant's
receipts to be used in Class II, III, or III-A products.
If Handler A chooses to operate one large distributing plant in
which 40 percent of the plant's receipts are used in Class II products,
while Handler B chooses to operate a distributing plant exclusively for
fluid use and another plant exclusively for Class II products and the
Class I utilization of both plants added together is 60 percent, it
makes no sense to preclude Handler B from separating the operations.
Both handlers are performing at precisely the same levels; they simply
differ in their modes of operation. They should be permitted to operate
in whatever manner they deem most efficient.
As proposed by Barber and Dairy Fresh, a unit should be restricted
to plants located in the marketing area that make only Class I or Class
II products. If a handler wishes to add or remove plants from the unit,
the handler would have to file a request with the market administrator
before the first day of the month in which the change is to be
effective.
The provision adopted here deviates from the Barber/Dairy Fresh
proposal by permitting plants that make frozen desserts to be included
in a unit. No convincing rationale was given for excluding ice cream or
other frozen dessert plants from a unit. This restriction would be
unfair to a handler who makes ice cream in a separate plant, as
compared to another handler who bottles milk and makes ice cream in the
same plant. It also would require a set of standards to determine what
is a frozen dessert plant and what is not. For example, if 50 percent
of a manufacturing plant's milk was used to make cottage cheese, and 50
percent was used to make ice cream, one would have to determine whether
this plant was a cottage cheese plant or a frozen dessert plant. We can
find no basis for distinguishing frozen desserts from other Class II
products for the purpose of unit pooling. Accordingly, this part of the
Barber/Dairy Fresh proposal is not adopted.
One additional restriction should be added to the proposal,
however. It would be inappropriate to permit a Class II operation in a
higher-priced zone to unit pool with a distributing plant in a lower-
priced zone. An example will illustrate the point.
If a handler with a plant in Montgomery, Alabama, processed 6
million pounds into Class I products and 4 million pounds into Class II
products, it would pay into the pool--based on prices proposed in this
decision--a Class I location adjustment of $12,000 (i.e., 6 million
pounds x $.20 per cwt.) but in paying producers supplying the plant
the handler would draw out of the pool a location adjustment value of
$20,000 (i.e., 10 million pounds x $.20 per cwt.). In effect, the
handler would take out of the pool in location value $8,000 more than
it contributed.
It is universally true that a handler in a higher-priced zone will
draw out of the pool more location value in the blend price to its
producers than it contributes on the basis of its location adjustment
for Class I milk. This is because the pooling standards do not require
a handler to use all its milk in Class I. Because the market for Class
II products is more of a regional market, location value has not been
added to Class II products. The pool, in effect, absorbs a certain
amount of transportation cost to provide a handler with milk for Class
II use. When both the Class I and II products are processed at the same
plant, this subsidization is limited by the amount of milk that may be
used in Class II at that location.
Under the unit pooling proposal of Barber and Dairy Fresh, it would
be possible to unit pool a Class I distributing plant in a lower-priced
zone (e.g., Montgomery, Alabama) with a Class II operation in a higher-
priced zone (e.g., Franklinton, Louisiana). Assuming that in this unit,
the Montgomery plant processed 6 million pounds of Class I milk, while
the Franklinton plant processed 4 million pounds of Class II milk, the
handler would contribute $12,000 to the pool in location value on Class
I milk, but it would draw out of the pool $32,000 (i.e., 6 million
pounds x $.20 in Montgomery plus 4 million pounds x $.50 cents in
Franklinton). In other words, it would take out of the pool $20,000
more than it contributed in location value.
It would not be fair to expect all of the market's producers to
subsidize the delivery of milk for Class II use in the Montgomery/
Franklinton unit example described above. As previously noted, a
certain amount of subsidization will always occur to the extent that
Class I route disposition requirements are less than 100 percent and no
location value is attached to the Class II price. However, the
opportunity to take advantage of this situation is equally available to
all of the market's handlers. On the other hand, under the Barber/Dairy
Fresh unit pooling proposal large handlers with multiple plants would
be able to take a disproportionate share of location value out of the
pool if their Class II operation were located in a higher priced zone
than their Class I operation.
To correct this inequity, the composition of units should be
further restricted. Specifically, in a unit consisting of two or more
plants, any plant that, by itself, would not qualify as a pool plant,
must be located in a pricing zone providing the same or a lower Class I
price than the price applicable at the unit distributing plant that
would, by itself, qualify as a pool plant. Thus, for example, a Class
II operation in Nashville may unit pool with a Class I operation in
Atlanta, but a Class II operation in Atlanta may not unit pool with a
Class I operation in Nashville.
This additional restriction on unit pooling will insure a degree of
fairness to all of the market's handlers in processing Class II
products and to all of the market's producers in the distribution of
pool funds. It also will tend to encourage milk in lower-priced areas
to be used in lower-valued products while encouraging milk to move to
the market's higher-priced areas for use in Class I.
Supply plants: Sec. 1007.7(b)
A supply plant should be defined as a plant that is approved by a
duly constituted regulatory agency for the handling of Grade A milk and
from which fluid milk products are transferred during the month to a
pool distributing plant. This is the definition now included in Orders
93 and 108 and proposed by the cooperative coalition for the merged
order.
To qualify as a pool plant, a supply plant should be required to
transfer a certain portion of its receipts each month to a pool
distributing plant. In that way, it will be contributing to the fluid
needs of the market.
As proposed by the cooperative coalition, a supply plant would have
to transfer 60 percent of its receipts to pool distributing plants
during each of the months of July through November and 40 percent
during each of the months of December through June. The supply plant's
``receipts'' would include milk that is diverted from the plant as
``producer milk,'' but would exclude milk that is diverted to the
supply plant from another pool plant. In addition, receipts would
include not only the milk received from individual dairy farmers, but
also the milk received from a cooperative association acting as a
handler on milk delivered directly from producer-members' farms
(i.e.,pursuant to Sec. 1007.9(c) of the order).
At the hearing, a spokesman for Kraft Foods testified that a pool
supply plant should be allowed to use the most efficient form of milk
movement to meet supply plant shipping requirements. He said that, in
addition to including transfers from the plant, diversions to pool
distributing plants directly from producers' farms also should be
counted in meeting those pooling requirements. In its Proposal No. 9,
the Fleming Companies also proposed that diversions be used to meet a
supply plant's shipping requirement.
The record indicates that distributing plants in the Southeast
marketing area are supplied with milk that comes directly from
producers' farms. Pool supply plants, as defined in Section 7(b) of the
individual orders, have not been a factor in this area for many years.
To the extent that any plant milk is transferred to distributing
plants, such milk generally comes from cooperative association
``balancing plants,'' which qualify as pool plants based on the
cooperatives' total deliveries of milk to pool distributing plants, as
opposed to individual plant performance. Such deliveries may include
transfers of plant milk but, as a general rule, the milk comes directly
from producers' farms without being first delivered to the
cooperative's plant.
Despite the fact that this market may have little need for true
supply plants, the merged order should continue to accommodate the
possible pooling of such plants in case plant milk from a distant
location is needed to supplement locally-produced milk. However, there
is no reason to facilitate the pooling of manufacturing plants as
``pool supply plants'' by allowing such plants to qualify on the basis
of direct deliveries from the farm when the very fact that such
deliveries can be economically made belies the need for the ``supply
plant'' in the first place. For this reason, the Kraft and Fleming
proposals to permit diversions to be used as qualifying shipments for a
supply plant should not be adopted.
Balancing plants: Sec. 1007.7(c)
While the term ``balancing plant'' is not actually used in the
order, as described in Sec. 1007.7(c) of the proposed Southeast order
it means a plant located in the marketing area and operated by a
cooperative association which delivers 60 percent of the producer milk
of its members to pool distributing plants during each of the months of
July through November and 40 percent during each of the months of
December through June. The deliveries to pool distributing plants may
include deliveries directly from the farms of producer members of the
association as well as transfers from the cooperative's plant.
To be eligible for pool status, the plant must not qualify as a
pool distributing plant or a pool supply plant under the Southeast
order or any other Federal order. Also, the plant must be approved to
handle Grade A milk by a duly constituted regulatory agency.
This provision is essentially the same as the proposal of the
cooperative coalition, except that it requires a plant that qualifies
under this paragraph to be located within the Southeast marketing area.
The plants that are likely to become cooperative balancing plants under
the Southeast order are DI's plants in Franklinton, Louisiana, and
Lewisburg, Tennessee, and Mid-America Dairymen's plant in Kentwood,
Louisiana. Therefore, the in-area location requirement should not
affect the regulatory status of any plant that is expected to be pooled
as a balancing plant under this order.
Unlike a supply plant, which must incur the cost of shipping milk
to the market, a balancing plant could be located in New Mexico,
Arizona, or some other distant location and not incur the cost of
shipping milk from those locations to the market. Such a plant could
qualify based on the direct deliveries of locally-produced milk. For
this reason, it would be imprudent not to require a balancing plant to
have some association with the Southeast marketing area, as urged by
the Fleming Companies, Barber, and Dairy Fresh in their briefs.
In its joint brief, Barber and Dairy Fresh urged the Secretary to
not only require a balancing plant to be located in the marketing area,
but also to require the plant to transfer 10 percent of the plant's
receipts to pool distributing plants each month. The Fleming Companies
made a similar plea in its brief.
These handlers provided no convincing reason why any shipments from
a balancing plant that is located within the marketing area are needed.
Such plants, in fact, provide a service to the market in balancing its
reserve supplies. The performance standards applicable to the
cooperatives which operate these plants assure that milk will be made
available to meet the Class I needs of the market. Therefore, in the
absence of a compelling reason for adopting these seemingly unnecessary
milk handling and transportation requirements, the request for specific
performance from such a plant is denied.
Revisions of pooling standards: Sec. 1007.7(e)
Kraft Foods proposed that the market administrator be given the
authority to adjust pool supply plant shipping standards. The Kraft
witness stated that this will afford the Department more flexibility in
meeting the changing needs of the market. The witness cited the lengthy
delays that are now frequently incurred in suspending regulations when
market conditions change. He also noted that while some orders permit
the Director of the Dairy Division to issue revisions of shipping
standards, this process is also a lengthy procedure.
The Kraft proposal should be adopted, but it should be modified to
include the distributing plant route disposition standards in
Sec. 1007.7(a), the supply shipping standards in Sec. 1007.7(b), the
cooperative ``balancing plant'' performance standards in
Sec. 1007.7(c), the ``touch base'' standards in Sec. 1007.13(d) (1) and
(2), and the diversion limitations in Sec. 1007.13(d) (3) and (4). The
authority to increase or decrease a percentage performance level should
be restricted to not more than 10 percentage points above or below the
levels established in the order. The authority to increase or decrease
the producer ``touch base'' standards in Sec. 1007.13(d) (1) and (2)
should be restricted to 50 percent of the standard specified in the
order.
Most milk order actions involve temporary adjustments to pooling
standards to recognize changes in supply and demand conditions. These
adjustments are accomplished in most orders by ``suspending'' certain
language from a provision of the order so as to reduce the regulatory
burden on handlers and assure the continued pooling of milk that has
been historically associated with a market without the need for making
costly and inefficient movements of milk. A large percentage of these
suspensions could be avoided by permitting the order's pooling
standards to be adjusted slightly at the direction of the market
administrator, who is the person delegated by the Secretary to
administer the order.
Suspension actions only provide a means for reducing pooling
standards. These actions cannot be used to increase pooling standards
in the event that additional supplies of milk are needed. A few orders
provide authorization for the Director of the Dairy Division to either
increase or decrease pooling standards as a result of changes in supply
and demand conditions. This authority is intended to provide a greater
degree of flexibility to adjust performance standards to the varying
needs of the market. However, the process for implementing the changes
has made it extremely difficult to respond as expeditiously as is
necessary to reflect frequent and rapid changes in marketing
conditions.
As proposed herein, the authority to modify pooling standards and
diversion limitations would be restricted to not more than 10
percentage points up or down. Following a written request to make such
an adjustment, the market administrator will notify all parties in the
market who would have an interest in the request. This would include,
at a minimum, every handler and every cooperative association
representing producers in the market. In addition, the market
administrator will notify the Director of the Dairy Division,
Agricultural Marketing Service, of the request. The market
administrator will provide at least seven days for the submission of
written comments, which may be faxed or mailed, before making a
decision concerning the request. Prior to making such a decision, the
market administrator will confer with the Director of the Dairy
Division.
The flexibility accorded in the order by this provision should be
helpful in meeting any fluctuating needs of the market in a timely
manner.
Nonpool plant: Sec. 1007.8
The nonpool plant definition proposed for the merged order should
be adopted. The plants defined as nonpool plants include other order
plants, plants of producer-handlers, partially regulated distributing
plants, unregulated supply plants, and exempt plants. With the
exception of the exempt plant definition, these terms are standard
among the separate markets involved in this proceeding.
The exempt plant definition proposed by the cooperative coalition
includes, in addition to a plant operated by a governmental agency, a
plant with monthly route disposition of less than 100,000 pounds.
At the hearing, the cooperative coalition spokesman indicated that
if the two small producer-handlers now in the Georgia market--Etowah
Maid Dairies, Inc., at Canton, Georgia, and Sheppard Brothers Dairy
Farm at Stone Mountain, Georgia--were not exempt from regulation under
the producer-handler provisions proposed for the merged order, they
would be under the proposed exempt plant definition. Although neither
producer-handler testified at the hearing or filed a post-hearing
brief, it is not certain that they would, in fact, be exempt from
regulation under the proposed exempt plant definition.
According to the cooperatives' witness, the purpose of the 100,000-
pound exemption ``is to exempt from pricing and pooling those producer-
handlers who are fairly small in size, whether or not they might
otherwise qualify as a producer-handler.'' As written and as explained
at the hearing, however, this provision would apply to any plant with
monthly route disposition under 100,000 pounds, whether or not the
handler otherwise meets the criteria for being a producer-handler.
The proposed exemption from regulation based on monthly route
disposition should be adopted. As a practical matter, the exemption of
plants of this size would pose no threat to the order's regulated
handlers. In addition, the regulatory burden on a handler of this size
is much greater than it is on an average size handler. Although it is
not certain that the two producer-handlers in this market would be
exempt under this provision, it should nevertheless be included in the
order to preclude the regulation of any small handler who may
distribute fluid milk products in the Southeast marketing area.
Handler: Sec. 1007.9
The impact of regulation under a Federal order is primarily on
handlers. A handler definition is therefore necessary to identify those
persons from whom the market administrator must receive reports, or who
have a financial responsibility for payment for milk in accordance with
its classified use value. This will assure that all information
necessary to determine a person's status under the order can be readily
determined by the market administrator.
As proposed by the cooperative coalition, the handler definition
should include the operator of a pool plant, a cooperative association
that diverts milk to nonpool plants or delivers milk to pool plants for
its account, a producer-handler, and any person who operates a
partially regulated distributing plant, an other order plant, an
unregulated supply plant, or an exempt plant.
With the exception of the operator of an exempt plant, these terms
are standard definitions, which are included in virtually all Federal
milk orders. The inclusion of the operator of an exempt plant in the
handler definition is somewhat unusual. Although most of the individual
orders, except Order 108, exempt government plants from regulation,
none of them include the exemption for a plant based on minimum route
disposition. Because of this additional basis for exemption, the
operator of an exempt plant should be included in the handler
definition. Although the operator of an exempt plant is, as the name
implies, exempt from full regulation under the order, the plant
operator must still file reports with the market administrator so that
the basis for exemption can be determined and milk handled by the plant
can be properly classified. For this reason, it is logical to include
an exempt plant operator in the handler definition.
Producer-handler: Sec. 1007.10
The merged order should exempt a producer-handler from regulation
if the producer-handler meets certain specified requirements. The only
two producer-handlers now operating in the proposed marketing area have
been subject to the provisions of the Georgia order. Since this
provision is short, simple, easily understood and virtually identical
to the producer-handler provisions contained in the separate orders, it
should be adopted for the merged order.
The cooperative coalition's proposed producer-handler provision
defines a producer-handler as a person who is engaged in the production
of milk and also operates a plant from which during the month fluid
milk products are disposed of directly to consumers through home
delivery retail routes or through a retail store located on the same
property as the plant. A person meeting all of the other requirements
for a producer-handler, but who disposes of fluid milk products through
wholesale outlets, jobbers, independent route distributors, or retail
outlets other than a plant store would not qualify as a producer-
handler.
As described by the cooperatives' spokesman, the retail-wholesale
distinction is designed to address the point at which the pricing
advantage granted to producer-handlers contributes to disorderly
marketing. The witness testified that a producer of medium farm size
who bottles his or her own product and sells to his/her neighbors is
not a serious threat to orderly marketing. While such a person still
has the same buying advantage, such savings are less than the
additional cost inherent with small size.
The cooperatives' spokesman also stated that even a producer-
handler of substantial size who develops home-delivery routes will
probably not pose a serious threat to orderly marketing under current
economic circumstances. He noted that where such distribution does
exist, it is far less price sensitive than sales from supermarket
shelves. Although the producer-handler would have a cost advantage by
exemption from pricing and pooling, this advantage would be eroded
through the cost associated with the manner of distribution, according
to the witness.
The witness also testified that a producer-handler who distributes
fluid milk products through a plant store does not pose a serious
threat to orderly marketing since the consumer must come to the
producer-handler's place of operation. Moreover, the product is not in
the regular price-sensitive channels of distribution.
The witness said that most fluid milk product disposition now takes
place through wholesale distribution to multiple store outlets. These
wholesale accounts are generally high volume in nature and highly
sensitive to price differentials, he added, and those handlers who
engage in trade through wholesale channels should not be exempt from
pricing and pooling, even if such handler deals exclusively with its
own raw milk production.
The spokesman argued that the purpose of Federal orders is to
insure an adequate amount of pure and wholesome milk for consumers by
establishing a regulatory scheme that insures equitable treatment of
all handlers and producers. Unless there is a very good reason to
exempt a plant from regulation under an order, each handler should be
subject to the same pricing and pooling provisions to insure the
integrity of the regulatory scheme, he said.
The witness also claimed that while Congress intended to exempt
small family production/distribution units from regulation under an
order, it did not envision the large, multi-million pound units that
now compete in the wholesale milk trade in many parts of the country.
For this reason, he said, the cooperatives' proposed language was
designed to insure that any single person, partnership, or corporation
that establishes a production/distribution unit of this magnitude and
which competes in the wholesale market would come under full
regulation.
Experience in the markets involved in this proceeding indicates
that effective regulation can be achieved without adopting the type of
overly restrictive producer-handler provision proposed by the
cooperative coalition. In particular, we can find no basis for
absolutely precluding a producer-handler from having wholesale
customers.
As adopted in this decision, a producer-handler is any person who
operates a dairy farm and a distributing plant which has route
disposition of more than 100,000 pounds per month and who receives no
Class I milk from sources other than his/her own farm production and
pool plants. The producer-handler 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 operation of the processing and packaging business are
his/her personal enterprise and risk.
In conjunction with their proposal to revise the producer-handler
definition, the cooperative coalition proposed that the administrative
assessment that is applied to other handlers also apply to producer-
handlers. The coalition spokesman testified that the market
administrator must audit producer-handlers and may do so for no other
reason than to determine that the handler is, in fact, eligible under
the provisions of the order to be exempt from pricing and pooling. He
said that if producer-handlers do not pay their pro-rata share of
administrative expenses, the total cost would unjustly fall on the
remaining handlers under the order.
Currently, under each of the separate orders, the administrative
assessment is applied to handlers on their receipts of producer milk
and on other receipts on which there is a pool obligation. Producer-
handlers, on the other hand, who have no receipts of producer milk or
any pool obligation, are not subject to an administrative assessment.
To the extent that administrative costs are incurred in
administering the producer-handler provisions, fully and partially
regulated handlers who bear the administrative costs associated with
this activity are assured that producer-handlers continue to operate in
the manner provided under the order. This insures that producer-
handlers are not able to transfer the costs and risks of their
operation to others and, consequently, are not able to gain an
advantage relative to other producers or handlers. Despite proponents'
testimony, we remain unconvinced that any grounds exist for the payment
of administrative assessments by producer-handlers and, therefore, must
deny the proposal.
Producer: Sec. 1007.12
The term producer defines those dairy farmers who constitute the
regular source of supply for the order. Under the Southeast order,
producer status should be provided for any dairy farmer who produces
milk approved by a duly constituted regulatory agency for fluid
consumption as Grade A milk and whose milk is received at a pool plant
directly from the producer's farm or is picked up at the farm by a
cooperative as a bulk tank milk handler for delivery to a pool plant.
Producer status should also be accorded to a dairy farmer who has
an established association with the market and whose milk is diverted
from a pool plant to a nonpool plant by a cooperative association or a
pool plant operator. To establish an association with the market, a
dairy farmer's milk must be delivered to a pool plant each month to be
eligible to be diverted to a nonpool plant as ``producer milk.'' These
delivery requirements will be explained further under the discussion of
producer milk.
Since producer-handlers and exempt plants are not subject to the
order's pricing and pooling provisions, milk which is in excess of the
needs of such operators will not be treated as producer milk when it is
moved directly from the farms of such operations to a pool plant. Any
such milk delivered to a pool plant would be ``other source milk.''
A dairy farmer should not be a producer under two Federal orders
with respect to the same milk. The producer definition should exclude a
dairy farmer with respect to milk which is received at a pool plant
under the Southeast order by diversion from a pool plant under another
Federal order if the dairy farmer is a producer under the other order
with respect to the milk and the milk is allocated to Class II or Class
III use under the Southeast order. Also, as proposed by the cooperative
coalition, the producer definition would exclude a dairy farmer with
respect to milk which is diverted to a pool plant under another Federal
order if any portion of such person's milk is assigned to Class I milk
under the other Federal order.
In its proposed producer definition, the cooperative coalition
included a paragraph dealing with a ``dairy farmer for other markets.''
This provision would exclude from the producer definition during the
flush production months a dairy farmer who delivered more than one-
fifth of his/her milk to plants as other than producer milk during the
short season. Specifically, if during the immediately preceding months
of August through December more than one-fifth of the milk from the
same farm was caused to be delivered to plants as other than producer
milk, then no milk of such a dairy farmer would be considered to be
producer milk during the following months of January through July.
The cooperative coalition's spokesman explained that this provision
was designed to prevent producers of other Federal order markets from
pooling their milk on the merged order during the flush spring months
[perhaps because the blend price was more attractive] when such milk
was not pooled on the merged order during the fall months [when the
milk may have been needed]. This provision was supported by Barber Pure
Milk Company, Dairy Fresh Corporation, and the Arkansas Dairy
Cooperative Association. It was opposed by Southern Foods Group and
Gold Star Dairy.
In its post-hearing brief, Southern Foods Group stated that it
strongly opposed this provision because it would make it impossible for
milk from nearby areas to be pooled on the Southeast order except in
extraordinary circumstances. SFG acknowledged that it had brought Texas
milk into the Greater Louisiana market to provide an independent milk
supply from nearby areas. It stated that the flexibility to deliver a
producer's milk to different plants during the month avoids uneconomic
shipments of milk and has permitted SFG flexibility in providing milk
to a deficit market.
The dairy farmer for other markets provision was also opposed by
Gold Star Dairy, which characterized the provision as a ``trade
barrier.'' Gold Star stated that it will interfere with the seamless
movement of milk between the new order and neighboring orders and noted
that it was inappropriate to penalize a producer for not delivering
milk to the market when it was not needed.
The ``dairy farmer for other markets'' provision should not be
adopted for the merged order. As discussed later in this decision, the
proposed order contains a base-excess plan which will substantially
remove the incentive for a dairy farmer who has been associated with
another market during the base-building months to become a producer
under the Southeast market during the base-paying months. In addition,
this order has stringent pool plant performance standards and fairly
tight diversion limitations. In order to be eligible for diversion
during the months of July through November (December through June), 10
days' (4 days') production of a producer's milk must be received at a
pool plant. This ``touch-base'' requirement will help to keep distant
milk from associating with this market when the milk is not really
needed at a pool distributing plant. Finally, with the flexibility
accorded the market administrator in this order, the pooling standards
and diversion limitations can be adjusted quickly to forestall any
abuse of the order should it occur. For these reasons, there is no need
to adopt the dairy farmer for other markets provision in this market.
Producer Milk: Sec. 1007.13
The producer milk definition of the proposed Southeast order
defines the milk that will be priced and pooled under the order.
The provisions proposed by the cooperative coalition, and adopted
in this decision, would require that each individual producer deliver
at least 4 days' production to a pool plant in each of the months of
December through June and 10 days' production in each of the months of
July through November. This requirement will insure that each producer
has a direct association with a pool plant each month of the year.
Without a ``touch base'' requirement of this nature, milk of a
producer could be pooled without ever having to come to a pool plant.
With the provision, however, there is certainty that the milk of that
producer is at least partially associated with a pool plant of the
order every month.
So long as the touch-base requirement has been met during the
month, all of the other milk of a producer that is not needed at a pool
plant may be diverted directly from the farm to a nonpool plant if it
is not needed at the pool plant. In aggregate, however, the total
quantity of milk of all producers so diverted should be restricted to
50 percent during the months of December through June and 33 percent
during the months of July through November.
Ten days' production is a reasonable minimum number of days for
associating an individual producer's milk with this market during the
short production months. Based on data in the record, the Class I
utilization in this market is expected to exceed 80 percent during the
months of July through November and should range from 65 to 75 percent
during the months of December through June. These projections support a
10-day delivery requirement for the short production season. If at
least 10 days' production of a producer's milk is not delivered to a
pool plant during the summer and fall months, the milk cannot be
considered to be a part of the regular source of supply for the fluid
milk market and should not share fully in the Class I utilization of
the marketwide pool.
In addition to performance by an individual producer, the producer
milk section of the order also sets specific limits on the total amount
of producer milk which may be diverted by the operator of a pool plant
or a cooperative association to nonpool plants during the month. As
proposed and adopted here, diversions to nonpool plants by a pool plant
operator would be limited to 33 percent during the months of July
through November, and 50 percent during the months of December through
June, of the producer milk that is physically received at pool plants
as producer milk of such handler during the month. In the case of a
cooperative association, these percentages would be based on the
producer milk that the cooperative association caused to be delivered
to, and physically received at, pool plants during the month.
For efficiency in the delivery of producer milk to pool plants, the
proposed order provides for the diversion of producer milk from one
pool plant to another pool plant. There is no limit on this type of
diversion.
The proposed order also provides a procedure to be followed for
determining the pool status of milk if a pool plant operator or a
cooperative association diverts milk in excess of the percentage
allowances specified in the order. In this case, the excess quantity of
milk would not qualify as producer milk and would not be priced under
the order. The diverting handler would be required to designate the
dairy farmer deliveries that should not be considered producer milk.
Absent such a designation, no milk diverted by the handler will be
producer milk.
A parallel situation occurs when a cooperative association's
diversions from a pool plant to nonpool plants would cause the pool
plant to lose its pool status. In such a case, the cooperative will be
responsible for identifying which dairy farmers' milk will not be
producer milk. If the cooperative fails to designate the dairy farmers'
deliveries that are to be excluded as producer milk, then no milk
diverted by the cooperative to nonpool plants will be considered
producer milk.
Milk that is diverted from a pool plant to a nonpool plant should
be priced at the location of the nonpool plant where the milk is
physically received. Diverted milk is presently priced under the
individual orders in this manner and should continue to be so priced
under the merged order.
As discussed above (with reference to pool plants), the market
administrator, upon request of a handler in the market and following
the submission of data, views, and arguments, should be permitted
limited flexibility to adjust pooling standards and diversion
limitations. With respect to diversion limitations, the market
administrator should be permitted to increase or decrease diversion
limitations by 10 percentage points. For example, the 33 percent
limitation could be decreased to 23 percent or increased to 43 percent.
In the case of the touch-base requirement, the market administrator
should be permitted to increase or decrease these requirements by up to
50 percent. Accordingly, the requirement that each producer deliver 10
days' production of milk to a pool plant before being eligible for
diversion to a nonpool plant may be increased to 15 days or decreased
to five days. During the months of December through June, when a four
day touch-base requirement applies, the touch base requirement could be
increased to six days or decreased to two days. This flexibility will
allow the market administrator to respond quickly to changing market
conditions.
Other Source Milk: Sec. 1007.14
The other source milk definition has been a standard definition
included in all milk orders since 1974, when a uniform classification
plan was instituted for all milk orders. The definition included in the
proposed Southeast order is identical to those included in the
individual orders.
In addition to milk received from producers, a regulated pool plant
may receive milk or milk products from sources other than producers.
The other source milk definition identifies those other sources.
Specifically, ``other source milk'' means all skim milk and
butterfat in a handler's receipts of fluid milk products or bulk fluid
cream products from any source other than producers, cooperative
association handlers, or pool plants. It also includes a handler's
receipts of fluid cream products in packaged form from other plants. In
addition, any milk products (other than fluid milk products, fluid
cream products, and products produced at the plant in the same month)
from any source which are reprocessed, converted into, or combined with
another product in a handler's plant during the month would be
considered a receipt of other source milk. Finally, receipts of milk
products (other than fluid milk products or fluid cream products) for
which a handler fails to establish a disposition would also be included
under the other source milk definition.
Unlike packaged fluid cream products, which are Class II products
and therefore not included in the fluid milk product definition, bulk
fluid cream products are treated in the same manner as fluid milk
products for the purpose of applying the other source milk definition.
This facilitates the application of the other provisions of the order.
Accordingly, receipts of fluid cream products in packaged form from
other plants are considered other source milk.
Although no handler obligation is involved with these receipts, it
is desirable for accounting purposes that such receipts be defined as
other source milk. This accounting technique precludes the record-
keeping difficulties that might otherwise be experienced in accounting
separately for inventories and sales of Class II products processed in
the handler's plant versus those received at the plant in packaged form
from other plants. Such receipts are allocated directly to the
handler's Class II utilization.
Manufactured products from any source that are reprocessed,
converted into, or combined with another product in the plant also are
considered as other source milk. Such products include dry curd cottage
cheese received at a pool plant to which cream is added before
distribution. Such receipts are allocated to a handler's Class II or
III utilization, depending upon the use of the product. No handler
obligation is applicable.
Products manufactured in a pool plant during the month and then
reprocessed, converted into, or combined with another product in the
same plant during the same month are not other source milk. Under this
situation, producer milk is considered as having been used to produce
the final product.
Disappearance of manufactured milk products for which the handler
fails to establish a disposition is considered as other source milk.
Each handler is required to account for all milk and milk products
received or processed at the handler's plant. Otherwise, a handler may
have an opportunity to gain a competitive advantage over competitors.
Treating the unexplained disappearance of manufactured milk products as
other source milk contributes to a uniform application of the
provisions to all handlers.
Fluid Milk Product/Fluid Cream Product: Secs. 1007.15 and 1007.16
The terms fluid milk product and fluid cream product are standard
definitions in all milk orders and were proposed for inclusion in the
merged order. There was little discussion at the hearing concerning
these definitions and no opposition to their inclusion in the merged
order.
The fluid milk product and fluid cream product definitions were
most recently revised in a national decision involving all Federal milk
orders that was issued on February 5, 1993 (58 FR 12634), and which
became effective on July 1, 1993. Official notice is taken of that
decision, including the reasons set forth for the standards adopted in
these definitions. They are incorporated by reference in this decision.
Filled Milk: Sec. 1007.17
The term filled milk also is identical in all milk orders and was
proposed for inclusion in the merged order. There was no opposition to
this provision.
Filled milk is defined as any combination of nonmilk fat (or oil)
with skim milk (whether fresh, cultured, reconstituted, or modified by
the addition of nonfat milk solids), with or without butterfat, so that
the product (including stabilizers, emulsifiers, or flavoring)
resembles milk or any other fluid milk product, and contains less than
six (6) percent nonmilk fat (or oil). In determining the classification
of filled products, the same competitive criteria should apply to these
products as to fluid milk products.
The filled milk definition stems from the Assistant Secretary's
decision for all Federal orders issued October 13, 1969 (34 FR 16881).
That decision is incorporated by reference in this decision.
Commercial Food Processing Establishment: Sec. 1007.19
A standard definition for commercial food processing establishment
was added to all orders on July 1, 1993. The definition contained in
the Assistant Secretary's February 5, 1993, decision (58 FR 12675) is
just as appropriate for the merged Southeast order as it is for the
individual orders of which it is comprised.
Product Prices: Sec. 1007.20
Section 20 of the proposed order defines product prices, including
``butter price,'' ``cheddar cheese price,'' ``nonfat dry milk price,''
and ``edible whey price.'' These terms are also standard terms, are
included in each of the individual orders, and were proposed, without
opposition, for inclusion in the merged order.
2(b). Classification of Milk: Secs. 1007.40 Through 1007.45
Under a Federal milk order, milk is priced according to the form or
manner in which it is used. Section 40 of the proposed order discusses
the four classes of utilization under the order. Section 41 discusses
how to classify ``shrinkage,'' the disappearance of skim and butterfat
that occurs through handling, transporting, and processing milk.
Section 42 sets forth rules for classifying skim milk and butterfat
that is transferred or diverted between plants. Section 43 contains
general rules pertaining to the classification of producer milk, and
Sec. 1007.44, ``classification of producer milk,'' describes how to
classify producer milk by allocating a handler's receipts of skim milk
and butterfat to the handler's utilization of such receipts. Finally,
Sec. 1007.45 describes the market administrator's reports and
announcements concerning classification.
The classification scheme proposed for the Southeast order is
identical to the uniform classification plan now in use in the five
individual orders and in most other Federal order markets. A detailed
explanation of the purpose and application of these provisions is
contained in the Department's final decisions that were issued February
19, 1974 (39 FR 9012), July 17, 1975 (40 FR 30119), and February 5,
1993 (58 FR 12634). Because these provisions deal with inter-order, as
well as intra-order, movements of milk, they should be essentially
uniform with the surrounding orders and adopted, with only a slight
modification, for the merged order.
Under the present Georgia order, the application of Sec. 1007.42(c)
has been unclear with respect to the transfer or diversion of bulk
fluid milk products to an exempt governmental agency plant. At present,
if bulk milk is transferred to an exempt plant, it is automatically
classified as Class I, based on the presumption that the transferred
milk is needed only to supplement the own-farm production of the exempt
handler. However, where the exempt handler has no own-farm production,
this presumption has resulted in a Class I classification for milk
that, in fact, was used in a Class II product. Therefore, this
paragraph should be modified to provide an automatic Class I
classification for transfers or diversions of fluid milk products to a
producer-handler. It should also provide for a Class I classification
for a packaged fluid milk product transferred to an exempt governmental
agency plant defined in Sec. 1007.8(e). However, in the case of bulk
fluid milk products or fluid cream products transferred or diverted to
an exempt plant, the classification should be based on the exempt
plant's utilization as determined by the market administrator.
2(c). Pricing of Milk: Secs. 1007.50-1007.54
Milk pooled under most Federal orders is now priced in four use
classifications: Class I, Class II, Class III, and Class III-A. Class I
milk, which is generally milk consumed as a beverage, competes for
sales on a local or regional basis; Class II milk products, which
include soft dairy products such as cottage cheese, ice cream, and
dips, compete on a regional basis, and Class III milk products (hard
cheese and butter) and Class III-A products (nonfat dry milk) are
products which can be stored for extended periods of time and compete
for sales on a national basis.
There are several issues to be discussed in connection with the
pricing of milk: Class III and III-A prices, the Class II price, the
seasonal adjustment proposed for the Class III and III-A prices, the
Class I price level, and the location adjustments that are needed for
the new order.
The Class III-A Price: Sec. 1007.50(d)
The present Class III-A price that is applicable to each of the
individual orders should be continued for the Southeast marketing area.
This price is based on a product formula, specified in Sec. 1007.50(d),
that is defined as the average Central States nonfat dry milk price for
the month, as reported by the Department, less 12.5 cents, times an
amount computed by subtracting from 9 an amount calculated by dividing
0.4 by such nonfat dry milk price, plus the butterfat differential
value per hundredweight of 3.5 percent milk and rounded to the nearest
cent.
Class III-A pricing was added to the individual orders on December
1, 1993. The reasons for moving nonfat dry milk from Class III to Class
III-A and for adopting the product formula described above were
thoroughly explained in a final decision issued October 20, 1993, and
published in the Federal Register on October 29, 1993 (58 FR 58112).
The findings and conclusions of that decision are incorporated by
reference in this decision. There was no opposition to a continuation
of this price under the merged order.
The Class III Price: Sec. 1007.50(c)
The Class III price for the Southeast order should be the ``basic
formula price,'' as defined in Sec. 1007.51(a). The basic formula
price\5\ is the average price per hundredweight for manufacturing grade
milk, f.o.b. plants in Minnesota and Wisconsin, as reported by the
Department for the month, adjusted to a 3.5 percent butterfat basis and
rounded to the nearest cent using the butterfat differential computed
pursuant to Sec. 1007.74. This price is now used in each of the
individual orders involved in this proceeding, in every other Federal
order, and was proposed by the cooperative coalition for the merged
order. It appropriately reflects the value of milk used to produce hard
cheese and butter and is equally appropriate for the Southeast
marketing area.
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\5\A national hearing was held in June 1992 to consider
modifications to the basic formula price for all orders. A
recommended decision was issued on the basis of that hearing on
August 3, 1994 (59 FR 40418). Whatever is adopted as a result of
that proceeding will be incorporated in the merged order.
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Seasonal Adjustment to Class III and III-A Prices
The cooperative coalition proposal to seasonally adjust the Class
III and III-A prices should not be adopted.
The proposal would reduce Class III and III-A prices by 10 cents
during the months of December, January, and February, and by 30 cents
during the months of March, April, and May; and it would increase these
prices by 10 cents in June, 20 cents in July, 25 cents in August
through October, and 15 cents in November.
The cooperative coalition's spokesman testified that there is
considerable cost involved in balancing the seasonal excess supply of
the proposed marketing area. The cooperative coalition proposal, he
testified, is designed to relieve the handlers of some of the cost
involved in assuming this role.
This proposal was opposed by a handler and a regional cooperative
association in post-hearing briefs. Baker & Sons Dairy stated in its
brief that while the simple average of the proposed seasonal
adjustments would be mathematically neutral, they are far from neutral
on a weighted average basis and would substantially reduce the blend
price and producer income during the months of December through May.
The handler also argued that this proposal undermines the principle of
pricing Class III and III-A products on a national and international
basis, and instead would give one area of the country an advantage over
other areas.
Milk Marketing, Inc., a cooperative with dairy farmer members in
eight states, also submitted a brief opposing any seasonal adjustment
to the Class III and III-A prices. MMI wrote that plants utilizing milk
in Class III and III-A during the months of March, April, and May would
have a 30-cent per hundredweight advantage over plants regulated under
other orders. It stated that this translates to a price advantage of 3
to 4 cents per pound for nonfat dry milk powder.
The proposal to seasonally adjust Class III and III-A prices cannot
be justified on the basis of this hearing record. It is apparent from
reviewing the market administrator's price announcements from December
1993 through March 1994 that much of the seasonally surplus milk in the
proposed Southeast marketing area is manufactured into nonfat dry milk
at the Dairymen, Inc., plants in Lewisburg, Tennessee, and Franklinton,
Louisiana. As a result of the institution of Class III-A pricing in
December 1993, DI has already obtained substantial relief in the
pricing of Class III-A milk. For the four months from December 1993
through March 1994, the Class III-A price averaged $2.15 below the
Class III price. This reduction in price for Class III-A milk would
have reduced the blend price by approximately nine cents per
hundredweight in the proposed market for these months if the merged
order had been in effect.
Producers in this marketing area have already contributed to those
organizations that are balancing the reserve supplies of the market,
and we find no compelling reason on the basis of this record to
increase this contribution by further reducing the Class III and III-A
prices with the proposed seasonal adjustments. The proposal is,
therefore, denied.
Class II Price: Sec. 1007.50(b)
The Class II price proposed for the merged order is the price now
applicable to the individual orders and to most other Federal orders.
There was no opposition to the continuation of this price under the
merged order.\6\
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\6\A recommended decision that would modify Class II pricing
under all Federal milk orders was issued on August 22, 1994, and
published on August 26, 1994 (59 FR 44074). Any amendments resulting
from that proceeding will be applicable to the merged order proposed
in this proceeding.
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Class I Pricing
The Class I price under the proposed Southeast order should be
determined by adding a Class I differential to the basic formula price
for the second preceding month. This is the method for determining
Class I prices under all Federal orders and the method proposed for the
merged order. There was no opposition to this proposal.
As proposed by the cooperative coalition, the Class I differential
applicable to the base zone, which includes Birmingham, Alabama, and
Atlanta, Georgia, should be $3.08 per hundredweight, the differential
that is now applicable to those locations under the Georgia and
Alabama-West Florida orders.
In establishing the Class I price level, a primary consideration
must be to attract an adequate supply of Grade A milk for fluid use,
taking into consideration production within the marketing area relative
to the demand for fluid milk by handlers regulated under the order and
the cost of transporting bulk milk from surplus producing areas to
supplement local production. However, an equally important
consideration is to establish a Class I price that will provide proper
alignment with Class I prices in neighboring markets. A Class I price
that is too high could result in excessive milk production within the
market and a retail price advantage for handlers regulated under lower-
priced orders distributing packaged products in the marketing area.
Therefore, the Class I price should not exceed the Class I price in the
closest surplus-producing region plus the cost of transporting bulk
milk from that area to this market.
Based on the current cost of transporting milk, which the
cooperative coalition's spokesman indicated was in excess of 3.9 cents
per hundredweight per 10 miles distance, the $3.08 Class I differential
proposed for the base zone of the merged order should be high enough to
insure an adequate supply of milk but not too high so as to provide a
pricing advantage for handlers in lower-priced markets to the north of
the Southeast marketing area.
Plant Location Adjustments: Sec. 1007.52
The merged order should have a total of 12 pricing zones consisting
of a base zone, five ``minus'' zones, and six ``plus'' zones. These
zones, and the Class I differential that would apply to each zone, are
shown on the map of the marketing area included in this decision. Table
1 identifies the plants designated by the numbers on the map.
Although there are, in reality, 12 different Class I prices that
will apply to the Southeast marketing area, for statistical purposes
the Class I price that will be shown for the market will be the price
applicable to Zone 6, the base zone. As noted earlier, this zone
includes Atlanta, Georgia, and Birmingham, Alabama, two of the market's
key population centers.
In arriving at the appropriate location adjustments for the
Southeast marketing area, several factors were taken into
consideration. In addition to considering the prices that are now
applicable in each of the separate areas and those embodied in the
proposals submitted, it was necessary to consider other factors such as
the prices in marketing areas contiguous to the Southeast marketing
area, whether the zones in the separate marketing areas lined up
properly on an east-to-west axis in the merged marketing area, the
fluid needs of each area, the supply of milk locally available to each
area, and the competitive relationship among handlers in each area.
The zones proposed in this decision were carefully drawn to provide
proper alignment with the Carolina order to the east, the Upper Florida
order to the south, the Texas and Southwest Plains orders on the west,
and the Louisville-Lexington-Evansville, Paducah, and Tennessee Valley
orders on the north; they were drawn so as to minimize price changes
from one zone to the next zone; as much as possible, the zones were
drawn so as to include in the same zone all plants located in close
proximity to one another; and they were drawn in a way that will
provide an incentive for milk to move from areas of surplus production
to metropolitan areas where distributing plants are located.
Zone 6
As indicated above, the base zone (Zone 6) includes a band of
counties extending from South Carolina on the east to Texas on the
west. The $3.08 Class I differential applicable to this zone borders a
$3.08 zone in the Carolina order and a $3.16 zone in the Texas order
and a $3.00 zone in the Southwest Plains order. Included within this
zone are three distributing plants in Georgia, three in Alabama, and
two in Mississippi. The $3.08 adopted for the Georgia and Alabama
plants is the same price that is now applicable to these plants and
that was proposed by the cooperative coalition and Fleming Dairy.\7\
---------------------------------------------------------------------------
\7\It should be understood that references to the ``Fleming
Dairy'' proposal mean Proposal No. 9 as included in the notice of
hearing.
---------------------------------------------------------------------------
The Mississippi portion of Zone 6 includes the Brookshire (Dairy
Fresh) Dairy Products, Inc., plant in Columbus (Lowndes County) and
LuVel Dairy Products, Inc., in Kosciusko (Attala County). At the
present time, the price at the Columbus plant is $3.10, while the price
in Kosciusko is $3.20. Proposal number 1 would have maintained these
prices, while the Fleming Dairy proposal would have included the
Columbus plant in its $3.08 zone and the Kosciusko plant in its $3.18
zone.
Lowndes and Attala Counties should be added to Zone 6 of the
proposed Southeast marketing area with a Class I differential of $3.08.
This price ties in well with prices to the east and west and will be 10
cents below the Class I price applicable to LuVel's closest competitor,
Flav-O-Rich in Canton, which is about 50 miles southeast of Kosciusko.
The $3.08 price in Zone 6 would extend into 13 counties in southern
Arkansas, which are now not regulated by any order. There are now no
distributing plants in this area.
Zone 7
Zone 7 should have a Class I differential of $3.18 (i.e., a plus
location adjustment of 10 cents). This zone borders a $3.23 zone under
the Carolina order on its easternmost edge and a $3.16 zone under the
Texas order on its western border. There are five distributing plants
in this zone: Foremost Dairies in Shreveport, Louisiana; the Borden
Company in Monroe; Flav-O-Rich in Canton, Mississippi; Kinnett Dairy in
Columbus, Georgia; and the Borden Company in Macon, Georgia. The
Shreveport and Monroe plants are now in a $3.28 zone under Order 96,
the Flav-O-Rich plant is in a $3.35 zone under Order 94, and the
Columbus and Macon, Georgia, plants are in a $3.18 zone under Order 7.
Testimony at the hearing indicated that handlers in northwestern
Louisiana compete with handlers in east Texas who are subject to a
$3.16 price. It was also pointed out in testimony and in a brief that
Dallas, Texas, which is roughly the same latitude as Shreveport, had
the same price as Shreveport from 1985 through 1991, after which the
Dallas price was reduced from $3.28 to $3.16.
Data and testimony in the record also indicated that there are
abundant supplies of milk available to the Shreveport and Monroe
handlers in nearby De Soto Parish and in Hopkins County, Texas, which
produced 74 million pounds of milk in December 1992.
The $3.28 price that presently applies at Shreveport and Monroe and
which was proposed for this area by the cooperative coalition is too
high in relation to the $3.16 Class I differential under the Texas
order. In the absence of any testimony indicating that the Shreveport/
Monroe area is a deficit area needing an unusually high price to
attract a supply of milk, the price in that area should be reduced to
$3.18.
The price at the Flav-O-Rich plant in Canton should be reduced by
17 cents to provide proper alignment with areas to the east and west of
Canton. Although the competitive relationship will be changed between
Flav-O-Rich, Canton, and its nearest competitor, the Borden plant in
Jackson, Mississippi (Zone 8), the 10-cent difference in price is not
unreasonably wide in view of the roughly 25 miles from Canton to
Jackson and is necessary to provide a proper price relationship with
areas to the east and west of Canton.
Zone 8
Zone 8 of the proposed marketing area includes no plants in
Louisiana or Georgia, but does encompass one plant in Mississippi and
two plants in Alabama.
The Mississippi plant in Zone 8 is the Borden plant in Jackson,
while the two Alabama plants are the Superbrand and Flav-O-Rich plants
in Montgomery. Under Order 94, the Jackson plant now has a Class I
differential price of $3.35. As proposed by the cooperative coalition
and Fleming Dairy, that would also be the price under the merged order.
The two Montgomery plants also now have a Class I differential of
$3.35, which were also the prices proposed for those two areas.
The price in Jackson, Mississippi, and Montgomery, Alabama, should
be reduced from $3.35 to $3.28. These plants are on nearly the same
east-west plane as Dallas, Shreveport, and Monroe, which would be
subject to a $3.18 differential price. There was no indication of a
problem attracting a milk supply in this area, and there are no plants
in the immediate area that would be negatively impacted by this modest
reduction in price. Accordingly, the pricing in the four separate
marketing areas should be integrated by the creation of this $3.28
zone.
Zone 9
Zone 9 runs from the Atlantic Ocean on the east to a $3.34 zone
under the Texas order on the west. The differential price in Zone 9
should be $3.38. There are no distributing plants within this zone in
Louisiana, Mississippi, or Alabama, but there is one nonpool plant
operated by Hershey Foods in Savannah, Georgia. The Hershey plant in
Savannah is now subject to a $3.38 Class I differential price under
Order 7. Both the cooperative coalition and Fleming Dairy proposed a
continuation of current prices for this area.
Zone 10
Zone 10 should be priced at $3.48, or 10 cents above Zone 9.
There are two plants in Zone 10: the Dairy Fresh plants in
Hattiesburg, Mississippi, and Cowarts, Alabama. The present price at
the Hattiesburg plant is $3.45, while the Cowarts plant (in Houston
County) is subject to a $3.38 price in a one-county zone under the
Alabama-West Florida order. The present price in the Alabama counties
adjacent to Houston County is $3.65. Under the Georgia order, the price
at this latitude is now $3.38, while in Louisiana, it is $3.55.
A $3.48 price in Zone 10 will provide for proper price alignment
with the $3.58 differential price that applies to the Upper Florida
marketing area. It will also provide for a gradual transition in price
to the higher priced zones in Alabama, Mississippi, and Louisiana.
Zone 11
Zone 11 of the Southeast marketing area borders the Upper Florida
order on the east, where the Class I differential price is $3.58, and
the Texas order on the west, where the price is $3.34. The price in
Zone 11 should be $3.58.
Zone 11 includes two counties that are split between two zones. The
portion of Tangipahoa Parish, Louisiana, north of State highway 16 is
within Zone 11; the remainder of Tangipahoa Parish is in Zone 12. The
portion of Mobile County, Alabama, that is within 25 miles of the
Mobile City Hall is in Zone 12, while the remainder of Mobile County is
in Zone 11.
There are no distributing plants in Zone 11, but there are two
cooperative manufacturing plants in the Louisiana parishes of
Tangipahoa and Washington. In the portion of Tangipahoa Parish north of
State highway 16, Mid-America Dairymen, Inc., operates a cheese plant
in Kentwood. In Washington Parish, which is to the east of Tangipahoa
Parish, Dairymen, Inc., operates a butter-powder manufacturing plant in
Franklinton.
At the present time, the Class I differential price at Kentwood and
Franklinton is $3.65 under Order 94. The cooperative coalition proposed
a continuation of this price level under the merged order, as did
Fleming Dairy, Dairy Fresh, Acadia Dairy, Barber Dairy, Brown's Velvet
Dairy, Guth Dairy, Kleinpeter Dairy, and Walker Resources. It should be
noted, however, that these proposals were directed at the zone as it
presently exists under Order 94 (i.e., including Baton Rouge and
Hammond, Louisiana) and not as it is proposed here.
In August 1993, Tangipahoa Parish produced 23 million pounds of
milk, far more than any other parish in Louisiana. Washington Parish
was the next highest production parish that month, producing 14.6
million pounds. Directly north of Tangipahoa and Washington Parishes
are the Mississippi counties of Pike and Walthall, which are the two
highest production counties in Mississippi, producing 6.9 and 7.0
million pounds, respectively, in August 1993.
Because of the substantial milk production in this area of southern
Mississippi and southeastern Louisiana, this area serves as a reserve
supply area for much of the Southeast. In August 1993, for example,
more milk was supplied to the Alabama-West Florida market from
Washington Parish than any other county or parish in the Southeast.
A $3.58 price level for Zone 11 will align properly with the Upper
Florida marketing area and will provide a smooth transition to Zone 12,
which should be priced 10 cents above Zone 11. Milk is not needed in
Zone 11, but it is needed in Zone 12. Therefore, the price in Zone 11
needs to be high enough to provide proper alignment with lower prices
north of this area and higher prices south of the area, but it does not
have to be kept at its present level, particularly since the price in
Zone 12 is being reduced.
Although Zones 11 and 10 ($3.58 and $3.48, respectively) of the
Southeast order abut a $3.34 zone under the Texas order, there are no
distributing plants in the Texas county of Newton, which borders these
zones. Due to the extremely large zones in the Texas marketing area, it
is not possible to gradually increase prices on a north to south axis
in Louisiana while simultaneously matching up perfectly with the zone
prices of the Texas marketing area. Because there are no plants in this
area, however, this is not a serious problem at the present time.
Zone 12
Zone 12 contains several of the large population centers in this
marketing area, including Baton Rouge, New Orleans, and Mobile. It
extends from Mobile, Alabama, on the east to the Texas border on the
west. The Class I differential applicable to Zone 12 should be $3.68.
At present, the differential prices at Baton Rouge, New Orleans,
and Mobile are $3.78, $3.85, and $3.65, respectively. Under the
cooperative coalition proposal, these prices would stay at their
present levels. Under the Fleming Dairy proposal, and under Proposal
No. 3, which was jointly submitted by Dairy Fresh, Barber Dairy,
Brown's Velvet Dairy, and Kleinpeter Dairy, the price at Baton Rouge
would be reduced to $3.65 and the price at New Orleans would be reduced
to $3.72. Fleming Dairy also proposed a price of $3.65 for Mobile.
A spokesman representing Dairy Fresh of Louisiana (i.e., part of
the Fleming Companies), which operates a distributing plant in Baker,
Louisiana (about five miles north of Baton Rouge), testified that the
Class I prices in southern Louisiana should be adjusted for three
reasons. First, he said that the current Class I price for southern
Louisiana which was established by Congressional mandate in 1985 has
put this area significantly out of alignment with the price grid of
other locations in the South. The Congressionally-mandated Class I
pricing in southern Louisiana, he said, was not justified in the 1985
legislative history and cannot be justified now, particularly since the
area north of Lake Pontchartrain and Lake Maurepas contains one of the
greatest concentrations of milk cows of the deep South.
The witness testified that in the Federal order system higher Class
I prices at one location compared to another suggest a need to attract
milk from distant supply areas. But southern Louisiana, he pointed out,
is not more deficient in milk production than Florida. In fact, he
added, southern Louisiana milk supply is regularly transferred,
primarily by Dairymen, Incorporated, to Florida during short production
months to supplement Florida's raw milk requirements. He said that
Louisiana shipments to Florida totaled 17 million pounds in 1989, 4
million pounds in 1990, 5 million pounds in 1991, 2.5 million pounds in
1992, and in August 1993 seven loads containing 330,000 pounds.
The second reason why southern Louisiana prices should be lowered,
according to the witness, was that in September of 1990 a new
Superbrand plant commenced operation in Hammond, Louisiana, which is
about 40 miles due east of Baton Rouge, and 55 miles north of New
Orleans. He said the Superbrand plant was 25 miles closer to New
Orleans than Baton Rouge, yet the Hammond plant enjoyed a Class I
differential of $3.65, which is 13 cents lower than the Baton Rouge
price of $3.78.
The witness testified that the mileage allowance between Hammond
and New Orleans is 3.6 cents per hundredweight per ten miles while the
mileage allowance between Baton Rouge and New Orleans is 0.8 cents per
hundredweight per ten miles. He stated that the Hammond allowance
clearly exceeds the prevailing rate of about 2.0 cents to 2.5 cents per
hundredweight per 10 miles that prevails elsewhere in the Southeast.
The Dairy Fresh witness stated that the third reason why southern
Louisiana prices should be lowered is that in 1991 the Department
lowered the Texas Class I differential by 12 cents per hundredweight.
As a result, he said, milk processors in Texas immediately received a
relative 12-cent advantage in their ability to compete with Louisiana
processors. Prior to this decision, he testified, handlers in the
Houston-Beaumont zone of the Texas market, paid 4 cents per
hundredweight more for their Class I milk than processors in the Baton
Rouge area. After the change, however, these processors paid 8 cents
less than the Baton Rouge processors, he added. The witness said that
the Texas plants with regular distribution in Louisiana include two
plants in Tyler, one in Conroe, and one plant in Fort Worth. One of the
Tyler plants, he estimated, distributed 4 million pounds of Class I
milk per month to retail stores in Louisiana.
The witness also testified that gross margins on Louisiana
wholesale milk prices have tightened up since the Department lowered
the Texas prices. He said it was time to address and correct the
problem of competitive inequity and price misalignments without further
delay and urged the Department to address the southern Louisiana
pricing problems by partial recommended and final decisions, without
waiting for analysis and resolution of other merger issues.
A spokesman for the Southern Foods Group (SFG) testified that SFG
agreed with Fleming Dairy that the price in southeastern Louisiana was
too high relative to other areas. He also stated that the price surface
that exists there today is solely the result of the 1985 Farm Bill,
which established statutory minimums for Class I differentials in New
Orleans and Shreveport. He added that there is no longer a reason to
maintain the existing price structure in southern Louisiana because the
Congressional mandate to increase prices was not binding after April
30, 1988.
The SFG witness testified that the largest population center for
the Southeast order is Zone 8 of Proposal No. 1 (i.e., the Atlanta
area) with a population of 3.3 million. He said the next most populous
area is the Birmingham, Alabama, area with 1,717,455 people, followed
by the Baton Rouge-West Louisiana and southern Georgia areas with 1.3
million each, and then New Orleans with 1.2 million.
Using data on nearby milk supplies and per capita consumption of
fluid milk, the witness asserted that there is more production in
relation to population in southern Louisiana than in any other
population center of the marketing area. He said that nearby milk
supplies in southern Louisiana for December 1992 exceeded 53.5 million
pounds while all of the milk production located in Zone 8 of Proposal
No. 1 was 44.2 million pounds. In contrast, he pointed out, the
population of Zone 8 exceeded southern Louisiana by 2.4 million people.
Therefore, he concluded, the milk price in Baton Rouge and New Orleans
is higher than is warranted.
In its post-hearing brief, SFG stated that there should be no
difference in price between Baton Rouge and New Orleans. The brief
pointed out that prior to the 1985 Farm Bill, the Class I price at
Baton Rouge and New Orleans was the same. It also emphasized that the
distance from the large pool of milk in Tangipahoa Parish is roughly
the same to New Orleans as to Baton Rouge because of the causeway over
Lake Pontchartrain.
A witness appearing on behalf of the Louisiana Farm Bureau
Federation stated that processors in Louisiana are losing fluid milk
sales and producers are also losing their market. He testified that it
was important that the pricing structure be aligned appropriately, not
only within the consolidated area, but also with the adjacent market
areas. He asked the Department to objectively evaluate the pricing
structures in the proposed consolidated area. Louisiana processors
cannot be competitive, he noted, if they are subject to unreasonably
high prices relative to their competition.
The witness testified that current Federal order price alignment
within, and adjacent to, Louisiana markets has resulted in prices that
are jeopardizing the economic well-being of the State's dairy industry.
Just as important, he added, it is contributing to a decline in the
critical mass of services essential to a healthy dairy industry (e.g.,
milk hauling, veterinary services, feed milling, etc.).
The Louisiana Farm Bureau witness indicated that ``the decline of
our local markets and loss of our processing industry, can be directly
linked to imports from adjacent areas.'' He said that the present price
structure has resulted in the importation of unneeded milk from Texas
which, in turn, has caused the unnecessary movement of milk at the
expense of Louisiana dairymen.
We must conclude from the testimony in this record that a reduction
in price is absolutely necessary in the Baton Rouge and New Orleans
areas and that there is no reason for Hammond to be priced 13 cents
below Baton Rouge or for Baton Rouge to be priced seven cents below New
Orleans. They should all be in the same zone with the same price.
The available supplies of milk in the New Orleans/Baton Rouge area
do not justify a continuation of the present price structure. From
December 1983 to December 1992, the milk supply in the two Louisiana
parishes of Tangipahoa and Washington grew by more than 29 percent,
from 39,492,177 pounds of milk per month to 51,125,921 pounds of milk
per month. In December 1992, more than 33 million pounds of milk
produced in Tangipahoa Parish were pooled on Orders 94 and 96. There is
another 15.9 million pounds of milk available in Washington Parish and
in excess of 4.6 million pounds for December 1992 from St. Tammany and
St. Helena Parishes. In total, there were 55 million pounds of milk in
parishes close to the New Orleans/Baton Rouge area.
The Class I differential price in Zone 12 should be $3.68, which is
10 cents below the present price in Baton Rouge, three cents higher
than the present price in Hammond, Louisiana, and 18 cents below the
present price in New Orleans. It is also two cents below the adjacent
Zone 8 price of Order 126.
In this southernmost part of the Southeast marketing area, there is
obviously no reason to provide higher prices to preserve alignment with
more southerly areas because there is nothing but water south of New
Orleans. The question that must be asked then is whether or not a
higher price is needed to attract a supply of milk to this area.
The testimony and data in this record indicate that there is more
milk available to handlers in New Orleans and Baton Rouge than to
handlers in many other parts of the marketing area. It would therefore
appear that, not only are the present Class I price levels in Baton
Rouge and New Orleans not needed to help handlers attract a supply of
milk to this area, but, in fact, may hinder the movement of bulk milk
to other areas where it is needed for fluid use.
From May 1984 to May 1993, the total packaged distribution of fluid
milk products in the Greater Louisiana marketing area decreased from
46.7 million pounds to 46.4 million pounds, or by .6 percent. During
this same time period, the distribution of packaged fluid milk products
in this marketing area by handlers regulated under the Texas order
increased from 2.5 million pounds to 9.8 million pounds, or by
approximately 290 percent. The total distribution in the area from
handlers regulated under all other Federal orders increased from 11.9
million pounds to 15.2 million pounds (i.e., 2.7 percent).
In the Order 94 marketing area, the total packaged distribution of
fluid milk products declined from 64.0 million pounds to 61.5 million
from May 1984 to May 1993, or by 3.9 percent. During this time period,
the distribution of packaged fluid milk products from all other orders
increased from 9.3 million pounds in May 1984 to 13.3 million pounds in
May 1993, or by 43 percent.
These comparisons paint an unhealthy picture for handlers in
Mississippi and Louisiana. While their total disposition of fluid milk
products has gone down, more and more of what remains of their market
is being serviced by handlers outside the marketing area. Although
there may be other explanations for these statistics, one thing that
definitely happened during this time frame is that the Class I prices
in Baton Rouge and New Orleans went up in relation to all of the
surrounding orders.
The pricing structure adopted here for Zone 12 should restore
proper price alignment to this area in relation to prices in
surrounding orders.
The Mobile, Alabama, area should also be part of Zone 12;
specifically, that part of Mobile County, Alabama, within 20 miles of
the Mobile City Hall. The Zone 12 price of $3.68 for this area would be
three cents higher than the $3.65 price that now applies to Mobile
under Order 93 and which was proposed for this area by the cooperative
coalition.
There are two plants in the Mobile area: Barber Pure Milk Company
(Barber) in Mobile and Dairy Fresh Corporation (Dairy Fresh) in nearby
Prichard.
At the hearing, Barber and Dairy Fresh proposed maintaining the
present $3.65 Class I differential price at Mobile, but increasing the
producer location adjustment by an additional 22 cents. Under the
cooperative coalition proposal and the Fleming Company proposal, the
Class I differential price also would have remained at the $3.65 level.
Under the Barber/Dairy Fresh proposal, handlers in their proposed
Zone 17-A (i.e., that part of the cooperative's proposed Zone 17 within
the States of Alabama and Florida) would pay a 57-cent location
adjustment on their Class I milk (i.e., $3.65), but the producers
delivering milk to these plants would be paid an additional 79 cents
(over the base zone price) on all of the milk delivered to the plants.
The spokesman for Barber and Dairy Fresh testified that the demand
for Class I milk in the south Alabama area and western panhandle
section of Florida far exceeds the supply. He said that historically
milk has been shipped considerable distances to this area.
The witness testified that in December 1992 the Barber and Dairy
Fresh plants received approximately 17.9 million pounds of producer
milk from non-member producers and cooperative association member
producers, of which 7.3 million pounds, or 41 percent, was received
from producers located in Louisiana and Mississippi. He stated that
there is approximately 2.5 million pounds of milk per month located in
southern Alabama and the panhandle of Florida that is not being shipped
to the Barber and Dairy Fresh plants. Even if this milk were delivered
to those plants, he said, there would remain a shortfall of about 4.8
million pounds of milk. To maintain this supply, based on current price
relationships, he added, will cost handlers from 33 cents to 75 cents
per hundredweight.
The Barber/Dairy Fresh witness indicated that the incentive for
these producers to ship their milk to plants located in the Mobile area
has been the Order 93 blend price, which averaged 53 cents higher than
the Order 94 blend price in southeastern Louisiana/southern Mississippi
for the 12 months of September 1992 through August 1993. The problem,
he stated, was that in merging these orders, this blend price incentive
will be eliminated. Without an additional incentive to move milk to
Mobile, according to the witness, it is likely that some handlers in
the Mobile area will be forced out of business.
The witness stated that there are several handlers competing for
the milk supply in Louisiana and Mississippi who have plants located in
that heavy production area. Among these, he said, are Gulf Dairy
Association, Incorporated (Mid-America Dairymen, Inc., effective March
1, 1994), which operates a cheese manufacturing plant in Kentwood,
Louisiana; Dairymen, Inc., which operates a butter-powder manufacturing
plant in Franklinton, Louisiana; Flav-O-Rich, which operates a
distributing plant located in Canton, Mississippi; Superbrand Dairy
Products, Incorporated, which is located in Hammond, Louisiana; Borden,
Inc., which has plants in Baton Rouge, Louisiana, and Jackson,
Mississippi; and Dairy Fresh of Louisiana, which operates a
distributing plant in Baker, Louisiana.
According to the witness, Gulf Dairy Association charged an
additional 30 cents per hundredweight for milk delivered to Mobile on
top of the 53-cent blend price difference prevailing between Orders 93
and 94 between September 1992 and August 1993. He stated that Gulf
Coast Dairymen's Association of Gulfport, Mississippi, charged an
additional 40 cents per hundredweight for milk delivered to Mobile.
The Barber/Dairy Fresh proposal was actively opposed by most of the
other hearing participants and was supported by no one other than the
proponents. The effect of this proposal would be to have producers and
handlers in other parts of the marketing area subsidize the delivery of
milk to the Barber and Dairy Fresh plants in the Mobile area. Those
parties opposed to the proposal argued that they should not have to
subsidize Barber and Dairy Fresh in attracting a milk supply. They
contended that if higher prices to producers are needed in Mobile, the
handlers operating plants in Mobile should pay higher Class I prices to
reflect those higher costs.
The problem posed by the Mobile handlers can be addressed by
providing a greater transportation allowance to move milk to the Mobile
area. At the present time, the Mobile area is priced the same as the
heavy production area in southern Mississippi and southeastern
Louisiana. Thus, there is no incentive for a producer to incur the cost
of shipping milk from this area to Mobile. By increasing the price by
three cents in Mobile and decreasing the price at alternative
locations--i.e., by 10 cents at Kentwood and Franklinton, Louisiana, by
17 cents in New Orleans, by 7 cents in Jackson, Mississippi, and
Montgomery, Alabama, by 17 cents in Canton, Mississippi, and by 12
cents in Kosciusko, Mississippi--the blend price in the Mobile area
will cover more of the transportation costs incurred in shipping milk
to Mobile as compared to these alternative delivery locations.
If, despite these adjustments, the Mobile handlers still find it
difficult to attract milk to their plants, the location adjustment in
the Mobile area can be increased further to provide more transportation
allowance for shipping milk to Mobile. If this proves necessary,
however, it is only appropriate to increase both the Class I price and
the producer blend price by the same amount. In that way, the higher
Class I prices of handlers in the Mobile area will be passed on to
consumers, who should, appropriately, pay higher prices reflective of
the higher costs of bottling milk in the Mobile area or transporting
packaged milk to the Mobile area from plants at other locations.
Zone 5
Immediately north of the base zone, a new, transition zone should
be created with a Class I differential price of $2.98.
There is one distributing plant in this zone, the Meadow Gold plant
in Gadsden, Alabama (Etowah County). At the present time, the price at
Gadsden is the same price as applies at Atlanta, which is 104 miles
southeast of Gadsden, and at Birmingham, which is 60 miles southwest of
Gadsden. Both the Fleming Company and the cooperative coalition
proposed a continuation of this price relationship.
A slightly lower price should apply at Gadsden to reflect its
closer proximity to the heavy production area in south central
Tennessee and to provide a smooth north to south price surface through
this part of the marketing area. The $2.98 differential price in Zone 5
borders the dividing line of a $3.08 zone and $2.93 zone under the
Carolina order. On the west, this zone borders a $3.00 zone under the
Southwest Plains order.
Approximately 15 miles north of Gadsden, the Class I differential
drops to $2.83 in Zone 4. It is necessary to create an intermediate
Zone 5 to eliminate a sharp 25-cent drop that otherwise would occur
between Zone 4 and the base zone. If this were not done, a plant
located just 15 miles from Gadsden could have a 25-cent price
advantage, which would mirror the soon-to-be-discussed problem of
handlers in Zone 2.
Zone 4
Zone 4 includes the northern tier of counties through Georgia, the
northern two tiers of counties through Alabama and Mississippi, and the
central two tiers of counties through Arkansas. This zone should have a
differential price of $2.83.
There are no plants in the Georgia portion of this zone, which cuts
through the Chattahoochee National Forest. In northwest Georgia, there
are seven counties that are within the Tennessee Valley marketing area.
Most of these counties also lie within the Chattahoochee National
Forest. Although there are presently no plants in this area of Order
11, the location adjustment for a plant in this area that becomes
regulated under the Southeast order would be minus 25 cents (i.e., a
Class I differential price of $2.83).
There are three plants in the Alabama portion of Zone 4: Meadow
Gold at Huntsville (Madison County), Dasi Products (partially
regulated) at Decatur (Morgan County), and Shoals Cheese in Florence
(Lauderdale County). The Class I differential price that now applies at
these plants under Order 93 is $2.85.
In the Mississippi portion of Zone 4, there are two fully regulated
distributing plants and one cheese plant. Barber Dairy operates a
distributing plant in Tupelo (Lee County), Avent's Dairy operates a
distributing plant in Oxford (Lafayette County), and McClendon Cheese
has a plant in Booneville (Prentiss County).
The Arkansas portion of Zone 4 includes the Gold Star, Borden, and
Coleman Dairy plants in Little Rock (Pulaski County), and Humphrey's
Dairy in Hot Springs (Garland County). The western border of this zone
adjoins a $3.00 zone and a $2.77 zone under the Southwest Plains order.
Under the four separate orders, there are now four separate prices
that apply to Zone 4: under Order 7, the price is $2.93; under Order
93, the price is $2.85; under Order 94, the price is $2.90; and under
Order 108, the price is $2.77. Under the cooperative coalition
proposal, the prices would remain at their present levels from northern
Georgia to northern Mississippi. The Fleming Company would standardize
the price at $2.85 from northern Georgia through northern Mississippi.
AMPI proposed a $2.77 Class I differential for the Little Rock,
Memphis, and northwest Mississippi areas.
Under the merged order, a price of $2.83 should apply in this zone.
This price would be 15 cents higher than Zone 5 to the south and 13
cents lower than Zone 3 on the north. The primary reason for selecting
a price of $2.83 is that it lines up well with the prices on the east
and west of the market and contributes to a smooth north to south
transition within the marketing area.
Zone 3
Zone 3 is comprised of the southernmost tier of counties through
the State of Tennessee and the Arkansas counties of Crittenden, Cross,
St. Francis, Woodruff, White, Faulkner, Conway, Perry, and Yell.
The Forest Hill Dairy plant in Memphis, Tennessee, which is now
regulated under Order 108, is the only distributing plant in this zone
(there is also an ice cream manufacturing plant in Memphis). The Order
108 price at that plant is now $2.77, which also was the price proposed
for this location by Fleming Dairy. A Class I differential price of
$2.77 would also apply to that location under the merged order.
Zone 2
The Tennessee counties which formed the core of the former
Nashville, Tennessee, marketing area should be included in Zone 2 of
the Southeast marketing area. Included within this zone would be
Fleming Dairy, Purity Dairy, and Meadow Gold, in Nashville (Davidson
County), the Heritage Farms plant in Murfreesboro (Rutherford County),
Cumberland Creamery in Antioch (Davidson County), the Dairymen, Inc.,
butter-powder manufacturing plant in Lewisburg (Marshall County), and a
Turner Dairies' plant located in Covington (Tipton County), 36 miles
north of Memphis.
At present, the Fleming and Heritage Farms distributing plants are
regulated under Order 7 and have Class I differential prices of $2.53
and $2.605, respectively. The Purity Dairy plant in Nashville and the
Dairymen, Inc., Lewisburg plant are regulated under Order 93 and have a
Class I differential price of $2.52. The Meadow Gold plant is a nonpool
plant that manufactures ice cream, and the Cumberland Creamery plant is
also a nonpool plant that makes condensed milk and milk powder. The
Covington plant is a partially regulated distributing plant under Order
108 with a price of $2.77.
The cooperative coalition proposed a price of $2.52 for the
Nashville area and $2.605 for Lewisburg and Murfreesboro. The Fleming
Company proposed a price of $2.52 for Nashville, $2.55 for Murfreesboro
and Lewisburg, and a continuation of the $2.77 price for Covington.
The assistant operations manager for Fleming Dairy, Nashville,
Tennessee, testified that their Nashville plant competes with The
Kroger Company plant (i.e., Heritage Farms) in Murfreesboro for sales
throughout the Southeast. He also indicated that both of these plants,
as well as the Purity Dairy plant in Nashville, compete for milk
supplies from the same general area in central Kentucky and central
Tennessee. The witness explained that because this area is a very high
production area, it serves a balancing function for the Southeast. When
the milk is not needed for fluid use, it is processed at Dairymen,
Inc.'s, butter-powder plant in Lewisburg, Tennessee, the Cumberland
Creamery in Antioch, or the Meadow Gold ice cream plant in Nashville.
The Fleming Dairy witness testified that the prices between
Nashville and Murfreesboro should be brought into closer alignment
because the existing price difference at these locations was causing
unrest and discontent among neighboring producers. He suggested a price
difference of no more than three cents. The witness also stated that
the price at Lewisburg, Tennessee, should be no higher than the
Murfreesboro price because, otherwise, producers would have an
incentive to deliver their milk to Lewisburg for manufacturing use
instead of to a bottling plant for fluid use.
There is an abundant supply of milk available to handlers in
central Tennessee. For this reason, it is not necessary to increase the
price at Murfreesboro relative to Nashville to insure that the Heritage
Farms plant in Murfreesboro obtains an adequate supply of milk. It
would not be appropriate, however, to reduce the Class I price at
Murfreesboro to the Nashville level because that would disrupt price
alignment with the higher priced zones south of Tennessee and with the
$2.77 differential applicable in the adjacent Tennessee Valley
marketing area. Therefore, to provide a common pricing level between
the Nashville and Murfreesboro plants, the Nashville price should be
raised to $2.60.
The price at Covington, Tennessee, should be reduced from $2.77 to
$2.60. Based on its mileage from Memphis (36 miles) and Fulton,
Kentucky (87 miles), a $2.60 price at Covington should provide
appropriate price alignment for this location in relation to areas on
both a north/south (based on 2.5 cents per 10 miles) and east/west
axis. Other than Turner Dairies plants in Memphis and Fulton, the next
closest plant to Covington is the Avents Dairy plant in Oxford,
Mississippi, 107 miles south of Covington. There are abundant supplies
of milk available to the Covington plant, so this reduction in price
should have no impact on this plant's ability to attract raw milk.
Zone 1
Zone 1 of the Southeast marketing area contains no plants at the
present time. It borders four different marketing areas with five
different prices (i.e., $2.77 on its eastern border with Order 11,
$2.11 and $2.26 along its northern border with Order 46, $2.39 in the
Order 99 marketing area, and $2.55 on its western border with Order
106).
Zone 1 should be priced at $2.55, which is three cents higher than
the level proposed by the cooperative coalition and the Fleming
Company. The primary consideration in this northern tier of counties is
to provide a price that aligns properly with prices to the north and
south of the zone. Should a plant locate in this area, a price that is
too low would create the same type of problem between Davidson County
(i.e., Nashville) and Robertson or Truesdale Counties (i.e., directly
north of Nashville) as exists between Davidson and Rutherford Counties
(i.e., Murfreesboro).
Location Adjustments for Plants Outside of the Marketing Area
Location adjustments also must be specified for plants that are
located outside of the Southeast marketing area.
There are seven counties in northern Georgia that are within the
Tennessee Valley marketing area. There are no known dairy plants in
these counties. Under the Tennessee Valley order, which has no location
adjustments within the marketing area, the Class I differential price
in those counties is $2.77. Had those counties been incorporated in the
proposed Southeast order, they would have been included in Zone 4,
which has an adjusted Class I differential price of $2.83. Therefore,
the location adjustment in those counties under this order, as provided
in Sec. 1007.52(a)(2), should be minus 25 cents.
The Missouri county of Dunklin is now unregulated, and Pemiscot
County, Missouri, is within the Paducah, Kentucky, marketing area. Had
these two counties been included within the Southeast marketing area,
they would have been included in Zone 1. Therefore, the appropriate
location adjustment for any plant that may be located in these two
counties is minus 53 cents, as provided in Sec. 1007.52(a)(3).
Had the Texas counties of Bowie and Cass been incorporated within
the Southeast marketing area, they would have fallen within Zone 6, the
base zone. Although there are no plants in these two counties at the
present time, the applicable location adjustment in those two counties
should be zero, as provided in Sec. 1007.52(a)(4).
Should a plant located within another Federal order marketing area
become regulated under the proposed Southeast order, or should producer
milk be diverted to a plant located in another Federal order marketing
area, the appropriate location adjustment at that plant location should
be based on the Class I differential price at the location under the
Federal order regulating that area, except for the seven Georgia
counties within the Tennessee Valley marketing area and the Missouri
county of Pemiscot. Thus, for example, if a plant located in
Louisville, Kentucky, were to become regulated under the Southeast
order, the location adjustment at that plant would be determined by
subtracting the Class I differential price under the Louisville-
Lexington-Evansville order at the Louisville location (i.e., $2.11)
from the base zone Class I differential price under the Southeast order
(i.e., $3.08), which would result in a location adjustment of minus 97
cents. This treatment is provided in Sec. 1007.52(a)(5) of the
Southeast order.
The final situation that must be dealt with concerns a plant that
is not located within any other Federal order marketing area. Section
1007.52(a)(6) of the proposed order provides six basing points (i.e.,
Shreveport, Louisiana; Little Rock, Arkansas; Memphis, Tennessee;
Jackson, Tennessee; Nashville, Tennessee; and Atlanta, Georgia) in the
Southeast marketing area from which to determine the shortest hard-
surfaced highway distance to the plant location as determined by the
market administrator. The location adjustment would be determined by
multiplying each 10-mile increment or fraction thereof by 2.5 cents and
subtracting this number from the Class I differential price applicable
at the closest of the six basing points. To illustrate, should a plant
in Richmond, Virginia, which is 511 miles from Atlanta, become
regulated under the Southeast order, the location adjustment would be
52 x $.025 or minus $1.30. In the case of a plant located in
Chillicothe, Missouri, the location adjustment would be computed by
determining the mileage (i.e., 424 miles) from the closest basing point
(i.e., Little Rock), multiplying 43 times $.025, and subtracting that
number ($1.08) from the location adjustment at Little Rock (i.e., minus
25 cents) to arrive at a location adjustment at Chillicothe of minus
$1.33. This method will provide a reasonable transportation allowance
to ship bulk milk from a distant location to the Southeast marketing
area, while simultaneously providing a price that is reasonably aligned
with other Federal order prices closer to the plant location.
2(d). Payments to Producers
On or before the 26th day of each month, each handler under the
proposed order should pay for milk received from producers during the
first 15 days of the month. The rate of payment for this milk should be
the higher of the Class III price for the preceding month or 90 percent
of the preceding month's weighted average price.
On or before the 15th day of each month, a handler would make a
final payment to producers for milk received during the preceding
month. The rate of payment would be based on the uniform price(s) that
will have been announced by the market administrator on or before the
11th day of the month. The final payment would be net of the partial
payment made on the 26th day of the prior month, and will also be
adjusted for marketing services deductions pursuant to Sec. 1007.86,
errors, and other deductions authorized in writing by the producer.
If a handler has received milk from a producer who is marketing his
or her milk through a cooperative association, the handler would pay
the cooperative association for this milk, not the individual producer.
The partial payment would be made to the cooperative on or before the
25th day of the month, and the final payment would be made on or before
the 14th day of the month. In this way, the cooperative would, in turn,
be able to pay its producers on the same day that handlers pay their
nonmember producers.
These provisions and the remaining paragraphs in Sec. 1007.73, are
identical to the provisions proposed by the cooperative coalition.
The proposed partial payment date is somewhat earlier than the date
that is provided in the individual orders--i.e., the last day of the
month--but there was no testimony to indicate why an earlier date would
not be possible, nor is there any apparent reason why the earlier
payment date would not work.
These payment provisions are common to all of the individual orders
and should be familiar to all handlers regulated under the merged
order.
A Second Partial Payment to Producers
A proposal that would establish two partial payments and a final
payment to producers should not be adopted.
Georgia Milk Producers, Inc. (GMP), an organization which
represents approximately 195 dairy farmers located in the State of
Georgia, proposed a provision that would require handlers to pay
producers two partial payments and a final payment. The proposal
specifies that on or before the 20th day of each month, producers would
be paid for milk received during the first 15 days of the month at the
rate of 85 percent of the weighted average price per hundredweight for
the preceding month; on or before the 5th day of the following month,
producers would receive another payment, based on this rate, for milk
received from the 16th through the last day of the month; and, finally,
on or before the 15th day of each month, the producer would receive
final payment for milk received during the preceding month based on the
uniform price(s) for the month.
An agricultural economist at the University of Georgia testified on
behalf of GMP, Georgia Farm Bureau Federation (GFBF), Alabama Farmers
Federation (AFF), Louisiana Farm Bureau (LFB), and the Mississippi Farm
Bureau Federation (MFBF) in support of the three-payment proposal.
According to the witness, milk is one of the few agricultural
commodities produced in which the producer supports or actually
finances the marketing of the product. He stated that most agricultural
commodities are paid for at or soon after delivery to the first buyer.
He claimed that the dairy farmer finances not only the production of
his or her milk, but also the marketing of the milk produced through
each of the marketing channels including the retail store.
The witness argued that the financial risk to producers has
increased in recent years. He noted, for example, that from 1982 to
1992, the number of producers delivering milk to regulated handlers
under Orders 7, 93, 94, 96, and 98, decreased from 5,765 to 4,600 but
that the average monthly volume of milk produced increased by 10,000
pounds. He also pointed out that the number of pool distributing plants
decreased from 75 to 41 from 1982 to 1992. Thus, he reasoned, there is
now a greater financial obligation per plant and a greater financial
risk per producer.
The witness testified that the three-payment plan would decrease
the financial burden on producers and reduce the risk of nonpayment. By
reducing by one-third the time between milk delivery by the producer
and the payment for the milk by the handler, he claimed, the financial
exposure to producers resulting from a late handler payment or handler
bankruptcy would also be reduced by about one-third.
The witness emphasized that dairy farmers do not have the debt
protection and the type of provisions included in both the Packers and
Stockyard Act and the Perishable Agricultural Commodities Act. He noted
that the Agricultural Marketing Act of 1937 authorizes the Secretary of
Agriculture to administer milk marketing orders so as to provide for,
``assurance and security for, the payment by handlers for milk
purchased.'' However, he stated, there are no Federal milk orders that
include payment security provisions.
A dairy farmer testifying on behalf of the Alabama Farmers
Federation Dairy Committee in support of the three-payment plan stated
that the plan is an opportunity to begin correcting a problem that
exists between the time a farmer delivers milk to a handler and the
time he is paid. He testified that this problem needs to be addressed
nationwide but stated that this regional hearing is an excellent place
to begin.
A dairy farmer located in Loudon, Tennessee, who is also in the
milk hauling business, also testified in support of the three-payment
plan. He stated that over the years changes in the dairy industry have
limited the selling and marketing options of dairy farmers. He said
that there are agreements in place to control producer movement between
processors and cooperatives. He also stated that the times of year when
producers can change markets economically are limited because of base-
excess plans, pooling requirements, and cooperative procurement needs.
Additionally, he claimed that producers have limited access to accurate
financial information of handlers.
According to this witness, bankruptcy is no longer an act of last
resort; it is considered a standard business procedure that is often a
pre-meditated planned event. He stated that dairy farmers should not
carry the risk after the milk leaves the farm when they do not reap the
benefits or losses from that product. He also stated that producers
should be paid three times per month because the technology is now
available to do it.
A dairy farmer who is the president of Georgia Milk Producers,
Inc., testified that the three-payment plan would provide much needed
protection against the risk of dairymen losing money when handlers go
bankrupt and it would improve producers' cash flow. Finally, a dairy
farmer located in Barnesville, Georgia, testified that the three-
payment plan was needed because the credit situation for producers has
changed over the past 10 years. He claimed that producers have limited
selling options.
The vice president of the International Dairy Foods Association
(IDFA) testified in opposition to the three-payment plan. IDFA is
comprised of Milk Industry Foundation (MIF), the national trade
association for processors of fluid milk and milk products, the
National Cheese Institute (NCI), the national trade association for
manufacturers, processors and marketers of all varieties of cheese, and
the International Ice Cream Association (IICA), the national trade
association for manufacturers of frozen dessert products. According to
the witness, the member companies of the three associations in total
utilize over 80 percent of all the raw milk produced in the United
States to process milk and manufacture cheese and frozen dessert
products which they market.
The IDFA witness pointed out that provisions for three times a
month payments to producers are not in effect in any of the milk
marketing orders involved in the hearing or in any other milk marketing
orders, with the exception of three Florida orders. He said the three-
payment plan in the Florida markets pre-dated the establishment of the
orders and was based on prevailing market conditions that were mutually
agreed upon by producers and handlers in those areas at that time.
The witness cited several decisions in which the Department denied
proposals to establish thrice-monthly payments to producers. He said
the proposal would lead to unstable marketing conditions throughout the
southern region and would create a competitive disadvantage for both
producers and handlers in the merged order because of the increased
cost of raw milk. He also argued that thrice-monthly payments would
clearly increase costs to handlers and severely impact their cash flow
and cash reserve positions. He claimed that handlers, and ultimately
consumers, would have to pay an additional 2.6 cents per hundredweight
due to the accelerated payment.
The witness stated that there is no evidence which indicates
producers in this region have suffered financial hardships as a result
of the prevailing payment schedules in these orders. In fact, he
opined, the financial situation for producers in this area, as well as
most areas of the country, has improved over the past few years,
indicating no need to change the payment schedule. He noted that from
1987 through 1990 the ratio of current farm business assets to current
farm business liabilities for milk producers in the southeastern region
has more than tripled from 1.37 to 4.78.
The IDFA witness indicated that dairy processors also must wait to
be paid for their products. Information from IDFA member companies, he
said, indicates that handlers' outstanding accounts receivable
generally run from 25 to 40 days on most commercial accounts, and
accounts receivable on sales to schools and state institutions run
longer, generally from 60 to 90 days from billing to collection.
Southern Foods Group and Kraft General Foods (Kraft) supported the
opposition testimony of IDFA. The procurement manager for Kraft
testified that Kraft's accounts receivables averaged 17.3 days in 1993,
which does not include the inventory age of the product. He also said
that, based on Kraft's own receivables and payable schedules and other
information, it is customary for those in the industry to extend 20 to
25 days credit on their accounts receivables.
Representatives of Kinnett Dairies, Inc. (Kinnett), and The Kroger
Company (Kroger), proprietary handlers regulated under Order 7, also
testified in opposition to the thrice-monthly payment plan proposal.
The Kinnett witness stated that the plan would give handlers regulated
under other orders a competitive advantage, and the Kroger
representative claimed that the proposal would significantly reduce the
cash flow of dairy processors, adversely affecting the dairy industry.
According to the Kroger witness, reducing the cash flow for processors
would reduce the amount of money available for research and development
of new products which helps to maintain and expand the market for dairy
farmers' milk.
The University of Georgia agricultural economist and the other
proponent witnesses testified that the thrice-monthly payment plan
would reduce the financial risk that dairy farmers face from handler
bankruptcy. Although the record evidence reveals that bankruptcy is a
problem in the marketing area involved, the proposal is not one that
guarantees producers protection against financial loss from handlers
who declare bankruptcy.
One of the advantages that members of a cooperative association
have in bankruptcy situations is that the financial loss is shared
equally among all producers and not borne by one producer alone.
Perhaps for this reason, there was little concern expressed about this
issue at the hearing by cooperative association representatives or
their member producers.
While proponents of the thrice-monthly payment plan argued that the
plan would enhance their cash flow, the record does not reveal that
producers are experiencing financial problems as a result of receiving
one partial and a final payment each month. Although the record does
indicate that at least one dairy farmer pays for feed on a cash-on-
delivery basis and is assessed a penalty for late payment, there is no
indication that a large number of producers are buying production items
on this basis.
Adoption of this proposal would place handlers regulated under the
merged order at a competitive disadvantage with unregulated handlers
and handlers regulated under other orders. It must be concluded that
the extra costs associated with the implementation of this plan exceed
the benefits to producers.
The Agricultural Marketing Agreement Act of 1937 authorizes the
setting of payment dates under an order but it does not specify how
frequently handlers must pay producers. Customarily, this is
established on the basis of prevailing marketing conditions, including
payment practices already existing in an area or new payment practices
that handlers and producers may find mutually desirable. Producers and
handlers should continue to have the option of negotiating payment
schedules, including an additional partial payment if mutually desired.
However, this practice should not be institutionalized by being
incorporated in the merged order.
Producer Assurance Fund
A proposal to establish a producer security fund under the merged
order should not be adopted.
A second professor and agricultural economist at the University of
Georgia, presented a proposal on behalf of some Georgia dairy farmers,
the Alabama Farmers Federation, and the Louisiana Farm Bureau which
provides for the establishment of a producer assurance fund (PAF). He
claimed that the PAF would reduce the financial risk of producers in
bankruptcy cases.
The witness testified that paragraph 5(E) of Section 8c(2) of the
Agricultural Marketing Act of 1937, as amended, provides for the
inclusion of provisions for the ``assurance of, and security for,
payment by handlers for milk purchased.'' He stated that the market
administrator could administer the PAF at no additional charge,
explaining that processors regulated under the merged order would be
assessed two cents per hundredweight until the fund was fully endowed.
He said that the market administrator would review the fund annually to
determine if adjustments should be made.
The witness stated that operating cooperatives and chain stores
would be exempt from the fund and that, if the order is terminated,
processors who contributed to the fund would be reimbursed a pro rata
amount. While noting that the best approach would be to implement this
fund on a national level, he said that the next best alternative is to
initiate it on a regional basis.
The chairman of the Alabama Farmers Federation Committee (AFFC) and
a Barnesville, Georgia, dairy farmer also testified in support of the
producer assurance fund. While observing that the fund would not
protect producers from all loss, the AFFC representative said that it
was a step in the right direction. The Georgia dairy farmer related his
experience in a bankruptcy two years ago which resulted in a financial
loss of about 21 days' of production.
The witness for the IDFA testified that the members of the IDFA
were opposed to the establishment of a producer assurance fund. He said
that such a provision has never existed under Federal milk orders and
questioned whether the Federal order program was the appropriate
vehicle to implement this type of fund.
The IDFA witness stated that processors and manufacturers assume a
significant risk in receiving a steady supply of raw milk, even as
demand fluctuates throughout the year and does not always keep up with
supply. He claimed that most of the businesses within the United
States, including dairy processors, do not have any protective
regulations and/or funds which guarantee payment on products sold. He
argued that establishment of a PAF would limit processors in conducting
business and will negatively impact producers in the long run.
In its post-hearing brief, IDFA claimed that establishment of the
fund would result in a costly duplication of regulations that have
already been promulgated by some States in the Southeast. In addition,
IDFA claimed that the expense of the fund would place handlers at a
competitive disadvantage vis-a-vis unregulated handlers or handlers
regulated under other orders.
Representatives of Kraft General Foods, Kinnett Dairy, and The
Kroger Company also testified in opposition to implementing a PAF. In
their post-hearing briefs, Southern Foods Group, Barber Pure Milk
Company, Dairy Fresh Corporation, and Baker & Sons Dairy, Inc., also
indicated their opposition to this proposal.
The PAF proposed for the merged order would place handlers
regulated under the order at a competitive disadvantage compared to
handlers regulated elsewhere. Those handlers who operate cost efficient
businesses should not be required to pay the debts of insolvent
handlers whose businesses were poorly managed.
The record evidence does not reveal why a fund which protects
producers against bankruptcy should be financed solely by handlers. In
fact, the record shows that the proposal lacked support from a
substantial number of producers, many of whom are protected from loss
by belonging to a cooperative association, which obviously is better
equipped to withstand a handler bankruptcy than a single producer.
While a producer assurance fund may have some merit, the concept
should be more fully researched and explored. One question that should
be answered is whether such a fund should be implemented on a local,
regional, or national basis. Another question that should be addressed
is whether handlers should bear the sole responsibility of supporting
the fund, or whether producers also should be required to contribute to
it.
Due to the lack of information on the effects of a PAF on producers
and handlers under the proposed order, the overwhelming opposition to
it by handlers in this market, and the lack of producer support
exhibited at both the hearing and in briefs, the proposal should not be
adopted.
Base-excess Plan: Secs. 1007.90-1007.94
The cooperative coalition's proposal to adopt a base-excess plan
for the merged order should be adopted, but the base-forming months
should be changed to September through November.
The cooperative coalition's spokesman testified that a base-excess
plan would provide an incentive to producers to balance their milk
production throughout the year. He noted that a base-excess plan is
provided in the Georgia (Order 7), Alabama-West Florida (Order 93), and
the former Nashville (Order 98) orders.
There was widespread support at the hearing and in post-hearing
briefs for a base-excess plan. Representatives of the Southern Foods
Group, Inc., Fleming Dairy, the Louisiana Farm Bureau Federation,
Georgia Milk Producers, Inc., and Arkansas Dairy Cooperative
Association testified in support of the plan. Several individual dairy
farmers also spoke in support of the plan.
A dairy farmer who testified on behalf of some of the producers
supplying Fleming Dairy in Nashville stated that a base-excess plan
will encourage more milk production during seasonally low production
months and discourage milk production during the flush production
months. In the past, he said, dairy cooperatives have unsuccessfully
built manufacturing plants to help balance raw milk production to the
demand of the Class I market. He claimed that dairy producers are the
only ones able to solve the raw milk balancing problem by leveling out
their milk production.
The witness and other dairy farmers who testified on this issue
indicated that much could be done by dairy farmers to balance their
seasonal swings in production. Some of the plans have not been
effective in the past, they said, because they were not implemented on
a regional basis and because some cooperatives did not pay their
producers a base and excess price.
Opposition to a base-excess plan was expressed by Gold Star Dairy,
which indicated that the plan would limit Gold Star's flexibility in
obtaining supplemental supplies during the operative months of the
plan. The spokesman for AMPI also indicated opposition to a base-excess
plan for AMPI's proposed Mid-South order, but supported the cooperative
coalition's proposal to include a base-excess plan in their proposed
Gulf States order. He stated that the plan would build a fence around
the marketing area and impede the efficient movement of supplemental
milk to the market during periods of increased demand or reduced
production.
The Agricultural Marketing Agreement Act states that milk orders
may contain provisions ``to encourage seasonal adjustments in the
production of milk * * * on the basis of their [producers] marketings
of milk during a representative period of time * * *.'' While the
performance of the base-excess plans in Orders 7, 93, 98, and 108 in
leveling out production is subject to some debate, particularly because
several of the cooperatives in these markets have not been paying their
producers base and excess prices, there is no doubt that the
overwhelming sentiment of producers, as expressed in the record of this
hearing, is that a base-excess plan be incorporated in the merged
order. Absent any sound reason for denying this request, the proposal
should be adopted.
There was considerable disagreement concerning the months to be
used for the base-forming and base-paying periods. As contained in the
cooperative coalition's proposal, bases would be computed based upon
production during the months of September through December (i.e., the
``base-forming period''), and base and excess prices would be paid
during the following months of February through May.
The witness for Fleming Dairy stated that the base-forming period
should consist of the months of July through November and that
producers should be paid base and excess prices during the months of
January through May. He noted that statistics for the five-market
region indicate that the Class I utilization exceeded 80% only during
the months of July through November from 1990 through 1993. For the
same three-year period, he pointed out, the percentage of milk utilized
in Class III manufactured products for the five-market region was the
lowest during July through October. He also indicated that Fleming had
experienced problems in trying to encourage producers to increase milk
production during the months of July and August and that these two
months should, therefore, be part of the base-forming period.
Two dairy farmers supplying Fleming Dairy agreed that the base-
forming period should be the months of July through November and that
the base-paying months should be January through May. Their testimony
indicated that cows and heifers that calve in late August or September
will peak in milk production in November, December, and January, which
are not the months in which additional milk production is needed.
One of the dairy farmer witnesses explained that ``cull'' cows or
``turn'' cows dry early in the spring. He stated that this option is
available to each dairy producer whose milk production gets out of
cycle. Thus, he proposed that the merged order be structured to
discourage milk production during those months when milk is typically
in over-supply by paying producers a base and excess price during the
months of January through May.
The other dairy farmer witness noted that over the past several
years many county school systems in the South have moved their fall
start-up date from September until about the third week of August,
which caused the demand created by school start-ups to be moved up two
weeks. He claimed that including the month of July in the base-forming
period will send the correct signal to producers as to when more milk
is needed.
The chairman of the Dairy Advisory Committee of the Louisiana Farm
Bureau Federation (LFBF) testified that the months of March through
June should be the base-paying period. He stated that these are the
months of highest production in relation to Class I needs.
The witness also stated that producers currently regulated under
Orders 94 and 96, which do not now have a base-excess plan, would be
placed at a greater disadvantage if the base-forming period began with
the month of July or August instead of September because production was
down in those months due to the midsummer heat in Louisiana.
In its post-hearing brief, Georgia Milk Producers, Inc. (GMP)
recommended that the base-forming period be the months of September
through January. According to GMP's brief, adding the month of January
as a base-forming month would provide a period where weather conditions
are more indicative of the norm. Additionally, GMP suggested extending
the base-paying period to include the month of July, claiming that the
extension would allow producers who have met the needs of the market by
equalizing their production in the fall and summer to receive payment
for base milk for an additional month.
Summarizing the hearing proposals and testimony, the base-forming
period would be September-December (cooperative coalition, LFBF), July-
November (Fleming Dairy and two dairy farmers), or September-January
(GMP), while the base-paying period would be February-May (cooperative
coalition), January-May (Fleming Dairy and two dairy farmers), March-
June (LFBF), or February-July (GMP).
The variations in these proposals, in part, is indicative of the
fact that the proposed marketing area is a large area in which
production waxes and wanes in a slightly different seasonal pattern
from one part of the marketing area to another. While July might be an
appropriate base-building month in Tennessee, producers farther south
would prefer to start with September as the first base-building month
because it is difficult to increase production during the summer's
heat. On the other hand, where December might be an ideal production
month in the South, it could be a difficult month for producers in the
northern part of the marketing area. Consequently, the criteria for
selecting a base-forming period cannot be Class I utilization alone.
Based on the different production and utilization patterns within
the proposed Southeast marketing area, the most appropriate base-
forming months are September through November, while the most suitable
base-paying months are February through May.
Although a September-November base-forming period is somewhat
shorter than the period contained in any of the proposals, as outlined
above, it is only necessary to establish a production benchmark during
a representative part of the short production season for a base-excess
plan to perform successfully; it is not necessary that the entire short
production season be included in the base-forming months. It should be
noted, for example, that the base plan in the neighboring Carolina
order uses the months of September through November as the base-forming
months with no apparent problem. Using September, October, and November
as the base-forming period for the merged order will accomplish the
goal of establishing the production benchmark, while, at the same time,
allowing all of the market's producers to compete on more equally
favorable conditions.
The month of December should not be included in the base-forming
period, not only because it may be a difficult month weather-wise for
producers in the northern part of the market, but also because higher
production and lower demand in December drops the Class I utilization
in this month well below September-November. During the last three
years, for example, the average utilization in December for producer
milk that would have been part of the Southeast market was 71.2
percent. By contrast, the average Class I utilization percentage for
the base-forming months of September through November was 84.9, 83.3,
and 80.3, respectively.
Fleming Dairy's proposal to include the months of July and August
in the base-forming period should be denied. Although the three-year
average Class I utilization for July and August was relatively high at
81.7 percent and 82.6 percent, respectively, this fact, as noted above,
should not be the overriding consideration in choosing the base-forming
period.
Under the present Georgia order and--prior to its termination in
July 1993--the former Nashville order, the months of July and August
were base-paying months. Fleming Dairy may have experienced problems
attracting additional milk, first under Nashville and then Georgia,
because these base plans discouraged producers from producing beyond
their bases during the base-paying period and, perhaps more
importantly, they discouraged new producers from coming onto the market
during these months because they would only have received the excess
price for their milk. In the base plan proposed for the Southeast
market, however, July and August will be neutral months. While
producers will have no special incentive to produce additional milk
during these months, more importantly they will have no disincentive
for doing so. Moreover, new producers will be able to supply the market
without penalty during these months. Therefore, the supply problems
experienced by Fleming under the Nashville and Georgia orders should
not exist under the plan adopted for the merged order.
There is no record evidence which supports including the month of
January as one of the base-forming months. Clearly, while January is
neither a flush production month, nor a short production month, it is
undoubtedly a difficult winter production month for some of the dairy
farmers in this market. Just as the months of July and August should
not be part of the base-forming period because they would be difficult
production months for Georgia, Louisiana, and Mississippi producers,
the month of January should not be a base-forming month because it
would be an unsuitable month for producers in Tennessee and Arkansas.
Therefore, GMP's proposal to include January in the base-forming period
must be denied.
The appropriate base-paying period is perhaps less difficult to
choose than the base-forming period. One consideration certainly is to
reward those producers who supplied the market during the short
production season, while providing no reward for those producers who
were not on the market when their milk was needed. Another
consideration is to select months when additional milk is not, in fact,
needed. For this reason, July, August, and December should clearly not
be base-paying months because supplemental milk supplies may very well
be needed during those months. June and January are borderline months.
During the past three years, the average Class I utilization was 72.3
percent in January and 73.3 percent in June, both of which are above
the comparable percentages for the months of February through May;
i.e., 69.5, 68.4, 67.5, and 70.8 percent, respectively. Based on this
data and analysis, the cooperative coalition's proposed February-May
base-paying period is the appropriate choice for the merged market.
The market administrator will be responsible for computing the base
of each producer on an annual basis. This will be accomplished by
dividing each producer's total pounds of producer milk in September
through November by the number of days' production represented by such
producer milk, or by 77, whichever is more. The market administrator
will notify each producer or the producer's cooperative, and the
handler receiving his/her milk, of the producer's base by February 1.
In the cooperative coalition's proposal, the minimum number of days
to be used in computing base was 100. In changing the base-forming
period from four months to three months, however, 77 days appears to be
an appropriate minimum to use. This is also the number that is used in
the Carolina order, which, as noted, has a three-month base-forming
period.
Under the base plan adopted here, the base milk of a producer is
defined as the producer milk of a producer in each month of February
through May that is not in excess of the producer's base multiplied by
the number of days in the month. Excess milk means the producer milk of
a producer in each month of February through May in excess of the
producer's base milk for the month and all the producer milk of a
producer who has no base milk.
Producers whose milk was delivered to a nonpool plant that became a
pool plant after the beginning of the base-forming period should be
assigned bases calculated as if the plant had been a pool plant during
the base-forming period. A base assigned in this manner would not be
transferable.
A base earned by any producer who supplied the market in the base-
forming period should be transferable. Transferability is an
appropriate provision to include in the plan because a base is
something of value that has been earned, and the base-holder or his/her
heirs should be compensated for that value when the base-holder dies or
when the farm of a base-holder is sold. For ease in administering this
provision, the amount of base transferable should either be its
entirety or in amounts not less than 300 pounds.
A base transfer would be effective on the first day of the month
following the date on which an application signed by the base holder or
his/her heirs is received by the market administrator. Although the
cooperative coalition also specified that the person receiving the base
should be required to sign the transfer application, this requirement
has not been adopted. There is no apparent reason why the recipient of
a base should be required to sign the application, and this particular
requirement merely adds unnecessary expense to the administration of
the base plan provisions. If a base is held jointly, the application
for transfer should be signed by all joint holders or their heirs to
insure that there is no misunderstanding between the parties involved
in the transfer.
A base established by a partnership may be divided between partners
on any basis agreed on in writing by them as long as written
notification of the agreed-upon division, signed by each partner, is
received by the market administrator prior to the first day of the
month in which the division is to be effective.
To insure that the exchange of bases between producers are bona
fide transfers, a producer who transferred all or part of his/her base
on or after February 1 should not be permitted to receive other base by
transfer that would be applicable within the February-May period of the
same year. In addition, a producer who received base by transfer on or
after February 1 should not be permitted to transfer a portion of that
base to be applicable within the February-May period of the same year,
but should be permitted to transfer the entire base.
A producer who delivered at least 77 days' production during the
base-forming period would receive a base computed on the same basis as
a producer who delivered continuously throughout the entire period in
situations that may occur as a result of natural disaster, temporary
suspension of a health permit, or temporary loss of market when cut off
by a buying handler. Such a base would be computed by dividing the
producer's total producer milk during the three-month period by the
number of days of production. Producers who come on the market during
the base-paying months should be assigned the excess milk price.
In some instances, a natural disaster may cause a producer to
suffer a significantly reduced rate of production or force the producer
to temporarily discontinue milk production. In such a case, the plan
would provide hardship relief by assigning a producer a base equal to
his/her average daily producer milk deliveries in the month immediately
preceding the month during which the hardship occurred.
Inclusion of a base-excess plan under the merged order will require
the computation of a uniform price during the non-base-paying months of
June through January and uniform prices for base and excess milk during
the other months of the year. The steps to be followed in computing
these prices are contained in Sec. 1007.61.
One change should be made in the computation of the uniform price
for excess milk. As now in Orders 7 and 93 and as proposed by the
cooperative coalition in Sec. 1007.61(b)(1), the uniform price for
excess milk would be computed by multiplying the pounds of excess milk
that do not exceed the pounds of milk assigned to Class III by the
Class III price, any remaining excess pounds by the Class II price,
and, if there are excess pounds remaining, by the Class I price. The
total value so computed then would be divided by the total pounds of
excess milk to arrive at the uniform price for excess milk.
This procedure should be modified slightly to reflect the
incorporation of Class III-A pricing in the order. Specifically, a new
step should be added--i.e., Sec. 1007.61(b)(1)(i)--that would first
multiply the pounds of excess milk that do not exceed the pounds of
milk assigned to Class III-A by the Class III-A price. The remaining
excess pounds would then be multiplied by the Class III price, the
Class II price, and finally, if there are any excess pounds left, by
the Class I price.
Without this modification, any milk that was assigned to Class III-
A would reduce the uniform price for base milk, instead of the uniform
price for excess milk. This would narrow the difference between the two
prices, thereby reducing the incentive for producers to level out their
production, which is the primary purpose of the base-excess plan.
2(e). Administrative Provisions
The administrative duties of the market administrator are detailed
under Sec. 1000.3 of the General Provisions, which pertain to all milk
orders. In Sec. 1000.5 of the General Provisions, a handler's
responsibility for records and facilities are also detailed.
Handler Reports
The responsibility of handlers to establish and maintain certain
records of their operations and to make such records and facilities
available to the market administrator are set forth in Sec. 1000.5 of
the General Provisions. That section relates to the adequacy of the
records of the handler and the period of time for which they should be
maintained.
The requirements of handlers to maintain such records, and to make
reports of receipts and utilization to the market administrator under
Secs. 1007.30, 1007.31, and 1007.32 of the proposed order, are similar
to the requirements that are now contained in the five orders to be
merged.
To compute the uniform price and the prices for base and excess
milk, the market administrator must first receive a report of receipts
and utilization from each of the handlers in the pool. Section 30 of
the order describes who should file a report of receipts and
utilization, what the report should contain, and when it should be
filed. As proposed and adopted here, this report would have to be filed
on or before the 5th day after the end of the month, or not later than
the 7th day if the report is delivered in person to the office of the
market administrator. This filing deadline will provide the market
administrator with sufficient time to receive the reports, review and
correct them for obvious errors, compute each handler's value of milk
at classified prices, compute the uniform price or prices, and announce
such price or prices by the 11th day of each month.
Section 31 of the proposed order discusses the submission of
handler payroll reports. This report shows the name and address of each
producer, the total pounds of milk received from the producer, the
butterfat content of the milk, and the price per hundredweight paid.
This report is due on or before the 20th day after the end of the
month.
Section 32 deals with the reporting of base milk for the months of
February through May and any other reports which the market
administrator may request. The aggregate quantity of base milk received
from producers must be reported on or before the 7th day after the end
of the month, while the pounds of base and excess milk received from
each producer must be reported on or before the 20th day after the end
of each month of February through May.
The dates proposed for the filing of reports, price announcements,
and payments were patterned after those in the Alabama-West Florida
order. They are similar, however, to those provided in other Federal
orders in the Southeast. Therefore, handlers under the proposed
Southeast order will be accustomed to meeting these deadlines.
Likewise, producers covered by this order will receive their payments
at about the same time as they have received payments under the current
Federal orders.
Charge for Overdue Accounts
It is essential to the effective operation of the proposed order
that handlers make their payments on time.
Under a marketwide pooling arrangement, handlers with Class I
utilizations higher than the market average pay part of their total use
value of milk to the producer-settlement fund. This money is, in turn,
paid out to handlers with lower than average Class I utilization so
that all handlers in the market, irrespective of the way they use their
milk, can pay their producers the same uniform price. The success of
this arrangement depends upon the solvency of the producer-settlement
fund.
The prompt payment of funds due the administrative and marketing
service funds is also essential for the market administrator to perform
the various administrative functions prescribed by the order.
Delinquent payments to these funds could impair the ability of the
market administrator to carry out these duties in a timely and
efficient manner.
Payment delinquency also results in an inequity among handlers.
Handlers who pay late are, in effect, borrowing money from producers.
In the absence of any late-payment charge equal to at least the cost of
borrowing money from commercial sources, handlers who are delinquent in
their payments would have a financial advantage relative to those
handlers making timely payments.
The late-payment charges included in the proposed order are not a
substitute for prompt payments by handlers; those handlers delinquent
in their obligations would still be subject to legal enforcement action
as authorized under the Act.
Under the late payment provisions, overdue handler obligations
would be increased by 1.5 percent on the day after the due date. Any
remaining unpaid portion of the original obligation would be increased
by 1.5 percent on the same date of each succeeding month until the
obligation is paid.
The late payment charge should apply not only to the original
obligation but also to any unpaid charges previously assessed. They
would apply whether the obligation is paid one day late or ten days
late, and would be applicable to both fully regulated and partially
regulated handlers alike.
The disposition of the late payment charge would be determined by
the account to which it is due. A charge resulting from an unpaid
obligation to the producer-settlement fund would go into that fund. By
the same token, a charge resulting from an unpaid obligation for order
administration or marketing services would go into those respective
funds.
The proposed rate of 1.5 percent per month is reasonable and is not
less than the current annual rate for short-term loans.
Expenses of Administration
The expenses for the administration of the proposed order should be
borne by regulated handlers under the order.
Section 1007.85 provides that each handler shall pay to the market
administrator his/her pro rata share of the expenses of administration
of the order. Accordingly, on or before the 15th day after the end of
the month, each handler will be required to pay the market
administrator five cents per hundredweight, or such lesser amount as
the Secretary may determine is necessary, with respect to receipts of
producer milk, including such handler's own production, but excluding
receipts from a cooperative association acting as a handler for milk
delivered to pool plants of other handlers. The payment shall also
apply to other source milk allocated to Class I and to route
disposition in the marketing area by partially regulated distributing
plants.
To administer the order properly, the market administrator must
have sufficient funds to cover his costs. The Act specifically states
that such cost of administration shall be borne by handlers through an
assessment on such handlers.
A principal function of the market administrator's office is to
verify the receipts and disposition of milk from all sources. Equity in
sharing the cost of administration of the order among handlers will be
achieved by applying the administrative assessment on the basis of milk
received from dairy farmers as well as on other source milk allocated
to Class I.
The proposed order provides that a cooperative shall be the handler
for its member milk which it delivers in tank trucks from the farm to
pool plants of other handlers. The cooperative is the handler for such
milk basically for the purpose of accounting to its individual member
producers.
The milk is producer milk at the plant of the receiving handler and
is treated the same as any other direct receipt from producers.
Therefore, the pool plant operator who receives the milk should pay the
administrative assessment on such milk. The cooperative, however, would
be liable for the administrative assessment for any amount by which the
farm weights of the producer milk exceeds the weights at the plant on
which the plant operator purchased the milk from the cooperative.
The market administrator must verify, by audit, the receipts and
utilization of pool plants whether the plant operator buys milk
directly from producers or through a cooperative association as a
handler. It is appropriate, therefore, that the pool plant operator
receiving such milk should pay the administrative assessment on the
milk on the same basis as all other producer milk received at the
plant.
In the case of unregulated milk entering the market through a
regulated plant for Class I use, the regulated handler who utilizes the
unregulated milk must report to the market administrator the receipts
and use of such milk. It is appropriate, therefore, that the regulated
handler should be responsible for payment for the administrative
assessment on such unregulated milk.
While the proposed order is designed so that the cost of
administration is shared equitably among handlers distributing milk in
the proposed marketing area, an assessment should not be made on other
source milk on which an assessment was made under another Federal milk
marketing order.
Marketing Service Deduction
Proper payment to producers is assured by the verification of
producer weights and producer butterfat tests and by keeping producers
well informed about marketing conditions.
If a producer is a member of a cooperative association, these
services are performed by the cooperative association and are paid for
by the members of the cooperative association. In the case of nonmember
producers, however, the Act authorizes a handler to deduct a fee from
the payment to nonmember producers for marketing services, which are
provided by the market administrator or an agent selected by the market
administrator.
There is no need for the market administrator to duplicate the
services which a cooperative association normally provides for its
membership. However, since the market administrator must rely on the
cooperative's results to insure a proper accounting of milk and
butterfat, it is essential that the cooperative association's
performance of these marketing services be reviewed by the Secretary. A
cooperative association will not be entitled to perform marketing
services until it files an application to do so with the market
administrator and demonstrates that it is fully qualified and capable
of performing these services.
Section 1007.86 of the proposed order provides the procedure by
which producers pay the cost of marketing services provided by the
market administrator.
Nonmember producers who will be pooled under the proposed order
will be dispersed over a wide geographic area. It is likely that the
cost to the market administrator of performing marketing services for
nonmembers will be as high as that now incurred under the separate
orders. Therefore, the cooperative coalition proposal for a seven-cent
maximum fee should be adopted. This is the maximum fee now permitted
under Orders 93 and 108, but slightly higher than the level currently
permitted under Orders 7, 94, and 96. It should be stressed, however,
that this is a maximum fee that may be charged for these services; it
may be that the market administrator can perform these services at a
lower rate. Nevertheless, to err on the side of caution, a seven-cent
maximum fee should be provided.
The separate funds that have been accumulated under each of the
orders to defray the costs of administration and providing marketing
services to producers, as well as the producer- settlement fund
reserves, should be consolidated under the merged order. Consolidation
of these funds provides an effective and equitable way of avoiding an
interruption of services and regulation in the area. Any liabilities of
such funds under the current orders should be paid from the appropriate
new fund under the merged order. Similarly, any obligations that are
due to the several funds under the individual orders should be paid to
the appropriate combined fund under the merged order.
Rulings on Proposed Findings and Conclusions
Briefs and proposed findings and conclusions were filed on behalf
of certain interested parties. These briefs, proposed findings and
conclusions, and the evidence in the record were considered in making
the findings and conclusions set forth above. To the extent that the
suggested findings and conclusions filed by interested parties are
inconsistent with the findings and conclusions set forth herein, the
requests to make such findings or reach such conclusions are denied for
the reasons previously stated in this decision.
General Findings
The findings and determinations hereinafter set forth supplement
those that were made when the aforesaid orders were first issued and
when they were amended. The previous findings and determinations are
hereby ratified and confirmed, except where they may conflict with
those set forth herein.
(a) The tentative marketing agreement and the Southeast order,
which merges and amends the Georgia, Alabama-West Florida, Greater
Louisiana, New Orleans-Mississippi, and Central Arkansas orders, as
hereby proposed to be amended, and all of the terms and conditions
thereof, will tend to effectuate the declared policy of the Act;
(b) The parity prices of milk as determined pursuant to section 2
of the Act are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in each of the aforesaid marketing areas,
and the minimum prices specified in the tentative marketing agreements
and the orders, as hereby proposed to be amended, are such prices as
will reflect the aforesaid factors, insure a sufficient quantity of
pure and wholesome milk, and be in the public interest;
(c) The tentative marketing agreements and the orders, as hereby
proposed to be amended, will regulate the handling of milk in the same
manner as, and will be applicable only to persons in the respective
classes of industrial and commercial activity specified in, marketing
agreements upon which a hearing has been held;
(d) All milk and milk products handled by handlers, as defined in
the tentative marketing agreements and the orders as hereby proposed to
be amended, are in the current of interstate commerce or directly
burden, obstruct, or affect interstate commerce in milk or its
products; and
(e) It is hereby found that the necessary expense of the market
administrator for the maintenance and functioning of such agency will
require each handler to contribute 5 cents per hundredweight or such
lesser amount as the Secretary may prescribe, with respect to milk
specified in Sec. 1007.85 of the aforesaid tentative marketing
agreement and the Southeast order.
Recommended Marketing Agreement and Order Amending the Orders
The recommended marketing agreements are not included in this
decision because the regulatory provisions thereof would be the same as
those contained in the proposed orders, as hereby proposed to be
amended. The following order amending the orders regulating the
handling of milk in the respective marketing areas of these orders is
recommended as the detailed and appropriate means by which the
foregoing conclusions may be carried out.
List of Subjects in 7 CFR Part 1007
Milk marketing orders.
1. The authority citation for 7 CFR Part 1007 is revised to read as
follows:
Authority: 7 U.S.C. 601-674.
2. 7 CFR part 1007 is revised to read as follows:
PART 1007--MILK IN THE SOUTHEAST MARKETING AREA
Subpart--Order Regulating Handling
General Provisions
Sec.
1007.1 General provisions.
Definitions
1007.2 Southeast marketing area.
1007.3 Route disposition.
1007.4 Plant.
1007.5 Distributing plant.
1007.6 Supply plant.
1007.7 Pool plant.
1007.8 Nonpool plant.
1007.9 Handler.
1007.10 Producer-handler.
1007.11 [Reserved]
1007.12 Producer.
1007.13 Producer milk.
1007.14 Other source milk.
1007.15 Fluid milk product.
1007.16 Fluid cream product.
1007.17 Filled milk.
1007.18 Cooperative association.
1007.19 Commercial food processing establishment.
1007.20 Product prices.
Handler Reports
1007.30 Reports of receipts and utilization.
1007.31 Payroll reports.
1007.32 Other reports.
Classification of Milk
1007.40 Classes of utilization.
1007.41 Shrinkage.
1007.42 Classification of transfers and diversions.
1007.43 General classification rules.
1007.44 Classification of producer milk.
1007.45 Market administrator's reports and announcements concerning
classification.
Class Prices
1007.50 Class prices.
1007.51 Basic formula prices.
1007.52 Plant location adjustments for handlers.
1007.53 Announcement of class prices.
1007.54 Equivalent price.
Uniform Prices
1007.60 Handler's value of milk for computing uniform prices.
1007.61 Computation of uniform price (including weighted average
price and uniform prices for base and excess milk).
1007.62 Announcement of uniform prices and butterfat differential.
Payments for Milk
1007.70 Producer-settlement fund.
1007.71 Payments to the producer-settlement fund.
1007.72 Payments from the producer-settlement fund.
1007.73 Payments to producers and to cooperative associations.
1007.74 Butterfat differential.
1007.75 Plant location adjustments for producers and on nonpool
milk.
1007.76 Payments by handler operating a partially regulated
distributing plant.
1007.77 Adjustment of accounts.
1007.78 Charges on overdue accounts.
Administrative Assessment and Marketing Service Deduction
1007.85 Assessment for order administration.
1007.86 Deduction for marketing services.
Base-Excess Plan
1007.90 Base milk.
1007.91 Excess milk.
1007.92 Computation of base for each producer.
1007.93 Base rules.
1007.94 Announcement of established bases.
Authority: 7 U.S.C. 601-674.
Subpart--Order Regulating Handling
General Provisions
Sec. 1007.1 General provisions.
The terms, definitions, and provisions in Part 1000 of this chapter
are hereby incorporated by reference and made a part of this order.
Definitions
Sec. 1007.2 Southeast marketing area.
The ``Southeast marketing area,'' hereinafter called the
``marketing area,'' means all territory within the bounds of the
following Alabama, Florida, Georgia, Mississippi, Tennessee, and
Arkansas counties and Louisiana parishes, including all piers, docks,
and wharves connected therewith and all craft moored thereat, and all
territory occupied by government (municipal, State, or Federal)
reservations, installations, institutions, or other similar
establishments if any part thereof is within any of the listed counties
or parishes:
Zone 1
Arkansas Counties
Baxter, Clay, Fulton, Greene, Izard, Lawrence, Randolph, and Sharp.
Tennessee Counties
Clay, Fentress, Henry, Houston, Jackson, Lake, Macon, Montgomery,
Obion, Overton, Pickett, Robertson, Stewart, Sumner, Trousdale, and
Weakley.
Zone 2
Arkansas Counties
Cleburne, Craighead, Independence, Jackson, Johnson, Mississippi,
Newton, Poinsett, Pope, Searcy, Stone, and Van Buren.
Tennessee Counties
Bedford, Benton, Bledsoe, Cannon, Carroll, Cheatham, Chester,
Coffee, Crockett, Davidson, DeKalb, Decatur, Dickson, Dyer, Gibson,
Grundy, Haywood, Henderson, Hickman, Humphreys, Lauderdale, Lewis,
Madison, Marshall, Maury, Perry, Putnam, Rutherford, Smith, Tipton, Van
Buren, Warren, White, Williamson, and Wilson.
Zone 3
Arkansas Counties
Conway, Crittenden, Cross, Faulkner, Perry, St. Francis, White,
Woodruff, and Yell.
Tennessee Counties
Fayette, Franklin, Giles, Hardeman, Hardin, Lawrence, Lincoln,
McNairy, Moore, Shelby, and Wayne.
Zone 4
Alabama Counties
Colbert, De Kalb, Franklin, Jackson, Lauderdale, Lawrence,
Limestone, Madison, Marshall, and Morgan.
Arkansas Counties
Arkansas, Garland, Grant, Hot Spring, Jefferson, Lee, Lonoke,
Monroe, Montgomery, Phillips, Polk, Prairie, Pulaski, and Saline.
Georgia Counties
Gilmer, Towns, and Union.
Mississippi Counties
Alcorn, Benton, Coahoma, DeSoto, Itawamba, Lafayette, Lee,
Marshall, Panola, Pontotoc, Prentiss, Quitman, Tate, Tippah,
Tishomingo, Tunica, and Union.
Zone 5
Alabama Counties
Blount, Cherokee, Cullman, Etowah, Fayette, Lamar, Marion, Walker,
and Winston.
Arkansas Counties
Clark, Cleveland, Dallas, Desha, Howard, Lincoln, Pike, and Sevier.
Georgia Counties
Bartow, Cherokee, Dawson, Floyd, Gordon, Habersham, Lumpkin,
Pickens, Rabun, and White.
Mississippi Counties
Bolivar, Calhoun, Chickasaw, Grenada, Monroe, Sunflower,
Tallahatchie, and Yalobusha.
Zone 6
Alabama Counties
Bibb, Calhoun, Clay, Cleburne, Jefferson, Pickens, Randolph,
Shelby, St. Clair, Talladega, and Tuscaloosa.
Arkansas Counties
Ashley, Bradley, Calhoun, Chicot, Columbia, Drew, Hempstead,
Lafayette, Little River, Miller, Nevada, Ouachita, and Union.
Georgia Counties
Banks, Barrow, Butts, Carroll, Clarke, Clayton, Cobb, Coweta, De
Kalb, Douglas, Elbert, Fayette, Forsyth, Franklin, Fulton, Greene,
Gwinnett, Hall, Haralson, Hart, Heard, Henry, Jackson, Jasper, Lincoln,
Madison, Morgan, Newton, Oconee, Oglethorpe, Paulding, Polk, Putnam,
Rockdale, Spalding, Stephens, Taliaferro, Walton, and Wilkes.
Mississippi Counties
Attala, Carroll, Choctaw, Clay, Holmes, Humphreys, Leflore,
Lowndes, Montgomery, Noxubee, Oktibbeha, Washington, Webster, and
Winston.
Zone 7
Alabama Counties
Chambers, Chilton, Coosa, Greene, Hale, Lee, Perry, Sumter (north
of U.S. 80), and Tallapoosa.
Georgia Counties
Baldwin, Bibb, Burke, Columbia, Crawford, Glascock, Hancock,
Harris, Jefferson, Jones, Lamar, McDuffie, Meriwether, Monroe,
Muscogee, Pike, Richmond, Talbot, Taylor, Troup, Twiggs, Upson, Warren,
Washington, and Wilkinson.
Louisiana Parishes
Bienville, Bossier, Caddo, Claiborne, East Carroll, Jackson,
Lincoln, Morehouse, Ouachita, Richland, Union, Webster, and West
Carroll.
Mississippi Counties
Issaquena, Kemper, Leake, Madison, Neshoba, Sharkey, and Yazoo.
Zone 8
Alabama Counties
Autauga, Bullock, Dallas, Elmore, Lowndes, Macon, Marengo,
Montgomery, Russell, Sumter (south of U.S. 80), and Wilcox.
Georgia Counties
Bleckley, Bulloch, Candler, Chattahoochee, Crisp, Dodge, Dooly,
Effingham, Emanuel, Evans, Houston, Jenkins, Johnson, Laurens, Macon,
Marion, Montgomery, Peach, Pulaski, Schley, Screven, Stewart, Sumter,
Tattnall, Telfair, Toombs, Treutlen, Webster, Wheeler, and Wilcox.
Louisiana Parishes
Caldwell, De Soto, Franklin, Madison, Natchitoches (north of State
Highway 6 and U.S. 84), Red River, Tensas, and Winn.
Mississippi Counties
Claiborne, Clarke, Copiah, Hinds, Jasper, Lauderdale, Newton,
Rankin, Scott, Simpson, Smith, and Warren.
Zone 9
Alabama Counties
Barbour, Butler, Choctaw, Clarke, Coffee, Conecuh, Crenshaw, Dale,
Henry, Monroe, and Pike.
Georgia Counties
Appling, Bacon, Ben Hill, Bryan, Calhoun, Chatham, Clay, Coffee,
Dougherty, Irwin, Jeff Davis, Lee, Liberty, Long, McIntosh, Quitman,
Randolph, Terrell, Tift, Turner, Wayne, and Worth.
Louisiana Parishes
Catahoula, Concordia, Grant, La Salle, Natchitoches (south of State
Highway 6 and U.S. 84), and Sabine.
Mississippi Counties
Adams, Covington, Franklin, Jefferson, Jefferson Davis, Jones,
Lawrence, Lincoln, and Wayne.
Zone 10
Alabama Counties
Covington, Escambia, Geneva, Houston, and Washington.
Georgia Counties
Atkinson, Baker, Berrien, Brantley, Brooks, Camden, Charlton,
Clinch, Colquitt, Cook, Decatur, Early, Echols, Glynn, Grady, Lanier,
Lowndes, Miller, Mitchell, Pierce, Seminole, Thomas, and Ware.
Louisiana Parishes
Avoyelles, Rapides, and Vernon.
Mississippi Counties
Amite, Forrest, Greene, Lamar, Marion, Perry, Pike, Walthall, and
Wilkinson.
Zone 11
Alabama Counties
Baldwin and Mobile (more than 20 miles from the Mobile city hall).
Florida Counties
Escambia, Okaloosa, Santa Rosa, and Walton.
Louisiana Parishes
Allen, Beauregard, East Feliciana, Evangeline, Pointe Coupee, St.
Helena, St. Landry, Tangipahoa (north of State Highway 16), Washington,
and West Feliciana.
Mississippi Counties
George, Pearl River, and Stone.
Zone 12
Alabama Counties
Mobile (within 20 miles of the Mobile city hall).
Louisiana Parishes:
Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton
Rouge, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette,
Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles,
St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany,
Tangipahoa (south of State Highway 16), Terrebonne, Vermilion, and West
Baton Rouge.
Mississippi Counties
Hancock, Harrison, and Jackson.
Sec. 1007.3 Route disposition.
Route disposition means a delivery to a retail or wholesale outlet
(except a plant), either directly or through any distribution facility
(including disposition from a plant store, vendor or vending machine)
of a fluid milk product classified as Class I milk. Packaged fluid milk
products that are transferred to a distributing plant from a plant with
route disposition in the marketing area and which are classified as
Class I under Sec. 1007.40(a) shall be considered as route disposition
from the transferor plant, rather than the transferee plant, for the
single purpose of qualifying it as a pool plant under Sec. 1007.7(a).
Sec. 1007.4 Plant.
Plant means the land, buildings, facilities, and equipment
constituting a single operating unit or establishment at which milk or
milk products, including filled milk, are received, processed, or
packaged. Separate facilities without stationary storage tanks that are
used only as a reload point for transferring bulk milk from one tank
truck to another or separate facilities used only as a distribution
point for storing packaged fluid milk products in transit for route
disposition shall not be a plant under this definition.
Sec. 1007.5 Distributing plant.
Distributing plant means a plant that is approved by a duly
constituted regulatory agency for the handling of Grade A milk and at
which fluid milk products are processed or packaged and from which
there is route disposition in the marketing area during the month.
Sec. 1007.6 Supply plant.
Supply plant means a plant that is approved by a duly constituted
regulatory agency for the handling of Grade A milk and from which fluid
milk products are transferred during the month to a pool distributing
plant.
Sec. 1007.7 Pool plant.
Pool plant means a plant specified in paragraphs (a), (b), or (c)
of this section, or a unit of plants as specified in paragraph (d) of
this section, but excluding a plant specified in paragraph (f) of this
section. The pooling standards described in paragraphs (a) through (c)
of this section are subject to modification pursuant to paragraph (e)
of this section:
(a) A distributing plant from which during the month:
(1) Total route disposition, except filled milk, is equal to 50
percent or more of the total quantity of Grade A fluid milk products,
except filled milk, physically received at such plant or diverted
therefrom pursuant to Sec. 1007.13; and
(2) Route disposition, except filled milk, in the marketing area is
at least the lesser of a daily average of 1,500 pounds or 10 percent of
the total quantity of fluid milk products, except filled milk,
physically received or diverted therefrom pursuant to Sec. 1007.13.
(b) A supply plant from which during each of the months of July
through November 60 percent (40 percent during each of the months of
December through June) of the total quantity of Grade A milk that is
received during the month from dairy farmers (including producer milk
diverted from the plant pursuant to Sec. 1007.13 but excluding milk
diverted to such plant) and handlers described in Sec. 1007.9(c) is
transferred to pool distributing plants.
(c) A plant located within the Southeast marketing area that is
operated by a cooperative association if pool plant status under this
paragraph is requested for such plant by the cooperative association
and during the month producer milk of members of such cooperative
association is delivered directly from farms to pool distributing
plants or is transferred to such plants as a fluid milk product from
the cooperative's plant. Such deliveries, in excess of receipts by
transfer from pool distributing plants, must equal not less than 60
percent of the total producer milk of such cooperative association in
each of the months of July through November, and 40 percent of such
milk in each of the months of December through June. The plant's pool
plant status shall be subject to the following conditions:
(1) The plant does not qualify as a pool plant under paragraphs (a)
or (b) of this section or under the provisions of another Federal order
applicable to a distributing plant or a supply plant; and
(2) The plant is approved by a duly constituted regulatory agency
to handle Grade A milk.
(d) Two or more plants operated by the same handler and that are
located within the Southeast marketing area may qualify for pool status
as a unit by meeting the total and in-area route disposition
requirements specified in paragraph (a) of this section and the
following additional requirements:
(1) At least one of the plants in the unit must qualify as a pool
plant pursuant to paragraph (a) of this section;
(2) Other plants in the unit must process only Class I or Class II
products and must be located in a pricing zone providing the same or a
lower Class I price than the price applicable at the distributing plant
included in the unit pursuant to paragraph (d)(1);
(3) A written request to form a unit, or to add or remove plants
from a unit, must be filed with the market administrator prior to the
first day of the month for which it is to be effective.
(e) The applicable percentages in paragraphs (a) through (c) of
this section may be increased or decreased up to 10 percentage points
by the market administrator if, following a written request for such a
revision, the market administrator finds that such revision is
necessary to assure orderly marketing and efficient handling of milk in
the marketing area. Before making such a finding, the market
administrator shall investigate the need for the revision by conducting
an investigation and conferring with the Director of the Dairy
Division. If the investigation shows that a revision might be
appropriate, the market administrator shall issue a notice stating that
the revision is being considered and inviting written data, views, and
arguments. Any decision to revise an applicable percentage must be
issued in writing seven days before the effective date.
(f) The term pool plant shall not apply to the following plants:
(1) A producer-handler plant;
(2) An exempt plant as defined in Sec. 1007.8(e);
(3) A plant qualified pursuant to paragraph (a) of this section
which is not located within the Southeast marketing area, meets the
pooling requirements of another Federal order, and has had greater
sales in such other Federal order marketing area for three consecutive
months, including the current month;
(4) A plant qualified pursuant to paragraph (a) of this section
which is located in another order's marketing area and which is
required to be regulated under such other order because of its location
within the other order's marketing area; and
(5) A plant qualified pursuant to paragraph (b) of this section
which also meets the pooling requirements of another Federal order and
from which greater qualifying shipments are made to plants regulated
under such other order than are made to plants regulated under this
part, or such plant has automatic pooling status under such other
order.
Sec. 1007.8 Nonpool plant.
Nonpool plant means any milk or filled milk receiving,
manufacturing, or processing plant other than a pool plant. The
following categories of nonpool plants are further defined as follows:
(a) Other order plant means a plant that is fully subject to the
pricing and pooling provisions of another order issued pursuant to the
Act.
(b) Producer-handler plant means a plant operated by a producer-
handler as defined in any order (including this part) issued pursuant
to the Act.
(c) Partially regulated distributing plant means a nonpool plant
that is not an other order plant, a producer-handler plant, or an
exempt plant, from which there is route disposition in consumer-type
packages or dispenser units in the marketing area during the month.
(d) Unregulated supply plant means a supply plant that does not
qualify as a pool supply plant and is not an other order plant, a
producer-handler plant, or an exempt plant.
(e) Exempt plant means a plant:
(1) Operated by a governmental agency from which fluid milk
products are distributed in the marketing area. Such plant shall be
exempt from all provisions of this part; or
(2) Which has monthly route disposition of 100,000 pounds or less
during the month. Such plant will be exempt from the pricing and
pooling provisions of this order, but the handler will be required to
file periodic reports as prescribed by the market administrator to
enable determination of the exempt status of such handler.
Sec. 1007.9 Handler.
Handler means:
(a) Any person who operates one or more pool plants;
(b) Any cooperative with respect to producer milk which it causes
to be diverted pursuant to Sec. 1007.13 for the account of such
cooperative association;
(c) Any cooperative association with respect to milk that it
receives for its account from the farm of a producer for delivery to a
pool plant of another handler in a tank truck owned and operated by, or
under the control of, such cooperative association, unless both the
cooperative association and the operator of the pool plant notify the
market administrator prior to the time that such milk is delivered to
the pool plant that the plant operator will be the handler of such milk
and will purchase such milk on the basis of weights determined from its
measurement at the farm and butterfat tests determined from farm bulk
tank samples. Milk for which the cooperative association is the handler
pursuant to this paragraph shall be deemed to have been received by the
cooperative association at the location of the pool plant to which such
milk is delivered;
(d) Any person who operates a partially regulated distributing
plant;
(e) A producer-handler;
(f) Any person who operates an other order plant described in
Sec. 1007.8(a);
(g) Any person who operates an unregulated supply plant; and
(h) Any person who operates an exempt plant.
Sec. 1007.10 Producer-handler.
Producer-handler means a person who:
(a) Operates a dairy farm and a distributing plant from which there
is monthly route disposition in excess of 100,000 pounds per month;
(b) Receives no Class I milk from sources other than his/her own
farm production and pool plants;
(c) Disposes of no other source milk as Class I milk; and
(d) Provides 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 (excluding receipts from
pool plants) and the operation of the processing and packaging business
are his/her personal enterprise and personal risk.
Sec. 1007.11 [Reserved]
Sec. 1007.12 Producer.
(a) Except as provided in paragraph (b) of this section, producer
means any person who produces milk approved by a duly constituted
regulatory agency for fluid consumption as Grade A milk and whose milk
is:
(1) Received at a pool plant directly from such producer;
(2) Received by a handler described in Sec. 1007.9(c); or
(3) Diverted from a pool plant in accordance with Sec. 1007.13.
(b) Producer shall not include:
(1) A producer-handler as defined in any order (including this
part) issued pursuant to the Act;
(2) Any person with respect to milk produced by such person whose
milk is delivered to an exempt plant, excluding producer milk diverted
to such exempt plant pursuant to Sec. 1007.13;
(3) Any person with respect to milk produced by such person which
is diverted to a pool plant from an other order plant if the other
order plant designates such person as a producer under that order and
such milk is allocated to Class II or Class III utilization pursuant to
Sec. 1007.44(a)(8)(iii) and the corresponding step of Sec. 1007.44(b);
or
(4) Any person with respect to milk produced by such person which
is reported as diverted to an other order plant if any portion of such
person's milk so moved is assigned to Class I under the provisions of
such other order.
Sec. 1007.13 Producer milk.
Producer milk means the skim milk and butterfat contained in milk
of a producer that is:
(a) Received at a pool plant directly from such producer by the
operator of the plant;
(b) Received by a handler described in Sec. 1007.9(c);
(c) Diverted from a pool plant to the pool plant of another
handler. Milk so diverted shall be deemed to have been received at the
location of the plant to which diverted; or
(d) Diverted by the operator of a pool plant or cooperative
association to a nonpool plant that is not a producer-handler plant,
subject to the following conditions:
(1) In any month of December through June, not less than four days'
production of the producer whose milk is diverted is physically
received at a pool plant during the month;
(2) In any month of July through November, not less than ten days'
production of the producer whose milk is diverted is physically
received at a pool plant during the month;
(3) The total quantity of milk so diverted during the month by a
cooperative association shall not exceed 33 percent during the months
of July through November, or 50 percent during the months of December
through June, of the producer milk that the cooperative association
caused to be delivered to, and physically received at, pool plants
during the month;
(4) The operator of a pool plant that is not a cooperative
association may divert any milk that is not under the control of a
cooperative association that diverts milk during the month pursuant to
paragraph (d) of this section. The total quantity of milk so diverted
during the month shall not exceed 33 percent during the months of July
through November, or 50 percent during the months of December through
June, of the producer milk physically received at such plant during the
month;
(5) Any milk diverted in excess of the limits prescribed in
paragraphs (d) (3) and (4) of this section shall not be producer milk.
The diverting handler shall designate the dairy farmer deliveries that
will not be producer milk pursuant to paragraphs (d) (3) and (4) of
this section. If the handler fails to make such designation, no milk
diverted by such handler shall be producer milk;
(6) To the extent that it would result in nonpool status for the
plant from which diverted, milk diverted for the account of a
cooperative association from the pool plant of another handler shall
not be producer milk;
(7) The cooperative association shall designate the dairy farm
deliveries that are not producer milk pursuant to paragraph (d)(6) of
this section. If the cooperative association fails to make such
designation, no milk diverted by it to a nonpool plant shall be
producer milk;
(8) Diverted milk shall be priced at the location of the plant to
which diverted; and
(9) The market administrator may increase or decrease the
applicable percentages in paragraphs (d) (3) and (4) of this section by
up to 10 percentage points, and may increase or decrease the 10-day and
4-day delivery requirements in paragraphs (d) (1) and (2) of this
section by 50 percent if, following a written request for such a
revision, the market administrator finds that such revision is
necessary to assure orderly marketing and efficient handling of milk in
the marketing area. Before making such a finding, the market
administrator shall investigate the need for the revision by conducting
an investigation and conferring with the Director of the Dairy
Division. If the investigation shows that a revision might be
appropriate, the market administrator shall issue a notice stating that
the revision is being considered and inviting written data, views, and
arguments. Any decision to revise an applicable percentage must be
issued in writing seven days before the effective date.
Sec. 1007.14 Other source milk.
Other source milk means all skim milk and butterfat contained in or
represented by:
(a) Receipts of fluid milk products and bulk products specified in
Sec. 1007.40(b)(1) from any source other than producers, a handler
described in Sec. 1007.9(c), or pool plants;
(b) Receipts in packaged form from other plants of products
specified in Sec. 1007.40(b)(1);
(c) Products (other than fluid milk products, products specified in
Sec. 1007.40(b)(1), and products produced at the plant during the same
month) from any source which are reprocessed, converted into, or
combined with another product in the plant during the month; and
(d) Receipts of any milk product (other than a fluid milk product
or a product specified in Sec. 1007.40(b)(1)) for which the handler
fails to establish a disposition.
Sec. 1007.15 Fluid milk product.
(a) Except as provided in paragraph (b) of this section, fluid milk
product means any milk products in fluid or frozen form containing less
than 9 percent butterfat, that are in bulk or are packaged, distributed
and intended to be used as beverages. Such products include, but are
not limited to: Milk, skim milk, lowfat milk, milk drinks, buttermilk,
and filled milk, including any such beverage products that are
flavored, cultured, modified with added nonfat milk solids, sterilized,
concentrated (to not more than 50 percent total milk solids), or
reconstituted.
(b) The term fluid milk product shall not include:
(1) Plain or sweetened evaporated milk, plain or sweetened
evaporated skim milk, sweetened condensed milk or skim milk, formulas
especially prepared for infant feeding or dietary use that are packaged
in hermetically sealed containers, any product that contains by weight
less than 6.5 percent nonfat milk solids, and whey; and
(2) The quantity of skim milk in any modified product specified in
paragraph (a) of this section that is in excess of the quantity of skim
milk in an equal volume of an unmodified product of the same nature and
butterfat content.
Sec. 1007.16 Fluid cream product.
Fluid cream product means cream (other than plastic cream or frozen
cream), including sterilized cream, or a mixture of cream and milk or
skim milk containing 9 percent or more butterfat, with or without the
addition of other ingredients.
Sec. 1007.17 Filled milk.
Filled milk means any combination of nonmilk fat (or oil) with skim
milk (whether fresh, cultured, reconstituted, or modified by the
addition of nonfat milk solids), with or without milkfat, so that the
product (including stabilizers, emulsifiers, or flavoring) resembles
milk or any other fluid milk product, and contains less than 6 percent
nonmilk fat (or oil).
Sec. 1007.18 Cooperative association.
Cooperative association means any cooperative marketing association
of producers which the Secretary determines after application by the
association:
(a) To be qualified under the provisions of the Act of Congress of
February 18, 1922, as amended, known as the ``Capper-Volstead Act;''
and
(b) To have full authority in the sale of milk of its members and
be engaged in making collective sales of, or marketing, milk or milk
products for its members.
Sec. 1007.19 Commercial food processing establishment.
Commercial food processing establishment means any facility, other
than a milk or filled milk plant, to which bulk fluid milk products and
bulk fluid cream products are disposed of, or producer milk is
diverted, that uses such receipts as ingredients in food products, and
has no disposition of fluid milk products or fluid cream products other
than those that it received in consumer type packages. Producer milk
diverted to commercial food processing establishments shall be subject
to the same provisions relating to diversions to plants, including, but
not limited to, provisions in Secs. 1007.13, 1007.41, and 1007.52.
Sec. 1007.20 Product prices.
The prices specified in this section, which are computed by the
Director of the Dairy Division, Agricultural Marketing Service, shall
be used, where specified, in calculating the basic formula prices
pursuant to Sec. 1007.51. The term ``workday'' as used in this section
shall mean each Monday through Friday that is not a national holiday.
(a) Butter price means the simple average, for the first 15 days of
the month, of the daily prices per pound of Grade A (92-score) butter
on the Chicago Mercantile Exchange, using the price reported each week
as the price for the day of the report, and for each following workday
until the next price is reported.
(b) Cheddar cheese price means the simple average, for the first 15
days of the month, of the daily prices per pound of cheddar cheese in
40-pound blocks. The prices used shall be those of the National Cheese
Exchange (Green Bay, WI), using the price reported each week as the
price for the day of the report and for each following workday until
the next price is reported.
(c) Nonfat dry milk price means the simple average of the prices
per pound of nonfat dry milk for the first 15 days of the month
computed as follows:
(1) The prices used shall be the prices (using the midpoint of any
price range as one price) of high heat, low heat, and Grade A nonfat
dry milk, respectively, for the Central States production area;
(2) For each week, determine the simple average of the prices
reported for the three types of nonfat dry milk. Such average shall be
the daily price for the day that such prices are reported and for each
preceding workday until the day such prices were previously reported;
and
(3) Add the prices determined in paragraph (c)(2) of this section
for the first 15 days of the month and divide by the number of days for
which there is a daily price.
(d) Edible whey price means the simple average, for the first 15
days of the month, of the daily prices per pound of edible whey powder
(nonhygroscopic). The prices used shall be the prices (using the
midpoint of any price range as one price) of edible whey powder for the
Central States production area. The average shall be computed using the
price reported each week as the daily price for that day and for each
preceding workday until the day such price was previously reported.
Handler Reports
Sec. 1007.30 Reports of receipts and utilization.
On or before the 5th day after the end of the month (if
postmarked), or not later than the 7th day if the report is delivered
in person to the office of the market administrator, each handler shall
report for such month to the market administrator, in the detail and on
forms prescribed by the market administrator, as follows:
(a) Each handler, with respect to each of its pool plants, shall
report the quantities of skim milk and butterfat contained in or
represented by:
(1) Receipts of producer milk, including producer milk diverted by
the handler from the pool plant to other plants;
(2) Receipts of milk from handlers described in Sec. 1007.9(c);
(3) Receipts of fluid milk products and bulk fluid cream products
from other pool plants;
(4) Receipts of other source milk;
(5) Inventories at the beginning and end of the month of fluid milk
products and products specified in Sec. 1007.40(b)(1); and
(6) The utilization or disposition of all milk, filled milk, and
milk products required to be reported pursuant to this paragraph.
(b) Each handler operating a partially regulated distributing plant
shall report with respect to such plant in the same manner as
prescribed for reports required by paragraph (a) of this section.
Receipts of milk that would have been producer milk if the plant had
been fully regulated shall be reported in lieu of producer milk. Such
report shall show also the quantity of any reconstituted skim milk in
route disposition in the marketing area.
(c) Each handler described in Sec. 1007.9 (b) and (c) shall report:
(1) The quantities of skim milk and butterfat contained in receipts
from producers; and
(2) The utilization or disposition of all such receipts.
(d) Each handler not specified in paragraphs (a) through (c) of
this section shall report with respect to its receipts and utilization
of milk, filled milk, and milk products in such manner as the market
administrator may prescribe.
Sec. 1007.31 Payroll reports.
(a) On or before the 20th day after the end of each month, each
handler described in Sec. 1007.9 (a), (b), and (c) shall report to the
market administrator its producer payroll for such month, in detail
prescribed by the market administrator, showing for each producer:
(1) Such producer's name and address;
(2) The total pounds of milk received from such producer, showing
separately the pounds of milk received from the producer on each
delivery day;
(3) The average butterfat content of such milk; and
(4) The price per hundredweight, the gross amount due, the amount
and nature of any deduction, and the net amount paid.
(b) Each handler operating a partially regulated distributing plant
who elects to make payment pursuant to Sec. 1007.76(b) shall report for
each dairy farmer who would have been a producer if the plant had been
fully regulated in the same manner as prescribed for reports required
by paragraph (a) of this section.
Sec. 1007.32 Other reports.
(a) Each handler described in Sec. 1007.9 (a), (b), and (c) shall
report to the market administrator on or before the 7th day after the
end of each month of February through May the aggregate quantity of
base milk received from producers during the month, and on or before
the 20th day after the end of each month of February through May the
pounds of base milk received from each producer during the month. In
the case of milk diverted to another plant, the handler shall also
report the pounds of base milk of each producer assigned to the
divertee plant.
(b) In addition to the reports required pursuant to paragraph (a)
of this section and Secs. 1007.30 and 1007.31, each handler shall
report such information as the market administrator deems necessary to
verify or establish each handler's obligation under the order.
Classification of Milk
Sec. 1007.40 Classes of utilization.
Except as provided in Sec. 1007.42, all skim milk and butterfat
required to be reported pursuant to Sec. 1007.30 shall be classified as
follows:
(a) Class I milk shall be all skim milk and butterfat:
(1) Disposed of in the form of a fluid milk product, except as
otherwise provided in paragraphs (b) and (c) of this section;
(2) In packaged fluid milk products in inventory at the end of the
month; and
(3) Not specifically accounted for as Class II or Class III milk.
(b) Class II milk shall be all skim milk and butterfat:
(1) Disposed in the form of a fluid cream product or any product
containing artificial fat, fat substitutes, or 6 percent or more
nonmilk fat (or oil) that resembles a fluid cream product, except as
otherwise provided in paragraph (c) of this section;
(2) In packaged inventory at the end of the month of the products
specified in paragraph (b)(1) of this section and in bulk concentrated
fluid milk products in inventory at the end of the month;
(3) In bulk fluid milk products and bulk fluid cream products
disposed of or diverted to a commercial food processing establishment
if the market administrator is permitted to audit the records of the
commercial food processing establishment for the purpose of
verification. Otherwise, such uses shall be Class I;
(4) Used to produce:
(i) Cottage cheese, lowfat cottage cheese, dry curd cottage cheese,
ricotta cheese, pot cheese, Creole cheese, and any similar soft, high-
moisture cheese resembling cottage cheese in form or use;
(ii) Milkshake and ice milk mixes (or bases), frozen desserts, and
frozen dessert mixes distributed in one-quart containers or larger and
intended to be used in soft or semi-solid form;
(iii) Aerated cream, frozen cream, sour cream, sour half-and-half,
sour cream mixtures containing nonmilk items, yogurt, and any other
semi-solid product resembling a Class II product;
(iv) Eggnog, custards, puddings, pancake mixes, buttermilk biscuit
mixes, coatings, batter, and similar products;
(v) Formulas especially prepared for infant feeding or dietary use
(meal replacement) that are packaged in hermetically sealed containers;
(vi) Candy, soup, bakery products and other prepared foods which
are processed for general distribution to the public, and intermediate
products, including sweetened condensed milk, to be used in processing
such prepared food products; and
(vii) Any product not otherwise specified in this section.
(c) Class III milk shall be all skim milk and butterfat:
(1) Used to produce:
(i) Cream cheese and other spreadable cheeses, and hard cheese of
types that may be shredded, grated, or crumbled, and are not included
in paragraph (b)(4)(i) of this section;
(ii) Butter, plastic cream, anhydrous milkfat, and butteroil;
(iii) Any milk product in dry form except nonfat dry milk;
(iv) Evaporated or sweetened condensed milk in a consumer-type
package and evaporated or sweetened condensed skim milk in a consumer-
type package; and
(2) In inventory at the end of the month of unconcentrated fluid
milk products in bulk form and products specified in paragraph (b)(1)
of this section in bulk form;
(3) In fluid milk products, products specified in paragraph (b)(1)
of this section, and products processed by the disposing handler that
are specified in paragraphs (b)(4) (i) through (iv) of this section,
that are disposed of by a handler for animal feed;
(4) In fluid milk products, products specified in paragraph (b)(1)
of this section, and products processed by the disposing handler that
are specified in paragraphs (b)(4) (i) through (iv) of this section,
that are dumped by a handler. The market administrator may require
notification by the handler of such dumping in advance for the purpose
of having the opportunity to verify such disposition. In any case,
classification under this paragraph requires a handler to maintain
adequate records of such use. If advance notification of such dumping
is not possible, or if the market administrator so requires, the
handler must notify the market administrator on the next business day
following such use;
(5) In fluid milk products and products specified in paragraph
(b)(1) of this section that are destroyed or lost by a handler in a
vehicular accident, flood, fire, or in a similar occurrence beyond the
handler's control, to the extent that the quantities destroyed or lost
can be verified from records satisfactory to the market administrator;
(6) In skim milk in any modified fluid milk product or in any
product specified in paragraph (b)(1) of this section that is in excess
of the quantity of skim milk in such product that was included within
the fluid milk product definition pursuant to Sec. 1007.15 and the
fluid cream product definition pursuant to Sec. 1007.16; and
(7) In shrinkage assigned pursuant to Sec. 1007.41(a) to the
receipts specified in Sec. 1007.41(a)(2) and in shrinkage specified in
Sec. 1007.41(b) and (c).
(d) Class III-A milk shall be all skim milk and butterfat used to
produce nonfat dry milk.
Sec. 1007.41 Shrinkage.
For the purposes of classifying all skim milk and butterfat to be
reported by a handler pursuant to Sec. 1007.30, the market
administrator shall determine the following:
(a) The pro rata assignment of shrinkage of skim milk and
butterfat, respectively, at each pool plant to the respective
quantities of skim milk and butterfat:
(1) In the receipts specified in paragraphs (b)(1) through (6) of
this section on which shrinkage is allowed pursuant to such paragraph;
and
(2) In other source milk not specified in paragraphs (b)(1) through
(6) of this section which was received in the form of a bulk fluid milk
product or a bulk fluid cream product;
(b) The shrinkage of skim milk and butterfat, respectively,
assigned pursuant to paragraph (a) of this section to the receipts
specified in paragraph (a)(1) of this section that is not in excess of:
(1) Two percent of the skim milk and butterfat, respectively, in
producer milk (excluding milk diverted by the plant operator to another
plant);
(2) Plus 1.5 percent of the skim milk and butterfat, respectively,
in milk received from a handler described in Sec. 1007.9(c), except
that if the operator of the plant to which the milk is delivered
purchased such milk on the basis of weights determined from its
measurement at the farm and butterfat tests determined from farm bulk
tank samples, the applicable percentage shall be 2 percent;
(3) Plus 0.5 percent of the skim milk and butterfat, respectively,
in producer milk diverted from such plant by the plant operator to
another plant, except that if the operator of the plant to which the
milk is delivered purchased such milk on the basis of weights
determined from its measurement at the farm and butterfat tests
determined from farm bulk tank samples, the applicable percentage shall
be zero;
(4) Plus 1.5 percent of the skim milk and butterfat, respectively,
in bulk fluid milk products received by transfer from other pool
plants;
(5) Plus 1.5 percent of the skim milk and butterfat, respectively,
in bulk fluid milk products received by transfer from other order
plants, excluding the quantity for which Class II or Class III
classification is requested by the handler; and
(6) Plus 1.5 percent of the skim milk and butterfat, respectively,
in bulk fluid milk products received by transfer from unregulated
supply plants, excluding the quantity for which Class II or Class III
classification is requested by the handler; and
(7) Less 1.5 percent of the skim milk and butterfat, respectively,
in bulk fluid milk products transferred to other plants that is not in
excess of the respective amount of skim milk and butterfat to which
percentages are applied in paragraphs (b) (1), (2), (4), (5), and (6)
of this section; and
(c) The quantity of skim milk and butterfat, respectively, in
shrinkage of milk from producers for which a cooperative association is
the handler pursuant to Sec. 1007.9 (b) or (c), but not in excess of
0.5 percent of the skim milk and butterfat, respectively, in such milk.
If the operator of the plant to which the milk is delivered purchases
such milk on the basis of weights determined from its measurement at
the farm and butterfat tests determined from farm bulk tank samples,
the applicable percentage under this paragraph for the cooperative
association shall be zero.
Sec. 1007.42 Classification of transfers and diversions.
(a) Transfers and diversions to pool plants. Skim milk or butterfat
transferred or diverted in the form of a fluid milk product or
transferred in the form of a bulk fluid cream product from a pool plant
to another pool plant shall be classified as Class I milk unless the
operators of both plants request the same classification in another
class. In either case, the classification shall be subject to the
following conditions:
(1) The skim milk or butterfat classified in each class shall be
limited to the amount of skim milk and butterfat, respectively,
remaining in such class at the transferee-plant after the computations
pursuant to Sec. 1007.44(a)(12) and the corresponding step of
Sec. 1007.44(b). The amount of skim milk or butterfat classified in
each class shall include the assigned utilization of skim milk or
butterfat in transfers of concentrated fluid milk products.
(2) If the transferor-plant received during the month other source
milk to be allocated pursuant to Sec. 1007.44(a)(7) or the
corresponding step of Sec. 1007.44(b), the skim milk or butterfat so
transferred shall be classified so as to allocate the least possible
Class I utilization to such other source milk; and
(3) If the transferor-plant received during the month other source
milk to be allocated pursuant to Sec. 1007.44(a) (11) or (12) or the
corresponding steps of Sec. 1007.44(b), the skim milk or butterfat so
transferred, up to the total of the skim milk and butterfat,
respectively, in such receipts of other source milk, shall not be
classified as Class I milk to a greater extent than would be the case
if the other source milk had been received at the transferee-plant.
(b) Transfers and diversions to other order plants. Skim milk or
butterfat transferred or diverted in the form of a fluid milk product
or transferred in the form of a bulk fluid cream product from a pool
plant to an other order plant shall be classified in the following
manner. Such classification shall apply only to the skim milk or
butterfat that is in excess of any receipts at the pool plant from the
other plant of skim milk and butterfat, respectively, in fluid milk
products and bulk fluid cream products, respectively, that are in the
same category as described in paragraph (b) (1), (2), or (3) of this
section.
(1) If transferred as packaged fluid milk products, classification
shall be in the classes to which allocated as a fluid milk product
under the other order;
(2) If transferred in bulk form, classification shall be in the
classes to which allocated under the other order (including allocation
under the conditions set forth in paragraph (b)(3) of this section);
(3) If the operators of both plants so request in their reports of
receipts and utilization filed with their respective market
administrators, transfers or diversions in bulk form shall be
classified as Class II or Class III milk to the extent of such
utilization available for such classification pursuant to the
allocation provisions of the other order;
(4) If information concerning the classes to which such transfers
or diversions were allocated under the other order is not available to
the market administrator for the purpose of establishing classification
under this paragraph, classification shall be Class I subject to
adjustment when such information is available;
(5) For purposes of this paragraph, if the other order provides for
a different number of classes of utilization than is provided for under
this part, skim milk or butterfat allocated to the class consisting
primarily of fluid milk products shall be classified as Class I milk,
and skim milk or butterfat allocated to the other classes shall be
classified as Class III milk; and
(6) If the form in which any fluid milk product that is transferred
to an other order plant is not defined as a fluid milk product under
such other order, classification shall be in accordance with the
provisions of Sec. 1007.40.
(c) Transfers and diversions to producer-handlers and to exempt
plants. Skim milk or butterfat that is transferred or diverted from a
pool plant to a producer-handler under another Federal order or to an
exempt plant shall be classified:
(1) As Class I milk if transferred or diverted to a producer-
handler;
(2) As Class I milk if transferred to an exempt plant in the form
of a packaged fluid milk product;
(3) In accordance with the utilization assigned to it by the market
administrator if transferred or diverted in the form of a bulk fluid
milk product or a bulk fluid cream product to an exempt plant. For this
purpose, the transferee's utilization of skim milk and butterfat in
each class, in series beginning with Class III, shall be assigned to
the extent possible to its receipts of skim milk and butterfat,
respectively, in bulk fluid cream products, pro rata to each source.
(d) Transfers and diversions to other nonpool plants. Skim milk or
butterfat transferred or diverted in the following forms from a pool
plant to a nonpool plant that is not an other order plant, a producer-
handler plant, or an exempt plant shall be classified:
(1) As Class I milk, if transferred in the form of a packaged fluid
milk product; and
(2) As Class I milk, if transferred or diverted in the form of a
bulk fluid milk product or transferred in the form of a bulk fluid
cream product, unless the following conditions apply:
(i) If the conditions described in paragraphs (d)(2)(i) (A) and (B)
of this section are met, transfers or diversions in bulk form shall be
classified on the basis of the assignment of the nonpool plant's
utilization to its receipts as set forth in paragraphs (d)(2) (ii)
through (viii) of this section:
(A) The transferor-handler or divertor-handler claims such
classification in such handler's report of receipts and utilization
filed pursuant Sec. 1007.30 for the month within which such transaction
occurred; and
(B) The nonpool plant operator maintains books and records showing
the utilization of all skim milk and butterfat received at such plant
which are made available for verification purposes if requested by the
market administrator;
(ii) Route disposition in the marketing area of each Federal order
from the nonpool plant and transfers of packaged fluid milk products
from such nonpool plant to plants fully regulated thereunder shall be
assigned to the extent possible in the following sequence:
(A) Pro rata to receipts of packaged fluid milk products at such
nonpool plants from pool plants;
(B) Pro rata to any remaining unassigned receipts of packaged fluid
milk products at such nonpool plants from other order plants;
(C) Pro rata to receipts of bulk fluid milk products at such
nonpool plant from pool plants; and
(D) Pro rata to any remaining unassigned receipts of bulk fluid
milk products at such nonpool plant from other order plants;
(iii) Any remaining Class I disposition of packaged fluid milk
products from the nonpool plant shall be assigned to the extent
possible pro rata to any remaining unassigned receipts of packaged
fluid milk products at such nonpool plant from pool plants and other
order plants;
(iv) Transfers of bulk fluid milk products from the nonpool plant
to a plant regulated under any Federal milk order, to the extent that
such transfers to the regulated plant exceed receipts of fluid milk
products from such plant and are allocated to Class I at the
transferee-plant, shall be classified to the extent possible in the
following sequence:
(A) Pro rata to receipts of fluid milk products at such nonpool
plant from pool plants; and
(B) Pro rata to any remaining unassigned receipts of fluid milk
products at such nonpool plant from other order plants;
(v) Any remaining unassigned Class I disposition from the nonpool
plant shall be assigned to the extent possible in the following
sequence:
(A) To such nonpool plant's receipts from dairy farmers who the
market administrator determines constitute regular sources of Grade A
milk for such nonpool plant; and
(B) To such nonpool plant's receipts of Grade A milk from plants
not fully regulated under any Federal milk order which the market
administrator determines constitute regular sources of Grade A milk for
such nonpool plant;
(vi) Any remaining unassigned receipts of bulk fluid milk products
at the nonpool plant from pool plants and other order plants shall be
assigned, pro rata among such plants, to the extent possible first to
any remaining Class I utilization, then to Class II utilization, and
then to Class III utilization at such nonpool plant;
(vii) Receipts of bulk fluid cream products at the nonpool plant
from pool plants and other order plants shall be assigned, pro rata
among such plants, to the extent possible first to any remaining Class
II utilization, then to any remaining Class III utilization, and then
to Class I utilization at such nonpool plant; and
(viii) In determining the nonpool plant's utilization for purposes
of this paragraph, any fluid milk products and bulk fluid cream
products transferred from such nonpool plant to a plant not fully
regulated under any Federal milk order shall be classified on the basis
of the second plant's utilization using the same assignment priorities
at the second plant that are set forth in this paragraph.
(e) Transfers by a handler described in Sec. 1007.9(c) to pool
plants. Skim milk and butterfat transferred in the form of bulk milk by
a handler described in Sec. 1007.9(c) to another handler's pool plant
shall be classified pursuant to Sec. 1007.44 pro rata with producer
milk received at the transferee-handler's plant.
Sec. 1007.43 General classification rules.
In determining the classification of producer milk pursuant to
Sec. 1007.44, the following rules shall apply:
(a) Each month the market administrator shall correct for
mathematical and other obvious errors all reports filed pursuant to
Sec. 1007.30 and shall compute separately for each pool plant, and for
each cooperative association with respect to milk for which it is the
handler pursuant to Sec. 1007.9 (b) or (c) that was not received at a
pool plant, the pounds of skim milk and butterfat, respectively, in
each class in accordance with Secs. 1007.40, 1007.41, and 1007.42. The
combined pounds of skim milk and butterfat so determined in each class
for a handler described in Sec. 1007.9 (b) or (c) shall be such
handler's classification of producer milk;
(b) If any of the water contained in the milk from which a product
is made is removed before the product is utilized or disposed of by the
handler, the pounds of skim milk in such product that are to be
considered under this part as used or disposed of by the handler shall
be an amount equivalent to the nonfat milk solids contained in such
product plus all of the water originally associated with such solids;
(c) The classification of producer milk for which a cooperative
association is the handler pursuant to Sec. 1007.9 (b) or (c) shall be
determined separately from the operations of any pool plant operated by
such cooperative association;
(d) Skim milk and butterfat contained in receipts of bulk
concentrated fluid milk and nonfluid milk products that are
reconstituted for fluid use shall be assigned to Class I use, up to the
reconstituted portion of labeled reconstituted fluid milk products, on
a pro rata basis (except for any Class I use of specific concentrated
receipts that is established by the handler) prior to any assignment
under Sec. 1007.44. Any remaining skim milk and butterfat in
concentrated receipts shall be assigned to uses under Sec. 1007.44 on a
pro rata basis, unless a specific use of such receipts is established
by the handler; and
(e) Class III-A milk shall be allocated in combination with Class
III milk and the quantity of producer milk eligible to be priced in
Class III-A shall be determined by prorating receipts from pool sources
to Class III-A use on the basis of the quantity of total receipts of
bulk fluid milk products allocated to Class III use at the plant.
Sec. 1007.44 Classification of producer milk.
For each month the market administrator shall determine for each
handler described in Sec. 1007.9(a) for each pool plant of the handler
separately the classification of producer milk and milk received from a
handler described in Sec. 1007.9(c), by allocating the handler's
receipts of skim milk and butterfat to the utilization of such receipts
by such handler as follows:
(a) Skim milk shall be allocated in the following manner:
(1) Subtract from the total pounds of skim milk in Class III the
pounds of skim milk in shrinkage specified in Sec. 1007.41(b);
(2) Subtract from the total pounds of skim milk in Class I the
pounds of skim milk in:
(i) Receipts of packaged fluid milk products from an unregulated
supply plant to the extent that an equivalent amount of skim milk
disposed of to such plant by handlers fully regulated under any Federal
milk order is classified and priced as Class I milk and is not used as
an offset for any other payment obligation under any order;
(ii) Packaged fluid milk products in inventory at the beginning of
the month. This paragraph shall apply only if the pool plant was
subject to the provisions of this paragraph or comparable provisions of
another Federal milk order in the immediately preceding month;
(3) Subtract from the pounds of skim milk remaining in each class
the pounds of skim milk in fluid milk products received in packaged
form from another order plant, except that to be subtracted pursuant to
paragraph (a)(7)(vi) of this section, as follows:
(i) From Class III milk, the lesser of the pounds remaining or 2
percent of such receipts; and
(ii) From Class I milk, the remainder of such receipts;
(4) Subtract from the pounds of skim milk in Class II the pounds of
skim milk in products specified in Sec. 1007.40(b)(1) that were
received in packaged form from other plants, but not in excess of the
pounds of skim milk remaining in Class II;
(5) Subtract from the remaining pounds of skim milk in Class II the
pounds of skim milk in products specified in Sec. 1007.40(b)(1) in
packaged form and in bulk concentrated fluid milk products that were in
inventory at the beginning of the month, but not in excess of the
pounds of skim milk remaining in Class II. This paragraph shall apply
only if the pool plant was subject to the provisions of this paragraph
or comparable provisions of another Federal milk order in the
immediately preceding month;
(6) Subtract from the remaining pounds of skim milk in Class II the
pounds of skim milk in bulk concentrated fluid milk products and in
other source milk (except other source milk received in the form of an
unconcentrated fluid milk product or a fluid cream product) that is
used to produce, or added to, any product specified in Sec. 1007.40(b)
(excluding the quantity of such skim milk that was classified as Class
III milk pursuant to Sec. 1007.40(c)(6)), but not in excess of the
pounds of skim milk remaining in Class II;
(7) Subtract in the order specified below from the pounds of skim
milk remaining in each class, in series beginning with Class III, the
pounds of skim milk in each of the following:
(i) Bulk concentrated fluid milk products and other source milk
(except other source milk received in the form of an unconcentrated
fluid milk product) and, if paragraph (a)(5) of this section applies,
packaged inventory at the beginning of the month of products specified
in Sec. 1007.40(b)(1) that were not subtracted pursuant to paragraphs
(a)(4), (a)(5), and (a)(6) of this section;
(ii) Receipts of fluid milk products (except filled milk) for which
Grade A certification is not established;
(iii) Receipts of fluid milk products from unidentified sources;
(iv) Receipts of fluid milk products from a producer-handler as
defined under any Federal milk order and from an exempt distributing
plant;
(v) Receipts of reconstituted skim milk in filled milk from an
unregulated supply plant that were not subtracted pursuant to paragraph
(a)(2)(i) of this section; and
(vi) Receipts of reconstituted skim milk in filled milk from an
other order plant that is fully regulated under any Federal milk order
providing for individual-handler pooling, to the extent that
reconstituted skim milk is allocated to Class I at the transferor-
plant;
(8) Subtract in the order specified below from the pounds of skim
milk remaining in Class II and Class III, in sequence beginning with
Class III:
(i) The pounds of skim milk in receipts of fluid milk products from
an unregulated supply plant that were not subtracted pursuant to
paragraphs (a)(2)(i) and (7)(v) of this section for which the handler
requests a classification other than Class I, but not in excess of the
pounds of skim milk remaining in Class II and Class III combined;
(ii) The pounds of skim milk in receipts of fluid milk products
from an unregulated supply plant that were not subtracted pursuant to
paragraphs (a)(2)(i), (7)(v), and (8)(i) of this section which are in
excess of the pounds of skim milk determined pursuant to paragraphs
(a)(8)(ii)(A) through (C) of this section. Should the pounds of skim
milk to be subtracted from Class II and Class III combined exceed the
pounds of skim milk remaining in such classes, the pounds of skim milk
in Class II and Class III combined shall be increased (increasing as
necessary Class III and then Class II to the extent of available
utilization in such classes at the nearest other pool plant of the
handler, and then at each successively more distant pool plant of the
handler) by an amount equal to such excess quantity to be subtracted,
and the pounds of skim milk in Class I shall be decreased a like
amount. In such case, the pounds of skim milk remaining in each class
at this allocation step at the handler's other pool plants shall be
adjusted in the reverse direction by a like amount;
(A) Multiply by 1.25 the sum of the pounds of skim milk remaining
in Class I at this allocation step at all pool plants of the handler
(excluding any duplication of Class I utilization resulting from
reported Class I transfers between pool plants of the handler);
(B) Subtract from the above result the sum of the pounds of skim
milk in receipts at all pool plants of the handler of producer milk,
milk from a handler described in Sec. 1007.9(c), fluid milk products
from pool plants of other handlers, and bulk fluid milk products from
other order plants that were not subtracted pursuant to paragraph
(a)(7)(vi) of this section; and
(C) Multiply any plus quantity resulting above by the percentage
that the receipts of skim milk in fluid milk products from unregulated
supply plants that remain at this pool plant is of all such receipts
remaining at this allocation step at all pool plants of the handler;
and
(iii) The pounds of skim milk in receipts of bulk fluid milk
products from an other order plant that are in excess of bulk fluid
milk products transferred or diverted to such plant and that were not
subtracted pursuant to paragraph (a)(7)(vi) of this section, if Class
II or Class III classification is requested by the operator of the
other order plant and the handler, but not in excess of the pounds of
skim milk remaining in Class II and Class III combined;
(9) Subtract from the pounds of skim milk remaining in each class,
in series beginning with Class III, the pounds of skim milk in fluid
milk products and products specified in Sec. 1007.40(b)(1) in inventory
at the beginning of the month that were not subtracted pursuant to
paragraphs (a)(2)(ii), (a)(5), and (a)(7)(i) of this section;
(10) Add to the remaining pounds of skim milk in Class III the
pounds of skim milk subtracted pursuant to paragraph (a)(1) of this
section;
(11) Subject to the provisions of paragraphs (a)(11)(i) and (ii) of
this section, subtract from the pounds of skim milk remaining in each
class at the plant, pro rata to the total pounds of skim milk remaining
in Class I and in Class II and Class III combined at this allocation
step at all pool plants of the handler (excluding any duplication of
utilization in each class resulting from transfers between pool plants
of the handler), with the quantity prorated to Class II and Class III
combined being subtracted first from Class III and then from Class II,
the pounds of skim milk in receipts of fluid milk products from an
unregulated supply plant that were not subtracted pursuant to
paragraphs (a)(2)(i), (a)(7)(v), (a)(8)(i), and (a)(8) (1) and (ii) of
this section and that were not offset by transfers or diversions of
fluid milk products to the same unregulated supply plant from which
fluid milk products to be allocated at this step were received:
(i) Should the pounds of skim milk to be subtracted from Class II
and Class III combined pursuant to paragraph (a)(11) of this section
exceed the pounds of skim milk remaining in such classes, the pounds of
skim milk in Class II and Class III combined shall be increased
(increasing as necessary Class III and then Class II to the extent of
available utilization in such classes at the nearest other pool plant
of the handler, and then at each successively more distant pool plant
of the handler) by an amount equal to such excess quantity to be
subtracted, and the pounds of skim milk in Class I shall be decreased a
like amount. In such case, the pounds of skim milk remaining in each
class at this allocation step at the handler's other pool plants shall
be adjusted in the reverse direction by a like amount; and
(ii) Should the pounds of skim milk to be subtracted from Class I
pursuant to paragraph (a)(11) of this section exceed the pounds of skim
milk remaining in such class, the pounds of skim milk in Class I shall
be increased by an amount equal to such excess quantity to be
subtracted, and the pounds of skim milk in Class II and Class III
combined shall be decreased by a like amount (decreasing as necessary
Class III then Class II). In such case, the pounds of skim milk
remaining in each class at this allocation step at the handler's other
pool plants shall be adjusted in the reverse direction by a like
amount, beginning with the nearest plant at which Class I utilization
is available;
(12) Subtract in the manner specified below from the pounds of skim
milk remaining in each class the pounds of skim milk in receipts of
bulk fluid milk products from an other order plant that are in excess
of bulk fluid milk products transferred or diverted to such plant that
were not subtracted pursuant to paragraphs (a)(7)(vi) and (8)(iii) of
this section:
(i) Subject to the provisions of paragraphs (a)(12)(ii), (iii) and
(iv) of this section, such subtraction shall be pro rata to the pounds
of skim milk in Class I and in Class II and Class III combined, with
the quantity prorated to Class II and Class III combined being
subtracted first from Class III and then from Class II, with respect to
whichever of the following quantities represents the lower proportion
of Class I milk:
(A) The estimated utilization of skim milk of all handlers in each
class as announced for the month pursuant to Sec. 1007.45(a); or
(B) The total pounds of skim milk remaining in each class at this
allocation step at all pool plants of the handler (excluding any
duplication of utilization in each class resulting from transfers
between pool plants of the handler);
(ii) Should the proration pursuant to paragraph (a)(12)(i) of this
section result in the total pounds of skim milk at all pool plants of
the handler that are to be subtracted at this allocation step from
Class II and Class III combined exceeding the pounds of skim milk
remaining in Class II and Class III at all such plants, the pounds of
such excess shall be subtracted from the pounds remaining in Class I
after such proration at the pool plants at which such other source milk
was received;
(iii) Except as provided in paragraph (a)(12)(ii) of this section,
should the computations pursuant to paragraph (a)(12)(i) or (ii) of
this section result in a quantity of skim milk to be subtracted from
Class II and Class III combined that exceeds the pounds of skim milk
remaining in such classes, the pounds of skim milk in Class II and
Class III combined shall be increased (increasing as necessary Class
III and then Class II to the extent of available utilization in such
classes at the nearest other pool plant of the handler, and then at
each successively more distant pool plant of the handler) by an amount
equal to such excess quantity to be subtracted, and the pounds of skim
milk in Class I shall be decreased by a like amount. In such case, the
pounds of skim milk remaining in each class at this allocation step at
the handler's other pool plants shall be adjusted in the reverse
direction by a like amount; and
(iv) Except as provided in paragraph (a)(12)(ii) of this section,
should the computations pursuant to paragraph (a)(12)(i) or (ii) of
this section result in a quantity of skim milk to be subtracted from
Class I that exceeds the pounds of skim milk remaining in such class,
the pounds of skim milk in Class I shall be increased by an amount
equal to such excess quantity to be subtracted, and the pounds of skim
milk in Class II and Class III combined shall be decreased by a like
amount (decreasing as necessary Class III and then Class II). In such
case the pounds of skim milk remaining in each class at this allocation
step at the handler's other pool plants shall be adjusted in the
reverse direction by a like amount beginning with the nearest plant at
which Class I utilization is available;
(13) Subtract from the pounds of skim milk remaining in each class
the pounds of skim milk in receipts of fluid milk products and bulk
fluid cream products from another pool plant according to the
classification of such products pursuant to Sec. 1007.42(a); and
(14) If the total pounds of skim milk remaining in all classes
exceed the pounds of skim milk in producer milk and milk received from
a handler described in Sec. 1007.9(c), subtract such excess from the
pounds of skim milk remaining in each class in series beginning with
Class III. Any amount so subtracted shall be known as ``overage'';
(b) Butterfat shall be allocated in accordance with the procedure
outlined for skim milk in paragraph (a) of this section; and
(c) The quantity of producer milk and milk received from a handler
described in Sec. 1007.9(c) in each class shall be the combined pounds
of skim milk and butterfat remaining in each class after the
computations pursuant to paragraph (a)(14) of this section and the
corresponding step of paragraph (b) of this section.
Sec. 1007.45 Market administrator's reports and announcements
concerning classification.
The market administrator shall make the following reports and
announcements concerning classification:
(a) Whenever required for the purpose of allocating receipts from
other order plants pursuant to Sec. 1007.44(a)(12) and the
corresponding step of Sec. 1007.44(b), estimate and publicly announce
the utilization (to the nearest whole percentage) in each class during
the month of skim milk and butterfat, respectively, in producer milk of
all handlers. Such estimate shall be based upon the most current
available data and shall be final for such purpose.
(b) Report to the market administrator of the other order, as soon
as possible after the report of receipts and utilization for the month
is received from a handler who has received fluid milk products or bulk
fluid cream products from an other order plant, the class to which such
receipts are allocated pursuant to Secs. 1007.43(d) and 1007.44 on the
basis of such report (including any reclassification of inventories of
bulk concentrated fluid milk products), and thereafter, any change in
such allocation required to correct errors disclosed in the
verification of such report.
(c) Furnish each handler operating a pool plant who has shipped
fluid milk products or bulk fluid cream products to an other order
plant the class to which such shipments were allocated by the market
administrator of the other order on the basis of the report by the
receiving handler, and, as necessary, any changes in such allocation
arising from the verification of such report.
(d) On or before the 12th day after the end of each month, report
to each cooperative association which so requests, the percentage of
producer milk delivered by members of such association that was used in
each class by each handler receiving such milk. For the purpose of this
report the milk so received shall be prorated to each class in
accordance with the total utilization of producer milk by such handler.
Class Prices
Sec. 1007.50 Class prices.
Subject to the provisions of Sec. 1007.52, the class prices for the
month per hundredweight of milk containing 3.5% butterfat shall be as
follows:
(a) The Class I price shall be the basic formula price for the
second preceding month plus $3.08.
(b) The Class II price shall be computed by the Director of the
Dairy Division and transmitted to the market administrator on or before
the 15th day of the preceding month. The Class II price shall be the
basic Class II formula price computed pursuant to Sec. 1007.51(b) for
the month plus the amount that the value computed pursuant to paragraph
(b)(1) of this section exceeds the value computed pursuant to paragraph
(b)(2) of this section, plus any amount by which the basic Class II
formula price for the second preceding month, adjusted pursuant to
paragraphs (b)(1) and (b)(2) of this section, was less than the Class
III price for the second preceding month.
(1) Determine for the most recent 12-month period the simple
average (rounded to the nearest cent) of the basic formula prices
computed pursuant to Sec. 1007.51 and add 10 cents; and
(2) Determine for the same 12-month period as specified in
paragraph (b)(1) of this section the simple average (rounded to the
nearest cent) of the basic Class II formula prices computed pursuant to
Sec. 1007.51(b).
(c) The Class III price shall be the basic formula price for the
month.
(d) The Class III-A price for the month shall be the average
Central States nonfat dry milk price for the month, as reported by the
Department, less 12.5 cents, times an amount computed by subtracting
from 9 an amount calculated by dividing 0.4 by such nonfat dry milk
price, plus the butterfat differential value per hundredweight of 3.5
percent milk and rounded to the nearest cent, and subject to the
adjustments set forth in paragraph (c) of this section for the
applicable month.
Sec. 1007.51 Basic formula prices.
(a) The basic formula price shall be the average price per
hundredweight for manufacturing grade milk, f.o.b. plants in Minnesota
and Wisconsin, as reported by the Department for the month, adjusted to
a 3.5 percent butterfat basis and rounded to the nearest cent using the
butterfat differential computed pursuant to Sec. 1007.74.
(b) The basic Class II formula price for the month shall be the
basic formula price determined pursuant to Sec. 1007.51(a) for the
second preceding month plus or minus the amount computed pursuant to
paragraphs (b) (1) through (4) of this section:
(1) The gross values per hundredweight of milk used to manufacture
cheddar cheese and butter-nonfat dry milk shall be computed, using
price data determined pursuant to Sec. 1007.19 and yield factors in
effect under the Dairy Price Support Program authorized by the
Agricultural Act of 1949, as amended, for the first 15 days of the
preceding month and, separately, for the first 15 days of the second
preceding month as follows:
(i) The gross value of milk used to manufacture cheddar cheese
shall be the sum of the following computations:
(A) Multiply the cheddar cheese price by the yield factor used
under the Price Support Program for cheddar cheese;
(B) Multiply the butter price by the yield factor used under the
Price Support Program for determining the butterfat component of the
whey value in the cheese price computation; and
(C) Subtract from the edible whey price the processing cost used
under the Price Support Program for edible whey and multiply any
positive difference by the yield factor used under the Price Support
Program for edible whey.
(ii) The gross value of milk used to manufacture butter-nonfat dry
milk shall be the sum of the following computations:
(A) Multiply the butter price by the yield factor used under the
Price Support Program for butter; and
(B) Multiply the nonfat dry milk price by the yield factor used
under the Price Support Program for nonfat dry milk.
(2) Determine the amounts by which the gross value per
hundredweight of milk used to manufacture cheddar cheese and the gross
value per hundredweight of milk used to manufacture butter-nonfat dry
milk for the first 15 days of the preceding month exceed or are less
than the respective gross values for the first 15 days of the second
preceding month.
(3) Compute weighting factors to be applied to the changes in gross
values determined pursuant to paragraph (b)(2) of this section by
determining the relative proportion that the data included in each of
the following paragraphs is of the total of the data represented in
paragraphs (b)(3) (i) and (ii) of this section:
(i) Combine the total American cheese production for the States of
Minnesota and Wisconsin, as reported by the Statistical Reporting
Service of the Department for the most recent preceding period, and
divide by the yield factor used under the Price Support Program for
cheddar cheese to determine the quantity of milk used in the production
of American cheddar cheese; and
(ii) Combine the total nonfat dry milk production for the States of
Minnesota and Wisconsin, as reported by the Statistical Reporting
Service of the Department for the most recent preceding period, and
divide by the yield factor used under the Price Support Program for
nonfat dry milk to determine the quantity of milk used in the
production of butter-nonfat dry milk.
(4) Compute a weighted average of the changes in gross values per
hundredweight of milk determined pursuant to paragraph (b)(2) of this
section in accordance with the relative proportions of milk determined
pursuant to paragraph (b)(3) of this section.
Sec. 1007.52 Plant location adjustments for handlers.
(a) For milk received at a plant from producers or a handler
described in Sec. 1007.9(c) and which is classified as Class I milk
without movement in bulk form to a pool distributing plant at which a
higher Class I price applies, the price specified in Sec. 1007.50(a)
shall be adjusted by the amount stated in paragraphs (a) (1) through
(6) of this section for the location of such plant:
(1) For a plant located within one of the zones set forth in
Sec. 1007.2, the adjustment (cents per hundredweight) shall be as
follows:
Zone 1............................................ Minus 53.
Zone 2............................................ Minus 48.
Zone 3............................................ Minus 31.
Zone 4............................................ Minus 25.
Zone 5............................................ Minus 10.
Zone 6............................................ No adjustment.
Zone 7............................................ Plus 10.
Zone 8............................................ Plus 20.
Zone 9............................................ Plus 30.
Zone 10........................................... Plus 40.
Zone 11........................................... Plus 50.
Zone 12........................................... Plus 60.
(2) For a plant located in that portion of the Tennessee Valley
marketing area that is within the State of Georgia, the adjustment
shall be minus 25 cents.
(3) For a plant located in the Missouri counties of Dunklin or
Pemiscot, the adjustment shall be minus 53 cents.
(4) For a plant located in the Texas counties of Bowie or Cass, the
adjustment shall be zero.
(5) For a plant located within another Federal order marketing
area, other than in those counties specified in paragraphs (a) (2),
(3), and (4) of this section, the adjustment shall be determined by
subtracting the Class I differential price in Zone 6 of this order from
the Class I differential price, adjusted for the plant's location,
under such other Federal order.
(6) For a plant located outside the areas described in paragraphs
(a) (1) through (5) of this section, the adjustment shall be computed
by multiplying 2.5 cents per 10 miles, or fraction thereof (by the
shortest hard-surfaced highway distance as determined by the market
administrator), from the nearer of Shreveport, Louisiana; Little Rock,
Arkansas; Memphis, Tennessee; Jackson, Tennessee; Nashville, Tennessee;
or Atlanta, Georgia, and subtracting that figure from the location
adjustment applicable at Shreveport, Little Rock, Memphis, Jackson,
Nashville, or Atlanta, as the case may be.
(b) For fluid milk products transferred in bulk form from a pool
plant to a pool distributing plant at which a higher Class I price
applies and which are classified as Class I milk, the Class I price
shall be the Class I price at the transferee-plant subject to a
location adjustment credit for the transferor-plant which shall be
determined by the market administrator for skim milk and butterfat,
respectively, as follows:
(1) Subtract from the pounds of skim milk remaining in Class I at
the transferee-plant after the computations pursuant to
Sec. 1007.44(a)(12) plus the pounds of skim milk in receipts of
concentrated fluid milk products from other pool plants that are
assigned to Class I use, an amount equal to:
(i) The pounds of skim milk in receipts of milk at the transferee-
plant from producers and handlers described in Sec. 1007.9(c); and
(ii) The pounds of skim milk in receipts of packaged fluid milk
products from other pool plants;
(2) Assign any remaining pounds of skim milk in Class I at the
transferee-plant to the skim milk in receipts of fluid milk products
from other pool plants, first to the transferor-plants at which the
highest Class I price applies and then to other plants in sequence
beginning with the plant at which the next highest Class I price
applies;
(3) Compute the total amount of location adjustment credits to be
assigned to transferor-plants by multiplying the hundredweight of skim
milk assigned pursuant to paragraph (b)(2) of this section to each
transferor-plant at which the Class I price is lower than the Class I
price applicable at the transferor-plant and the transferee-plant, and
add the resulting amounts;
(4) Assign the total amount of location adjustment credits computed
pursuant to paragraph (b)(3) of this section to those transferor-plants
that transferred fluid milk products containing skim milk classified as
Class I milk pursuant to Sec. 1007.42(a) and at which the applicable
Class I price is less than the Class I price at the transferee-plant,
in sequence beginning with the plant at which the highest Class I price
applies. Subject to the availability of such credits, the credit
assigned to each plant shall be equal to the hundredweight of such
Class I skim milk multiplied by the adjustment rate determined pursuant
to paragraph (b)(3) of this section for such plant. If the aggregate of
this computation for all plants having the same adjustment as
determined pursuant to paragraph (b)(3) of this section exceeds the
credits that are available to those plants, such credits shall be
prorated to the volume of skim milk in Class I in transfers from such
plants; and
(5) Location adjustment credit for butterfat shall be determined in
accordance with the procedure outlined for skim milk in paragraphs
(b)(1) through (4) of this section.
(c) The market administrator shall determine and publicly announce
the zone location of each plant of each handler. The market
administrator shall notify the handler on or before the first day of
any month in which a change in a plant location zone will apply.
(d) The Class I price applicable to other source milk shall be
adjusted at the rates set forth in paragraph (a) of this section,
except that the adjusted Class I price shall not be less than the Class
III price.
Sec. 1007.53 Announcement of class prices.
The market administrator shall announce publicly on or before the
fifth day of each month the Class I price for the following month, the
Class III and Class III-A prices for the preceding month, and on or
before the 15th day of each month the Class II price for the following
month computed pursuant to Sec. 1007.50(b).
Sec. 1007.54 Equivalent price.
If for any reason a price or pricing constituent required by this
part for computing class prices or for other purposes is not available
as prescribed in this part, the market administrator shall use a price
or pricing constituent determined by the Secretary to be equivalent to
the price or pricing constituent that is required.
Uniform Prices
Sec. 1007.60 Handler's value of milk for computing the uniform price.
For the purpose of computing the uniform price, the market
administrator shall determine for each month the value of milk of each
handler with respect to each of the handler's pool plants and of each
handler described in Sec. 1007.9(b) and (c) with respect to milk that
was not received at a pool plant as follows:
(a) Multiply the pounds of producer milk and milk received from a
handler described in Sec. 1007.9(c) that were classified in each class
pursuant to Secs. 1007.43(a) and 1007.44(c) by the applicable class
prices, and add the resulting amounts;
(b) Add the amounts obtained from multiplying the pounds of overage
subtracted from each class pursuant to Sec. 1007.44(a)(14) and the
corresponding step of Sec. 1007.44(b) by the respective class prices,
as adjusted by the butterfat differential specified in Sec. 1007.74,
that are applicable at the location of the pool plant;
(c) Add the amount obtained from multiplying the difference between
the Class III price for the preceding month and the Class I price
applicable at the location of the pool plant or the Class II price, as
the case may be, for the current month by the hundredweight of skim
milk and butterfat subtracted from Class I and Class II pursuant to
Sec. 1007.44(a)(9) and the corresponding step of Sec. 1007.44(b);
(d) Add the amount obtained from multiplying the difference between
the Class I price applicable at the location of the pool plant and the
Class III price by the hundredweight of skim milk and butterfat
assigned to Class I pursuant to Sec. 1007.43(d) and the hundredweight
of skim milk and butterfat subtracted from Class I pursuant to
Sec. 1007.44(a)(7)(i) through (iv) and the corresponding step of
Sec. 1007.44(b), excluding receipts of bulk fluid cream products from
an other order plant and bulk concentrated fluid milk products from
pool plants, other order plants, and unregulated supply plants;
(e) Add the amount obtained from multiplying the difference between
the Class I price applicable at the location of the transferor-plant
and the Class III price by the hundredweight of skim milk and butterfat
subtracted from Class I pursuant to Sec. 1007.44(a)(7)(v) and (vi) and
the corresponding step of Sec. 1007.44(b);
(f) Add the amount obtained from multiplying the Class I price
applicable at the location of the nearest unregulated supply plants
from which an equivalent volume was received by the pounds of skim milk
and butterfat in receipts of concentrated fluid milk products assigned
to Class I pursuant to Sec. 1007.43(d) and Sec. 1007.44(a)(7)(i) and
the pounds of skim milk and butterfat subtracted from Class I pursuant
to Sec. 1007.44(a)(11) and the corresponding step of Sec. 1007.44(b),
excluding such skim milk and butterfat in receipts of fluid milk
products from an unregulated supply plant to the extent that an
equivalent amount of skim milk or butterfat disposed of to such plant
by handlers fully regulated under any Federal milk order is classified
and priced as Class I milk and is not used as an offset for any other
payment obligation under any order;
(g) Subtract, for reconstituted milk made from receipts of nonfluid
milk products, an amount computed by multiplying $1.00 (but not more
than the difference between the Class I price applicable at the
location of the pool plant and the Class III price) by the
hundredweight of skim milk and butterfat contained in receipts of
nonfluid milk products that are allocated to Class I use pursuant to
Sec. 1007.43(d);
(h) Exclude, for pricing purposes under this section, receipts of
nonfluid milk products that are distributed as labeled reconstituted
milk for which payments are made to the producer-settlement fund of
another order under Sec. 1007.76(a)(5) or (c); and
(i) For pool plants that transfer bulk concentrated fluid milk
products to other pool plants and other order plants, add or subtract
the amount per hundredweight of any class price change from the
previous month that results from any inventory reclassification of bulk
concentrated fluid milk products that occurs at the transferee plant.
Any such applicable class price change shall be applied to the plant
that used the concentrated milk in the event that the concentrated
fluid milk products were made from bulk unconcentrated fluid milk
products received at the plant during the prior month.
Sec. 1007.61 Computation of uniform price (including weighted average
price and uniform prices for base and excess milk).
(a) The market administrator shall compute the weighted average
price for each month and the uniform price for each month of June
through January per hundredweight of milk of 3.5 percent butterfat
content as follows:
(1) Combine into one total the values computed pursuant to
Sec. 1007.60 for all handlers who filed the reports prescribed in
Sec. 1007.30 for the month and who made payments pursuant to
Sec. 1007.71 for the preceding month;
(2) Add not less than one-half the unobligated balance in the
producer-settlement fund;
(3) Add an amount equal to the total value of the minus adjustments
and subtract an amount equal to the total value of the plus adjustments
computed pursuant to Sec. 1007.75;
(4) Divide the resulting amount by the sum of the following for all
handlers included in these computations;
(i) The total hundredweight of producer milk; and
(ii) The total hundredweight for which a value is computed pursuant
to Sec. 1007.60(f); and
(5) Subtract not less than 4 cents nor more than 5 cents per
hundredweight. The resulting figure, rounded to the nearest cent, shall
be the weighted average price for each month and the uniform price for
the months of June through January.
(b) For each month of February through May, the market
administrator shall compute the uniform prices per hundredweight for
base milk and for excess milk, each of 3.5 percent butterfat content,
as follows:
(1) Compute the total value of excess milk for all handlers
included in the computations pursuant to paragraph (a)(1) of this
section as follows:
(i) Multiply the hundredweight quantity of excess milk that does
not exceed the total quantity of such handlers' producer milk assigned
to Class III-A by the Class III-A price:
(ii) Multiply the remaining hundredweight quantity of excess milk
that does not exceed the total quantity of such handlers' producer milk
assigned to Class III by the Class III price:
(iii) Multiply the remaining hundredweight quantity of excess milk
that does not exceed the total quantity of such handlers' producer milk
assigned to Class II by the Class II price:
(iv) Multiply the remaining hundredweight quantity of excess milk
by the Class I price; and
(v) Add together the resulting amounts;
(2) Divide the total value of excess milk obtained in paragraph
(b)(1) of this section by the total hundredweight of such milk and
adjust to the nearest cent. The resulting figure shall be the uniform
price for excess milk;
(3) From the amount resulting from the computations pursuant to
paragraphs (a)(1) through (a)(3) of this section subtract an amount
computed by multiplying the hundredweight of milk specified in
paragraph (a)(4)(ii) of this section by the weighted average price;
(4) Subtract the total value of excess milk determined by
multiplying the uniform price obtained in paragraph (b)(2) of this
section times the hundredweight of excess milk from the amount computed
pursuant to paragraph (b)(3) of this section;
(5) Divide the amount calculated pursuant to paragraph (b)(4) of
this section by the total hundredweight of base milk included in these
computations; and
(6) Subtract not less than 4 cents nor more than 5 cents from the
price computed pursuant to paragraph (b)(5) of this section. The
resulting figure, rounded to the nearest cent, shall be the uniform
price for base milk.
Sec. 1007.62 Announcement of uniform price and butterfat differential.
The market administrator shall announce publicly on or before:
(a) The fifth day after the end of each month the butterfat
differential for such month; and
(b) The 11th day after the end of the month the applicable uniform
price(s) pursuant to Sec. 1007.61 for such month.
Payments for Milk
Sec. 1007.70 Producer-settlement fund.
The market administrator shall establish and maintain a separate
fund known as the producer-settlement fund into which the market
administrator shall deposit all payments made by handlers pursuant to
Secs. 1007.71, 1007.76, and 1007.77, and out of which the market
administrator shall make all payments pursuant to Secs. 1007.72 and
1007.77. Payments due any handler shall be offset by any payments due
from such handler.
Sec. 1007.71 Payments to the producer-settlement fund.
(a) On or before the 12th day after the end of the month, each
handler shall pay to the market administrator the amount, if any, by
which the amount specified in paragraph (a)(1) of this section exceeds
the amount specified in paragraph (a)(2) of this section:
(1) The total value of milk of the handler for such month as
determined pursuant to Sec. 1007.60.
(2) The sum of:
(i) The value at the uniform price(s) as adjusted pursuant to
Sec. 1007.75, of such handler's receipts of producer milk and milk
received from handlers pursuant to Sec. 1007.9(c); and
(ii) The value at the weighted average price applicable at the
location of the plant from which received of other source milk for
which a value is computed pursuant to Sec. 1007.60(f).
(b) On or before the 25th day after the end of the month each
person who operated an other order plant that was regulated during such
month under an order providing for individual-handler pooling shall pay
to the market administrator an amount computed as follows:
(1) Determine the quantity of reconstituted skim milk in filled
milk in route disposition from such plant in the marketing area which
was allocated to Class I at such plant. If there is route disposition
from such plant in marketing areas regulated by two or more marketwide
pool orders, the reconstituted skim milk allocated to Class I shall be
prorated to each order according to such route disposition in each
marketing area; and
(2) Compute the value of the reconstituted skim milk assigned in
paragraph (b)(1) of this section to route disposition in this marketing
area by the difference between the Class I price under this part
applicable at the location of the other order plant (but not to be less
than the Class III price) and the Class III price.
Sec. 1007.72 Payments from the producer-settlement fund.
On or before the 13th day after the end of each month, the market
administrator shall pay to each handler the amount, if any, by which
the amount computed pursuant to Sec. 1007.71(a)(2) exceeds the amount
computed pursuant to Sec. 1007.71(a)(1). If, at such time, the balance
in the producer-settlement fund is insufficient to make all payments
pursuant to this section, the market administrator shall reduce
uniformly such payments and shall complete such payments as soon as the
funds are available.
Sec. 1007.73 Payments to producers and to cooperative associations.
(a) Each handler shall pay each producer for producer milk for
which payment is not made to a cooperative association pursuant to
paragraph (b) of this section, as follows:
(1) On or before the 26th day of each month, for milk received
during the first 15 days of the month from such producer who has not
discontinued delivery of milk to such handler before the 23rd day of
the month at not less than the Class III price for the preceding month
or 90 percent of the weighted average price for the preceding month,
whichever is higher, less proper deductions authorized in writing by
the producer. If the producer had discontinued shipping milk to such
handler before the 25th day of any month, or if the producer had no
established base upon which to receive payments during the base paying
months of February through May, the applicable rate for making payments
to such producer shall be the Class III price for the preceding month;
and
(2) On or before the 15th day of the following month, an amount
equal to not less than the uniform price(s), as adjusted pursuant to
Secs. 1007.74 and 1007.75, multiplied by the hundredweight of milk or
base milk and excess milk received from such producer during the month,
subject to the following adjustments:
(i) Less payments made to such producer pursuant to paragraph
(a)(1) of this section;
(ii) Less deductions for marketing services made pursuant to
Sec. 1007.86;
(iii) Plus or minus adjustments for errors made in previous
payments made to such producers; and
(iv) Less proper deductions authorized in writing by such producer.
(3) If a handler has not received full payment from the market
administrator pursuant to Sec. 1007.72 by the 15th day of such month,
such handler may reduce payments pursuant to this paragraph to
producers on a pro rata basis but not by more than the amount of the
underpayment. Such payments shall be completed thereafter not later
than the date for making payments pursuant to this paragraph next
following after receipt of the balance due from the market
administrator.
(b) On or before the day prior to the dates specified in paragraph
(a) (1) and (2) of this section, each handler shall make payment to the
cooperative association for milk from producers who market their milk
through the cooperative association and who have authorized the
cooperative to collect such payments on their behalf an amount equal to
the sum of the individual payments otherwise payable for such producer
milk pursuant to paragraph (a) (1) and (2) of this section.
(c) If a handler has not received full payment from the market
administrator pursuant to Sec. 1007.72 by the 15th day of such month,
such handler may reduce payments pursuant to paragraph (b) of this
section to such cooperative association on a pro rata basis, prorating
such underpayment to the volume of milk received from such cooperative
association in proportion to the total milk received from producers by
the handler, but not by more than the amount of the underpayment. Such
payments shall be completed in the following manner:
(1) If the handler receives full payment from the market
administrator by the 15th day of the month, the handler shall make
payment to the cooperative association of the full value of the
underpayment on the 15th day of the month;
(2) If the handler has not received full payment from the market
administrator by the 15th day of the month, the handler shall make
payment to the cooperative association of the full value of the
underpayment on or before the date for making such payments pursuant to
this paragraph next following after receipt of the balance due from the
market administrator.
(d) Each handler pursuant to Sec. 1007.9(a) who receives milk from
a cooperative association as a handler pursuant to Sec. 1007.9(c),
including the milk of producers who are not members of such
association, and who the market administrator determines have
authorized such cooperative association to collect payment for their
milk, shall pay such cooperative for such milk as follows:
(1) On or before the 25th day of the month for milk received during
the first 15 days of the month, not less than the Class III price for
the preceding month or 90 percent of the weighted average price for the
preceding month, whichever is higher; and
(2) On or before the 14th day of the following month, not less than
the appropriate uniform price(s) as adjusted pursuant to Secs. 1007.74
and 1007.75, and less any payments made pursuant to paragraph (d)(1) of
this section.
(e) If a handler has not received full payment from the market
administrator pursuant to Sec. 1007.72 by the 14th day of such month,
such handler may reduce payments pursuant to paragraph (d) of this
section to such cooperative association and complete such payments for
milk received from such cooperative association in its capacity as a
handler pursuant to Sec. 1007.9(c), in the manner prescribed in
paragraph (c) (1) and (2) of this section.
(f) In making payments to producers pursuant to this section, each
handler shall furnish each producer, except a producer whose milk was
received from a handler described in Sec. 1007.9(c), a supporting
statement in such form that it may be retained by the recipient which
shall show:
(1) The month and identity of the producer;
(2) The daily and total pounds and the average butterfat content of
producer milk;
(3) For the months of February through May the total pounds of base
milk received from such producer;
(4) The minimum rate(s) at which payment to the producer is
required pursuant to this order;
(5) The rate(s) used in making the payment if such rate(s) is (are)
other than the applicable minimum rate(s);
(6) The amount, or rate per hundredweight, and nature of each
deduction claimed by the handler; and
(7) The net amount of payment to such producer or cooperative
association.
Sec. 1007.74 Butterfat differential.
For milk containing more or less than 3.5 percent butterfat, the
uniform price(s) shall be increased or decreased, respectively, for
each one-tenth percent butterfat variation from 3.5 percent by a
butterfat differential, rounded to the nearest one-tenth cent, which
shall be 0.138 times the butter price less 0.0028 times the average
price per hundredweight, at test, for manufacturing grade milk, f.o.b.
plants in Minnesota and Wisconsin, as reported by the Department for
the month. The butter price means the simple average for the month of
the daily prices per pound of Grade A (92-score) butter. The prices
used shall be those of the Chicago Mercantile Exchange as reported and
published weekly by the Dairy Division, Agricultural Marketing Service.
The average shall be computed by the Director of the Dairy Division,
using the price reported each week as the daily price for that day and
for each following day until the next price is reported.
Sec. 1007.75 Plant location adjustments for producers and on nonpool
milk.
(a) The uniform price and the uniform price for base milk shall be
adjusted according to the location of the plant at which the milk was
physically received at the rates set forth in Sec. 1007.52(a); and
(b) The weighted average price applicable to other source milk
shall be adjusted at the rates set forth in section Sec. 1007.52(a)
applicable at the location of the nonpool plant from which the milk was
received, except that the adjusted weighted average price shall not be
less than the Class III price.
Sec. 1007.76 Payments by a handler operating a partially regulated
distributing plant.
Each handler who operates a partially regulated distributing plant
shall pay on or before the 25th day after the end of the month to the
market administrator for the producer-settlement fund the amount
computed pursuant to paragraph (a) of this section. If the handler
submits pursuant to Secs. 1007.30(b) and 1007.31(b) the information
necessary for making the computations, such handler may elect to pay in
lieu of such payment the amount computed pursuant to paragraph (b) of
this section:
(a) The payment under this paragraph shall be an amount resulting
from the following computations:
(1) Determine the pounds of route disposition in the marketing area
from the partially regulated distributing plant;
(2) Subtract the pounds of fluid milk products received at the
partially regulated distributing plant:
(i) As Class I milk from pool plants and other order plants, except
that subtracted under a similar provision of another Federal milk
order; and
(ii) From another nonpool plant that is not an other order plant to
the extent that an equivalent amount of fluid milk products disposed of
to such nonpool plant by handlers fully regulated under any Federal
milk order is classified and priced as Class I milk and is not used as
an offset for any payment obligation under any order;
(3) Subtract the pounds of reconstituted milk that are made from
nonfluid milk products and which are then disposed of as route
disposition in the marketing area from the partially regulated
distributing plant;
(4) Multiply the remaining pounds by the difference between the
Class I price and the weighted average price, both prices to be
applicable at the location of the partially regulated distributing
plant (except that the Class I price and weighted average price shall
not be less than the Class III price); and
(5) Add the amount obtained from multiplying the pounds of labeled
reconstituted milk included in paragraph (a)(3) of this section by the
difference between the Class I price applicable at the location of the
partially regulated distributing plant less $1.00 (but not to be less
than the Class III price) and the Class III price. For any
reconstituted milk that is not so labeled, the Class I price shall not
be reduced by $1.00. Alternatively, for such disposition, payments may
be made to the producer-settlement fund of the order regulating the
producer milk used to produce the nonfluid milk ingredients at the
difference between the Class I price applicable under the other order
at the location of the plant where the nonfluid milk ingredients were
processed (but not to be less than the Class III price) and the Class
III price. This payment option shall apply only if a majority of the
total milk received at the plant that processed the nonfluid milk
ingredients is regulated under one or more Federal orders and payment
may only be made to the producer-settlement fund of the order pricing a
plurality of the milk used to produce the nonfluid milk ingredients.
This payment option shall not apply if the source of the nonfluid
ingredients used in reconstituted fluid milk products cannot be
determined by the market administrator.
(b) The payment under this paragraph shall be the amount resulting
from the following computations:
(1) Determine the value that would have been computed pursuant to
Sec. 1007.60 for the partially regulated distributing plant if the
plant had been a pool plant, subject to the following modifications:
(i) Fluid milk products and bulk fluid cream products received at
the partially regulated distributing plant from a pool plant or an
other order plant shall be allocated at the partially regulated
distributing plant to the same class in which such products were
classified at the fully regulated plant;
(ii) Fluid milk products and bulk fluid cream products transferred
from the partially regulated distributing plant to a pool plant or an
other order plant shall be classified at the partially regulated
distributing plant in the class to which allocated at the fully
regulated plant. Such transfers shall be computed to the extent
possible to those receipts at the partially regulated distributing
plant from pool plants and other order plants that are classified in
the corresponding class pursuant to paragraph (b)(1)(i) of this
section. Any such transfers remaining after the above allocation which
are in Class I and for which a value is computed for the handler
operating the partially regulated distributing plant pursuant to
Sec. 1007.60 shall be priced at the uniform price (or at the weighted
average price if such is provided) of the respective order regulating
the handling of milk at the transferee plant, with such uniform price
adjusted to the location of the nonpool plant (but not to be less than
the lowest class price of the respective order), except that transfers
of reconstituted skim milk in filled milk shall be priced at the lowest
price class of the respective order; and
(iii) If the operator of the partially regulated distributing plant
so requests, the value of milk determined pursuant to Sec. 1007.60 for
such handler shall include, in lieu of the value of other source milk
specified in Sec. 1007.60(f) less the value of such other source milk
specified in Sec. 1007.71(a)(2)(ii), a value of milk determined
pursuant to Sec. 1007.60 for each nonpool plant that is not an other
order plant which serves as a supply plant for such partially regulated
distributing plant by making shipments to the partially regulated
distributing plant during the month equivalent to the requirements of
Sec. 1007.7(b), subject to the following conditions:
(A) The operator of the partially regulated distributing plant
submits with its reports filed pursuant to Secs. 1007.30(b) and
1007.31(b) similar reports for each such nonpool supply plant;
(B) The operator of such nonpool plant maintains books and records
showing the utilization of all skim milk and butterfat received at such
plant which are made available if requested by the market administrator
for verification purposes; and
(C) The value of milk determined pursuant to Sec. 1007.60 for such
nonpool supply plant shall be determined in the same manner prescribed
for computing the obligation of such partially regulated distributing
plant; and
(2) From the partially regulated distributing plant's value of milk
computed pursuant to paragraph (b)(1) of this section, subtract:
(i) The gross payments by the operator of the partially regulated
distributing plant, adjusted to a 3.5 percent butterfat basis by the
butterfat differential specified in Sec. 1007.74, for milk received at
the plant during the month that would have been producer milk had the
plant been fully regulated;
(ii) If paragraph (b)(1)(iii) of this section applies, the gross
payments by the operator of such nonpool supply plant, adjusted to a
3.5 percent butterfat basis by the butterfat differential specified in
Sec. 1007.74, for milk received at the plant during the month that
would have been producer milk if the plant had been fully regulated;
and
(iii) The payments by the operator of the partially regulated
distributing plant to the producer-settlement fund of another order
under which such plant is also a partially regulated distributing plant
and like payments by the operator of the nonpool supply plant if
paragraph (b)(1)(iii) of this section applies.
(c) Any handler may elect partially regulated distributing plant
status for any plant with respect to receipts of nonfluid milk
ingredients assigned to Class I use under Sec. 1007.43(d). Payments may
be made to the producer-settlement fund of the order regulating the
producer milk used to produce the nonfluid milk ingredients at the
difference between the Class I price applicable under the other order
at the location of the plant where the nonfluid milk ingredients were
processed (but not less than the Class III price) and the Class III
price. This payment option shall apply only if a majority of the total
milk received at the plant that processed the nonfluid milk ingredients
is regulated under one or more Federal orders and payment may only be
made to the producer-settlement fund of the order pricing a plurality
of the milk used to produce the nonfluid milk ingredients. This payment
option shall not apply if the source of the nonfluid ingredients used
in reconstituted fluid milk products cannot be determined by the market
administrator.
Sec. 1007.77 Adjustment of accounts.
Whenever audit by the market administrator of any handler's
reports, books, records, or accounts, or other verification discloses
errors resulting in money due the market administrator from a handler,
or due a handler from the market administrator, or due a producer or
cooperative association from a handler, the market administrator shall
promptly notify such handler of any amount so due and payment thereof
shall be made on or before the next date for making payments as set
forth in the provisions under which the error(s) occurred.
Sec. 1007.78 Charges on overdue accounts.
Any unpaid obligation due the market administrator from a handler
pursuant to Secs. 1007.71, 1007.76, 1007.77, 1007.78, 1007.85, and
1007.86 shall be increased 1.5 percent each month beginning with the
day following the date such obligation was due under the order. Any
remaining amount due shall be increased at the same rate on the
corresponding day of each month until paid. The amounts payable
pursuant to this section shall be computed monthly on each unpaid
obligation and shall include any unpaid charges previously made
pursuant to this section. The late charges shall be added to the
respective accounts to which due. For the purpose of this section, any
obligation that was determined at a date later than prescribed by the
order because of a handler's failure to submit a report to the market
administrator when due shall be considered to have been payable by the
date it would have been due if the report had been filed when due.
Administrative Assessment and Marketing Service Deduction
Sec. 1007.85 Assessment for order administration.
As each handler's pro rata share of the expense of administration
of the order, each handler shall pay to the market administrator on or
before the 15th day after the end of the month 5 cents per
hundredweight or such lesser amount as the Secretary may prescribe with
respect to:
(a) Receipts of producer milk (including such handler's own
production) other than such receipts by a handler described in
Sec. 1007.9(c) that were delivered to pool plants of other handlers;
(b) Receipts from a handler described in Sec. 1007.9(c);
(c) Receipts of concentrated fluid milk products from unregulated
supply plants and receipts of nonfluid milk products assigned to Class
I use pursuant to Sec. 1007.43(d) and other source milk allocated to
Class I pursuant to Sec. 1007.44(a)(7) and (11) and the corresponding
steps of Sec. 1007.44(b), except such other source milk that is
excluded from the computations pursuant to Sec. 1007.60(d) and (f); and
(d) Route disposition in the marketing area from a partially
regulated distributing plant that exceeds the skim milk and butterfat
subtracted pursuant to Sec. 1007.76(a)(2).
Sec. 1007.86 Deduction for marketing services.
(a) Except as provided in paragraph (b) of this section each
handler, in making payments to producers for milk (other than milk of
such handler's own production) pursuant to Sec. 1007.73, shall deduct 7
cents per hundredweight or such lesser amount as the Secretary may
prescribe and shall pay such deductions to the market administrator not
later than the 15th day after the month. Such money shall be used by
the market administrator to verify or establish weights, samples and
tests of producer milk and provide market information for producers who
are not receiving such services from a cooperative association. Such
services shall be performed in whole or in part by the market
administrator or an agent engaged by and responsible to the market
administrator;
(b) In the case of producers for whom a cooperative association
that the Secretary has determined is actually performing the services
set forth in paragraph (a) of this section, each handler shall make, in
lieu of the deduction specified in paragraph (a) of this section, such
deductions from the payments to be made to such producers as may be
authorized by the membership agreement or marketing contract between
such cooperative association and such producers, and on or before the
15th day after the end of the month, pay such deductions to the
cooperative association rendering such services accompanied by a
statement showing the amount of any such deductions and the amount of
milk for which such deduction was computed for each producer.
Base-Excess Plan
Sec. 1007.90 Base milk.
Base milk means the producer milk of a producer in each month of
February through May that is not in excess of the producer's base
multiplied by the number of days in the month.
Sec. 1007.91 Excess milk.
Excess milk means the producer milk of a producer in each month of
February through May in excess of the producer's base milk for the
month, and shall include all the producer milk in such months of a
producer who has no base.
Sec. 1007.92 Computation of base for each producer.
(a) Subject to Sec. 1007.93, the base for each producer shall be an
amount obtained by dividing the total pounds of producer milk delivered
by such producer during the immediately preceding months of September
through November by the number of days represented by such producer
milk or 77, whichever is more. If a producer operated more than one
farm at the same time, a separate computation of base shall be made for
each such farm.
(b) Any producer who, during the immediately preceding months of
September through November, delivered milk to a nonpool plant that
became a pool plant after the beginning of such base-forming period
shall be assigned a base calculated as if the plant were a pool plant
during such entire base-forming period. A base thus assigned shall not
be transferable.
Sec. 1007.93 Base rules.
(a) Except as provided in Sec. 1007.92(b) and paragraph (b) of this
section, a base may be transferred in its entirety or in amounts of not
less than 300 pounds effective on the first day of the month following
the date on which such application is received by the market
administrator. Base may be transferred only to a person who is or will
be a producer by the end of the month that the transfer is to be
effective. A base transfer to be effective on February 1 for the month
of February must be received on or before February 15. Such application
shall be on a form approved by the market administrator and signed by
the baseholder or the legal representative of the baseholder's estate.
If a base is held jointly, the application shall be signed by all joint
holders or the legal representative of the estate of any deceased
baseholder.
(b) A producer who transferred base on or after February 1 may not
receive by transfer additional base that would be applicable during
February through May of the same year. A producer who received base by
transfer on or after February 1 may not transfer a portion of the base
to be applicable during February through May of the same year, but may
transfer the entire base.
(c) The base established by a partnership may be divided between
the partners on any basis agreed to in writing by them if written
notification of the agreed upon division of base by each partner is
received by the market administrator prior to the first day of the
month in which such division is to be effective.
(d) Two or more producers in a partnership may combine their
separately established bases by giving notice to the market
administrator prior to the first day of the month in which such
combination of bases is to be effective.
(e) The base assigned a person who was a producer during the
immediately preceding months of September through November may be
increased to such producer's average daily producer milk deliveries in
the month immediately preceding the month during which a condition
described in paragraph (e)(1), (2), or (3) of this section occurred,
providing such producer submitted to the market administrator in
writing on or before February 1 a statement that established to the
satisfaction of the market administrator that in the immediately
preceding September through November base-forming period the amount of
milk produced on such producer's farm was substantially reduced because
of conditions beyond the control of such person, which resulted from:
(1) The loss by fire, windstorm, or other natural disaster of a
farm building used in the production of milk on the producer's farm;
(2) Brucellosis, bovine tuberculosis or other infectious diseases
in the producer's milking herd as certified by a licensed veterinarian;
or
(3) A quarantine by a Federal or State authority that prevents the
dairy farmer from supplying milk from the farm of such producer to a
plant.
Sec. 1007.94 Announcement of established bases.
On or before February 1 of each year, the market administrator
shall calculate a base for each person who was a producer during any of
the preceding months of September through November and shall notify
each producer and the handler receiving milk from such dairy farmer of
the base established by the producer. If requested by a cooperative
association, the market administrator shall notify the cooperative
association of each producer-member's base.
Dated: November 21, 1994.
Lon Hatamiya,
Administrator.
[FR Doc. 94-29067 Filed 11-28-94; 8:45 am]
BILLING CODE 3410-02-P
