95-11311. Milk in the Georgia and Certain Other Marketing Areas; Decision on Proposed Amendments to Marketing Agreements and to Orders  

  • [Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
    [Proposed Rules]
    [Pages 25014-25071]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-11311]
    
    
    
    
    [[Page 25013]]
    
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    Part III
    
    
    
    
    
    Department of Agriculture
    
    
    
    
    
    _______________________________________________________________________
    
    
    
    Agricultural Marketing Service
    
    
    
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    7 CFR Part 1007
    
    
    
    Milk in the Georgia and Certain Other Marketing Areas; Decision on 
    Proposed Amendments to Marketing Agreements and to Orders; Proposed 
    Rule
    
    Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / 
    Proposed Rules 
    [[Page 25014]] 
    
    DEPARTMENT OF AGRICULTURE
    
    Agricultural Marketing Service
    
    7 CFR Part 1007
    
    [Docket Nos. AO-366-A36, et al.; DA-93-21]
    
    
    Milk in the Georgia and Certain Other Marketing Areas; Decision 
    on Proposed Amendments to Marketing Agreements and to Orders
    
    ------------------------------------------------------------------------
             7 CFR part                 Marketing area          Docket No.  
    ------------------------------------------------------------------------
    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
    ------------------------------------------------------------------------
    
    AGENCY: Agricultural Marketing Service, USDA.
    
    ACTION: Proposed rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: This decision combines 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.
    
    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 rule will not have a 
    significant economic impact on a substantial number of small entities. 
    The amendments will promote orderly marketing of milk by producers and 
    regulated handlers.
        The proposed amendments have been reviewed under Executive Order 
    12778, Civil Justice Reform. They are not intended to have a 
    retroactive effect. If adopted, the proposed rule will 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).
        Recommended Decision: Issued November 21, 1994; published November 
    29, 1994 (59 FR 61070).
        Extension of Time for Filing Exceptions: Issued December 27, 1994; 
    published January 3, 1995 (60 FR 65).
    
    Preliminary Statement
    
        A public hearing was held to consider proposed amendments to the 
    marketing agreements and the orders regulating the handling of milk in 
    the aforesaid marketing areas. The hearing was held pursuant to the 
    provisions of the Agricultural Marketing Agreement Act of 1937, as 
    amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR 
    Part 900), in Atlanta, Georgia, on November 1-5, 1993. Notice of such 
    hearing was issued on September 3, 1993, and published September 10, 
    1993 (58 FR 47653) and a supplemental notice of hearing was issued 
    October 13, 1993, and published October 15, 1993 (58 FR 53436).
        Upon the basis of the evidence introduced at the hearing and the 
    record thereof, the Administrator, on November 21, 1994, issued a 
    recommended decision containing notice of the opportunity to file 
    written exceptions thereto.
        The material issues, findings and conclusions, rulings, and general 
    findings of the recommended decision are hereby approved and adopted 
    and are set forth in full herein, subject to the modifications 
    contained in this final decision. Certain sections of this final 
    decision differ from the recommended decision only by discussing 
    comments that were received, correcting obvious typographical errors, 
    or adding footnotes to reflect new information, such as a cooperative 
    merger. These sections include marketing area, unit pooling, producer, 
    producer-handler, balancing plants, and seasonal adjustment to Class 
    III and III-A prices. Other sections have been revised substantially 
    and/or contain actual changes in order provisions. Sections which fall 
    into this category include producer milk, product prices, Class III 
    price, Class II price, plant location adjustments, and base-excess 
    plan. In addition to these changes, the Map of the Southeast marketing 
    area and the Map Guide (i.e., Table No. 1) have been revised to reflect 
    the new pricing zones, a clarifying paragraph has been added at the end 
    of the discussion of lock-in provision, and a discussion has been added 
    at the end of the findings and conclusions regarding Motions to Reopen 
    the Hearing.
    
    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.1 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.
    
        \1\The changes to this section include an updated map of the 
    marketing area and an updated Table 1.
    ---------------------------------------------------------------------------
    
        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, [[Page 25015]] 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.'' The map has been modified to reflect changes in 
    pricing zones that are discussed under ``plant location adjustments.'' 
    Table No. 1 is a map guide for the plants that corresponds to the 
    numbers shown on the map. The table has been modified to delete four 
    plants: McClendon Cheese (Zone 4), Meadow Gold, Gadsden (Zone 5), Flav-
    O-Rich, Montgomery (Zone 8), and Meadow Gold, Nashville (Zone 2). In 
    addition, one new plant has been added to the table: Publix 
    Supermarkets, Zone 7, which is scheduled to commence operations this 
    spring.
        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.
        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.
    
                                                     BILLING CODE 3410-02-P
    [[Page 25016]]
    
    [GRAPHIC][TIFF OMITTED]TP10MY95.000
    
    
    BILLING CODE 3410-02-C
    
                                                                            
    [[Page 25017]]
            Table No. 1.--Map Guide for the Southeast Marketing Area        
    ------------------------------------------------------------------------
           No.              Plant name             Location           Zone  
    ------------------------------------------------------------------------
    1...............  Foremost Dairy, Inc..  Shreveport, LA......          8
    2...............  Borden, Inc..........  Monroe, LA..........          8
    3...............  Borden, Inc..........  Lafayette, LA.......         12
    4...............  Borden, Inc..........  Baton Rouge, LA.....         12
    5...............  Dairy Fresh of LA....  Baker, LA...........         12
    6...............  Kleinpeter Farms       Baton Rouge, LA.....         12
                       Dairy.                                               
    7...............  Mid-America Dairymen,  Kentwood, LA........         11
                       Inc.                                                 
    8...............  Mid-America Dairymen,  Franklinton, LA.....         11
                       Inc.                                                 
    9...............  Superbrand Dairy       Hammond, LA.........         11
                       Products.                                            
    10..............  Barbe's Dairy........  Westwego, LA........         12
    11..............  Schepps-Foremost.....  New Orleans, LA.....         12
    12..............  Avent's Dairy, Inc...  Oxford, MS..........          5
    13..............  Barber Pure Milk       Tupelo, MS..........          5
                       Company.                                             
    14..............  Brookshire Dairy       Columbus, MS........          7
                       Products.                                            
    15..............  LuVel Dairy Products,  Kosciusko, MS.......          7
                       Inc.                                                 
    16..............  Flav-O-Rich..........  Canton, MS..........          8
    17..............  Borden, Inc..........  Jackson, MS.........          9
    18..............  Dairy Fresh            Hattiesburg, MS.....         10
                       Corporation.                                         
    19..............  Shoals Cheese........  Florence, AL........          5
    20..............  Dasi Products, Inc...  Decatur, AL.........          5
    21..............  Meadow Gold Dairies,   Huntsville, AL......          5
                       Inc.                                                 
    22..............  Barber Pure Milk       Oxford, AL..........          7
                       Company.                                             
    23..............  Baker and Sons Dairy.  Birmingham, AL......          7
    24..............  Barber Pure Milk       Birmingham, AL......          7
                       Company.                                             
    25..............  Barber Ice Cream.....  Birmingham, AL......          7
    26..............  Flav-O-Rich Ice Cream  Sylacauga, AL.......          7
    27..............  Dairy Fresh Ice Cream  Greensboro, AL......          8
    28..............  McClendon Cheese.....  Uniontown, AL.......          7
    29..............  Superbrand Dairy       Montgomery, AL......          9
                       Products.                                            
    30..............  Barber Pure Milk       Montgomery, AL......          9
                       Company.                                             
    31..............  Dairy Fresh            Cowarts, AL.........         10
                       Corporation.                                         
    32..............  Barber Pure Milk       Mobile, AL..........         12
                       Company.                                             
    33..............  Dairy Fresh            Prichard, AL........         12
                       Corporation.                                         
    34..............  Southern Ice Cream...  Marrietta, GA.......          7
    35..............  Kraft General Foods..  Atlanta, GA.........          7
    36..............  Peeler Jersey Farms..  Athens, GA..........          7
    37..............  New Atlanta Dairies,   Atlanta, GA.........          7
                       Inc.                                                 
    38..............  Publix Supermarkets,   Atlanta, GA.........          7
                       Inc.                                                 
    39..............  Borden, Inc..........  Macon, GA...........          8
    40..............  Kinnett Dairies, Inc.  Columbus, GA........          8
    41..............  Kinnett Ice Cream....  Columbus, GA........          8
    42..............  Hershey Chocolate,     Savannah, GA........         10
                       USA.                                                 
    43..............  Fleming Companies,     Nashville, TN.......          1
                       Inc.                                                 
    44..............  Purity Dairies, Inc..  Nashville, TN.......          1
    45..............  Cumberland Creamery,   Antioch, TN.........          1
                       Inc.                                                 
    46..............  Heritage Farms Dairy.  Murfreesboro, TN....          2
    47..............  Mid-America Dairymen,  Lewisburg, TN.......          2
                       Inc.                                                 
    48..............  Turner Dairies.......  Covington, TN.......          3
    49..............  Forest Hill Dairy....  Memphis, TN.........          4
    50..............  Harbin Mix...........  Memphis, TN.........          4
    51..............  Borden, Inc..........  Little Rock, AR.....          4
    52..............  Coleman Dairy........  Little Rock, AR.....          4
    53..............  Gold Star Dairy, Inc.  Little Rock, AR.....          4
    54..............  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.,2 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,3 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.
    
        \2\Effective March 1, 1994, September 1, 1994, and February 1, 
    1995, respectively, Gulf Dairy Association, Dairymen, Inc., and 
    Southern Milk Sales became part of Mid-America Dairymen, Inc. (Mid-
    Am).
        \3\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.
    ---------------------------------------------------------------------------
    
        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 
    [[Page 25018]] 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 [[Page 25019]] 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 were 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 
    would be an order at all, or for how long there would be 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 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 the 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 exists today. He said the 
    [[Page 25020]] 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 that 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 of 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 
    [[Page 25021]] 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, 1991-93                                    
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        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 1991-93                                                    
                                                                          [In dollars]                                                                      
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Order 7      Order 93     Order 94     Order 96     Order 97     Order 98     Order 99    Order 108 
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1991............................................     \1\13.35     \1\13.71        13.51    \1\$13.84        12.88        12.75        12.67        12.90
    1992............................................     \1\14.64     \1\14.83        14.63     \1\15.01        13.94        13.99        14.02        13.86
    1993\2\.........................................     \1\14.37     \1\14.52        14.05     \1\14.32        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 
    [[Page 25022]] 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.
        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).
    
                         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  
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Arizona...................................        14  ........         3         3         3         3  ........  ........  ........  ........  ........
    Missouri..................................         8  ........         4         4         5         4  ........  ........  ........  ........  ........
    Tennessee.................................  ........         1         4         2  ........  ........  ........         1  ........        26         5
    Kentucky..................................  ........  ........         4         2  ........  ........  ........  ........  ........         2  ........
    Massachusetts.............................  ........  ........  ........         2  ........  ........  ........        20         7  ........  ........
    Georgia...................................  ........  ........  ........  ........  ........  ........        33  ........  ........         6        14
    Alabama...................................  ........  ........  ........  ........  ........  ........  ........         2  ........         4  ........
    Florida...................................  ........  ........  ........  ........  ........  ........  ........         1  ........  ........  ........
    Louisana..................................  ........  ........  ........  ........  ........  ........  ........         1        19  ........  ........
    Texas.....................................  ........  ........  ........  ........  ........  ........  ........  ........         1  ........  ........
      Total...................................        22         1        15        13         8         7        33        25        27        38        19
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    
    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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            order   
    ------------------------------------------------------------------------
    Baker and Sons Dairy, Inc., Birmingham, AL................  93.         
    Barber Pure Milk Company, Birmingham, AL..................  93.         
    Barber Pure Milk Company, Mobile, AL......................  93.         
    [[Page 25023]]
                                                                            
    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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            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, KY................................  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:
    
    ------------------------------------------------------------------------
                                                                   Federal  
                          Plant/location                            order   
    ------------------------------------------------------------------------
    Borden, Inc., Baton Rouge, LA.............................  94.         
    Borden, Inc., Jackson, MS.................................  94.         
    Brown's Velvet Dairy Prod., Inc., New Orleans, LA.........  94.         
    Dairy Fresh Corp., Hattiesburg, MS........................  94.         
    Superbrand Dairy Products, Inc., Hammond, LA..............  94.         
    Borden, Inc., Conroe, TX..................................  126.        
    Borden, Inc., Tyler, TX...................................  126.        
    Gold Star Dairy, Inc., Little Rock, AR....................  126.        
    Southwest Dairy, Tyler, TX................................  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.4 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.
    
        \4\ 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 [[Page 25024]] 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, 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 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 was 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 are 
    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.
        AMPI and Mid-Am filed exceptions objecting to the denial of the 
    proposal for a Mid-South marketing area. Mid-Am stated that there is 
    very little overlap of distribution and procurement between the 
    proposed Mid-South marketing area and the other areas included in the 
    Southeast marketing area. In addition, Mid-Am argues that the minimal 
    overlap in distribution between Central Arkansas and the rest of the 
    Southeast marketing area is from two plants: the Gold Star plant in 
    Little Rock that distributes into the Greater Louisiana and New 
    Orleans-Mississippi marketing areas and the Fleming Dairies plant in 
    Nashville that distributes into the Central Arkansas and former Memphis 
    marketing areas.
        The findings in this decision specifically note that the Gold Star 
    plant has distribution in the Georgia marketing area and the Alabama-
    West Florida marketing area, in addition to the Greater Louisiana and 
    New Orleans-Mississippi marketing areas. The former Memphis market not 
    only receives distribution from the Fleming Dairies plant at Nashville, 
    but also from the Heritage Farms plant at Murfreesboro, Tennessee 
    (Order 7), and Avents Dairy at Oxford, Mississippi (Order 94). Finally, 
    the Heritage plant and the Fleming plant distribute fluid milk products 
    into the Central Arkansas marketing area.
        The overlap in procurement between Orders 7, 93, 94, and 96 with 
    Orders 108, 97, and 99 is not as great as it is among other marketing 
    areas being merged. Nevertheless, there is an overlap in procurement 
    between Order 94 and former Order 97 (13 counties in May 1993) and 
    between Orders 94 and 108 (8 counties in May 1993). Moreover, the need 
    to merge these marketing areas is justified by a combination of factors 
    (distribution, procurement, and [[Page 25025]] marketing stability) 
    that justifies the inclusion of Central Arkansas and Memphis in the 
    Southeast marketing area.
        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, Georgia, and Arkansas 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 currently-
    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 area 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.\5\ 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.
    
        \5\The findings and conclusions in this section are identical to 
    those of the recommended decision, except for ``lock-in provision,'' 
    ``unit pooling,'' ``supply plants,'' ``producer-handler,'' 
    ``producer,'' and ``producer milk.''
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        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,'' and ``filled milk.''
        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 
    [[Page 25026]] 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.6 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.
    
        \6\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 eliminate 
    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 and used only as reload points for 
    transferring bulk milk from one tank truck to another or separate 
    facilities used only as distribution points for storing packaged fluid 
    milk products in transit for route disposition would not be plants 
    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(d). 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.
        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 and 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 [[Page 25027]] 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, 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(d), 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.
        A new paragraph--Sec. 1007.7(d)--has been added to the pool plant 
    rules in this final decision to clarify the application of the lock-in 
    provision. Although the order language would clearly regulate such a 
    plant by not releasing it to another order in either Sec. 1007.7(g) (3) 
    or (4), the inclusion of the new paragraph (d) leaves no doubt about 
    the matter.
        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 in which it 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(e). 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 [[Page 25028]] 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. There 
    is 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, [[Page 25029]] 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.
        In their exceptions, Barber Pure Milk Company (Birmingham, Alabama) 
    and Dairy Fresh Corporation (Greensboro, Alabama) objected to the 
    additional unit pooling restriction. They contend that any handler can 
    accomplish the same result--i.e., pool milk at a higher-priced 
    location--by diverting milk to a Class II plant located in the higher-
    priced zone. They argue that it is more efficient to permit unit 
    pooling for Class II plants located in higher-priced zones than the 
    pricing zone of the qualifying distributing plant and urge that the 
    restriction be removed.
        First of all, it is not possible to accomplish the exact same 
    result by diverting milk to a Class II plant in a higher-priced zone. 
    The Barber witness testified that some milk could be pooled in this 
    manner, but not all of the milk that might be required. Before a 
    handler can divert milk, the milk to be diverted must become eligible 
    for diversion. This is accomplished by delivering the milk to a pool 
    plant for a minimum number of days. Under the Southeast order, at least 
    10 days' production (4 days' production during January through June) 
    must be received at a pool plant during the months of July through 
    December.
        Because of this requirement, there is a practical limit on where 
    milk will be diverted in relation to the pool plant from which 
    diverted. For example, it is unlikely that a handler in Nashville will 
    divert milk to a nonpool plant in Hattiesburg. With unit pooling, 
    however, milk going to a Class II operation may have no association 
    with a Class I operation that is hundreds of miles away.
        There is no indication of how the removal of this restriction would 
    promote greater efficiencies. However, the decision clearly sets forth 
    the reasons for the restriction: to promote a degree of fairness to all 
    market handlers, whether their Class I and Class II uses are in the 
    same or separate facilities, and to the market's producers in the 
    distribution of pool funds.
        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 [[Page 25030]] 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.
        The Fleming Companies, Kraft General Foods, and Southern Foods 
    Group urged that consideration be given to establishing pooling 
    provisions for proprietary handlers that are the same as those for 
    cooperatives. They contend that the cooperatives are able to attach 
    milk supplies to the market which are devoted exclusively for 
    manufacturing use, but that proprietary manufacturing plants and fluid 
    milk handlers are prohibited from doing the same thing. Specifically, 
    they stated that cooperative association ``balancing'' plants are 
    allowed to pool based on the organizational performance of the 
    cooperative, an option that obviously is not available to proprietary 
    handlers. Instead, proprietary handlers would have to rely on supply 
    plants that are required to receive, unload, reload, and transfer 
    producer milk to distributing plants in order to qualify as pool supply 
    plants. The issue, they argue, is not one of ``need'' for supply plant 
    milk to supply the fluid market, but whether the order should permit 
    the dominant cooperative to service the market efficiently while 
    requiring non-cooperative sources of milk to be encumbered with great 
    inefficiency.
        It is questionable how the ability of proprietary handlers to 
    attach additional supplies of milk for manufacturing use with the 
    market promotes inefficiencies in supplying the fluid milk needs of the 
    market. The primary objective of pooling provisions is to provide the 
    incentive to supply the fluid milk needs of the market and to 
    accommodate the pooling of the reserve supplies of milk that are 
    available and are necessary to serve or balance the fluid milk needs.
        To the extent that supply plants are necessary, the pooling 
    standards are the same for cooperatives and proprietary handlers. The 
    shipping standards are set at a level to ensure a sufficient 
    association with the fluid market to warrant a share in the Class I use 
    of the market.
        Cooperative association ``balancing plants'' serve a different 
    role. These plants are the outlets of last resort. When surplus milk 
    has no other place to go on weekends or during the spring and summer 
    months, it is manufactured into storable products at Mid-Am's 
    manufacturing plants in Franklinton and Kentwood, Louisiana, and 
    Lewisburg, Tennessee. When production decreases, these plants may shut 
    down completely or operate at minimal capacity. There has to be some 
    place for surplus milk to go and dairy farmers, through their 
    cooperative associations, have assumed the burden of processing this 
    surplus milk. At the same time, the overall pooling standards ensure 
    that milk is supplied for fluid use, which is a primary objective of 
    the cooperative associations supplying the market.
        A proprietary cheese plant operates on a different premise. The 
    primary objective of a proprietary cheese plant operator is to produce 
    as much cheese as possible as efficiently as possible. Ideally, such 
    plants prefer to operate at full operating capacity all the time. To 
    give up any more milk than is absolutely necessary is to forgo profits.
        There is no basis for incorporating order provisions in this market 
    that would encourage additional cheese production by making it easier 
    to pool cheese plants. In an area such as the Southeast marketing area 
    that has a high Class I price to assure an adequate supply of milk for 
    fluid use, the adoption of provisions to facilitate the proliferation 
    of cheese plants is unwarranted. There is no shortage of milk for 
    cheese in the United States, and there is no reason to encourage 
    additional milk production for cheese plants in the Southeast. Fluid 
    milk processors in the Southeast pay relatively high Class I prices to 
    assure an adequate supply of milk for fluid use, and the blend prices 
    resulting from those Class I prices should not be reduced by 
    encouraging additional production destined for Class III use.
        Revisions of pooling standards: Sec. 1007.7(f). 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 [[Page 25031]] 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 plant 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. [[Page 25032]] 
        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, there is 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, there is no basis for the payment of administrative 
    assessments by producer-handlers and, therefore, must deny the 
    proposal.
        Mid-Am filed an exception to the producer-handler provisions 
    contending that there was no basis for denying its producer-handler 
    proposal. It reiterated its arguments that effective regulation of 
    producer-handlers cannot be achieved without the adoption of its 
    proposal and that producer-handlers should have to pay the 
    administrative assessment that is applied to other handlers.
        Mid-Am's arguments do not provide a basis for altering the findings 
    and conclusions on this issue. There is no indication in the record 
    that producer-handlers are causing marketing problems in the proposed 
    marketing area. This demonstrates that effective regulation of 
    producer-handlers can be achieved without the unduly restrictive 
    regulations proposed by Mid-Am. Also, there is not a sufficient basis 
    to conclude that there is a need for producer-handlers to pay an 
    administrative assessment.
        Producer: Sec. 1007.12. The term producer defines those dairy 
    farmers who constitute the regular source of supply for the order. 
    Under the [[Page 25033]] 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.
        Mid-Am filed an exception to the denial of a ``dairy farmer for 
    other markets'' provision. Mid-Am contends that even though the 
    proposed Southeast order contains a base-excess plan, ``this does not 
    substantially remove the incentive for a dairy farmer who has been 
    associated with another market during the base-forming months to become 
    a producer under the Southeast market during other months of the 
    year.''
        The record does not support the adoption of a ``dairy farmer for 
    other markets'' provision. As indicated, there was considerable 
    opposition to this provision both at the hearing and in post-hearing 
    briefs. Those opposed to the provision argued that it was a barrier 
    that would remove a handler's flexibility to shift milk economically 
    between plants.
        The amount of milk that may be pooled under the Southeast order is 
    dictated by the order's pooling standards and diversion limits. The 
    market cannot be flooded with outside milk during the months of January 
    through July because four days' production of a producer's milk must be 
    received at a pool plant during the month, and during the months of 
    December through June only 50 percent of the producer milk physically 
    received at a plant may be diverted to nonpool plants.
        The need for marketing flexibility outweighs the concerns of Mid-Am 
    regarding the possibility of surplus milk pooling on the Southeast 
    market. The ``dairy farmer for other markets'' provision should not be 
    adopted.
        Producer Milk:7 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, with some modifications, 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 
    [[Page 25034]] producer has a direct association with a pool plant each 
    month of the year.
    
        \7\As explained in the last two paragraphs at the end of this 
    section, the diversion limits applicable to pool plant units which 
    are qualified pursuant to Sec. 1007.7(e) have been changed from 
    those contained in the recommended decision.
    ---------------------------------------------------------------------------
    
        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.
        In their exceptions, Barber Pure Milk Company and Dairy Fresh 
    Corporation (Greensboro, Alabama) reiterated the request initially made 
    in their hearing proposal to be permitted to combine all of the milk 
    physically received at all of their pool plants in determining their 
    diversion limits rather than compute diversion limits based on each 
    plant's receipts.
        This modification should be adopted for handlers that unit pool 
    their plants. Like unit pooling, unit diverting also will allow 
    handlers to operate their plants in a more efficient manner. Rather 
    than having to juggle milk between two pool plants to meet touch-base 
    requirements, handlers will be able to divert milk from the plant that 
    normally receives it. This provision, in conjunction with unit pooling, 
    will provide handlers great flexibility in the operation of their 
    plants.
        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 [[Page 25035]] 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. A final decision amending the Class 
    II price under all Federal orders was issued January 27, 1995, and 
    published February 2, 1995 (60 FR 6606). The decision changed the 
    computation of the Class II price in a manner that removed the need for 
    a section dealing with ``product prices.'' Since the amended language 
    of the Class II decision is applicable to the merged order proposed in 
    this proceeding, Sec. 1007.20 has been removed.
        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 Section 
    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:8 Secs. 1007.50-1007.54. Milk pooled 
    under most [[Page 25036]] 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.
    
        \8\ Several changes in pricing have been made in this final 
    decision. Changes in Class II and III prices are the result of 
    national decisions amending all Federal order Class II and III 
    prices. In addition, plant location adjustments have been changed as 
    a result of the comments received.
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        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) and as adopted for all Federal milk orders in a final 
    decision issued January 27, 1995, and published on February 7, 1995 (60 
    FR 7290). The basic formula price is the preceding month's average pay 
    price for manufacturing grade milk in Minnesota and Wisconsin using the 
    ``base month'' series, as reported by the Department for the month, 
    adjusted to a 3.5 percent butterfat basis using the butterfat 
    differential for the preceding month computed pursuant to Sec. 1007.74 
    and rounded to the nearest cent, plus or minus the change in gross 
    value yield by the butter-nonfat dry milk and Cheddar cheese product 
    price. This price will be used in each of the individual orders 
    involved in this proceeding and in every other Federal order. It 
    reflects the value of manufacturing grade milk used to produce hard 
    cheese and butter and is equally appropriate for the Southeast 
    marketing area.
        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; 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 Mid-America Dairymen, Inc., plants in Lewisburg, Tennessee, and 
    Franklinton, Louisiana. As a result of the institution of Class III-A 
    pricing in December 1993, the cooperative 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 no compelling reason exists 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.
        In its exception to the recommended decision, Mid-Am repeated its 
    request for a seasonal adjustment of Class III and III-A prices. While 
    conceding that Class III-A pricing does provide ``some relief'' to 
    those handlers manufacturing nonfat dry milk, Mid-Am argued that 
    ``Class III-A pricing does not provide relief from the costs associated 
    with the seasonal variability of the supply of milk utilized to produce 
    nonfat dry milk powder.''
        Mid-Am's claims for adopting seasonal pricing of Class III and III-
    A milk are insufficient in view of the reasons set forth for denying 
    seasonal pricing.
        Class II price: Sec. 1007.50(b). A final order amending Class II 
    pricing under all Federal milk orders was issued on January 27, 1995, 
    and published on February 2, 1995 (60 FR 6606). As amended, the Class 
    II price is the basic formula price for the second preceding month, 
    plus 30 cents. This price is adopted for the Southeast order for all of 
    the reasons set forth in the final decision (i.e., See 59 FR 64524) 
    pertaining to that issue. There was no opposition to the adoption of 
    this price at the hearing, in briefs that were filed, or in the 
    exceptions that were received. [[Page 25037]] 
        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 
    ensure 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.
        This final decision, like the recommended decision, provides for 12 
    pricing zones. However, unlike the recommended decision, which provided 
    for a base zone, five minus zones, and six plus zones, this final 
    decision contains a base zone, six minus zones, and five plus zones. 
    These zones, and the Class I differential adjusted for location for 
    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.
        Several changes in location adjustments have been made from those 
    set forth in the recommended decision. Zone 1 has been expanded to 
    include 5 counties that were part of Zone 2; a new zone, designated as 
    Zone 3 on the map, has been added; several Arkansas counties, including 
    the Little Rock area, have been added to the zone that encompasses the 
    Memphis area (i.e., Zone 4); the changes to Zone 4 have resulted in a 
    slight and non-significant reconfiguration of the Arkansas counties 
    that are contained in Zones 5 and 6; Zones 9 and 10 have been combined 
    into one zone with a $3.40 price; some of Zone 12 has been moved to 
    Zone 11; and the Zone 12 price has been changed to $3.65. In addition, 
    because of the addition of the new Zone 3, the recommended Zones 3-8 
    are now Zones 4-9. As a result of these modifications, Class I prices 
    were reduced from those in the recommended decision by 5 cents at 
    Nashville; 7 cents at Little Rock; 8 cents at Hattiesburg, Mississippi, 
    and Cowarts, Alabama; 10 cents at Hammond, Louisiana; and 3 cents at 
    Baton Rouge, New Orleans, and Mobile.
        Although there is, in reality, one Class I price that will apply to 
    the Southeast marketing area, when this price is adjusted for location, 
    it results in a unique Class I price for each of the 12 zones of the 
    marketing area. The Class I price that will be shown for the market 
    will be the price applicable to Zone 7, the base zone (Zone 6 in the 
    recommended decision). 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 prices in the individual marketing areas lined up 
    properly on an east-to-west axis in the merged marketing area, the 
    fluid needs throughout the marketing area, the supply of milk locally 
    available to each plant within the marketing area, the competitive 
    relationship among handlers in the marketing area, and the exceptions 
    received in response to the recommended decision.
        The zones 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 surplus production areas to 
    metropolitan areas where distributing plants are located.
        Zone 7. The base zone, Zone 7 (Zone 6 in the recommended decision), 
    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.
        The Mississippi portion of Zone 7 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 7 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 7 extends into 6 counties in southern 
    Arkansas, which are currently not regulated by any order. There are 
    presently no distributing plants in this area. Seven counties in 
    southern Arkansas, which contain no distributing plants and are not now 
    regulated, have been removed from the base zone and placed in Zone 6. 
    This change, and a similar conforming change to Zone 5, was made to 
    maintain an orderly price surface in southern Arkansas following the 
    [[Page 25038]] transfer of several counties in the Little Rock area to 
    Zone 4.
        One exception to the base zone price of $3.08 was filed on behalf 
    of Barber (Birmingham) and Dairy Fresh (Greensboro). This exception is 
    addressed after the discussion of Zone 9.
        Zone 8. Zone 8 (Zone 7 in the recommended decision) should have a 
    Class I differential adjusted for location 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, Louisiana; 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 9), 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 9. Zone 9 (formerly Zone 8 in the recommended decision) 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 9 is the Borden plant in Jackson, 
    while the two Alabama plants are the Superbrand and Barber Pure Milk 
    Company plants in Montgomery. Under Order 94, the Jackson plant now has 
    a Class I differential adjusted for location 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 adjusted for location of $3.35, which was also the 
    price 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 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.
        Fleming and Purity took exception to the recommended 7-cent price 
    reduction at Jackson, Mississippi, and Montgomery, Alabama. They argued 
    that this change was not proposed or supported and is untested by the 
    realities of supply and demand. Finally, they were concerned that the 
    milk supply of handlers in Jackson and Montgomery might be jeopardized 
    by the price reduction.
        Neither the supplier of the Jackson and Montgomery plants nor the 
    handlers themselves filed comments suggesting a problem with the 
    proposed price of $3.28. In terms of inter and intra-order alignment, a 
    price of $3.28 appears to line up well with prices to the north, south, 
    east and west. It is 170 miles from Mobile to Montgomery. If the 
    transportation cost were computed from Mobile, the price at Montgomery 
    would be $3.23 (i.e., $3.65 - [17  x  .025]). If transportation cost 
    were added to the price at Birmingham, the price would be about $3.33 
    (i.e., $3.08 + [10  x  .025]). Based on prices to the east and west of 
    the marketing area, $3.28 is the correct price for this area.
        Barber and Dairy Fresh also objected to the lower Class I price at 
    LuVel Dairy Products, Inc., Kosciusko, Mississippi, from $3.20 to 
    $3.08. They stated that there was no support in the record to make this 
    change.
        As explained in the recommended decision, the prices at Kosciusko, 
    Canton, and Jackson were too high in relation to the prices east and 
    west of those locations. To maintain the existing prices at those 
    locations while reducing the prices in northern Louisiana and northern 
    Mississippi would have put those handlers at a competitive 
    disadvantage. Neither Flav-O-Rich nor Borden nor LuVel excepted to this 
    price reduction on grounds that it would jeopardize their milk supply. 
    In fact, the blend price under the merged order at those locations is 
    likely to offset the price reduction so that the lower Class I price 
    should have no impact on their ability to attract a supply of milk.
        Zone 10. Zone 10 in this final decision is a combination of Zones 9 
    and 10 as contained in the recommended decision. The new Zone 10 runs 
    from the Atlantic Ocean on the east to a $3.34 zone under the Texas 
    order on the west. The differential price adjusted for location in Zone 
    10 should be $3.40. There are no distributing plants within this zone 
    in Louisiana, but there is one nonpool plant operated by Hershey Foods 
    in Savannah, Georgia, a pool distributing plant operated by Dairy Fresh 
    Corporation at Cowarts, Alabama, and another Dairy Fresh plant at 
    Hattiesburg, Mississippi. The Hershey plant in Savannah is now subject 
    to a $3.38 price under Order 7; the Cowarts plant is subject to a $3.38 
    price under Order 93; and the Hattiesburg plant has a price of $3.45 
    under Order 94. Both the cooperative coalition and Fleming Dairy 
    proposed a continuation of current prices for this area.
        A price of $3.48 was recommended for the Cowarts and Hattiesburg 
    plants in recommended Zone 10 and a price of $3.38 for the Savannah 
    plant in recommended Zone 9. This price structure would have resulted 
    in a 10-cent price increase for the Cowarts plant, a 3-cent price 
    increase for the Hattiesburg plant, and no change in price for the 
    Savannah plant. After reviewing the comments submitted and further 
    analyzing the market structure in this area, Zones 9 and 10 should be 
    combined with a price of $3.40 providing for a smoother pricing 
    transition between Zones 9 and 11.
        Barber (Birmingham) and Dairy Fresh (Greensboro) excepted to the 
    price reduction of 17 cents at the Flav-O-Rich plant at Canton, 
    Mississippi, and the 7-cent price reduction at the Borden plant 
    [[Page 25039]] at Jackson, Mississippi, in relation to the 3-cent 
    increase in price at the Dairy Fresh plant at Hattiesburg. The 
    exception noted that the price at Hattiesburg would be increased by 
    three cents to $3.48 while the price at New Orleans would be lowered 17 
    cents to $3.68. This would lower the difference between the Hattiesburg 
    and New Orleans Class I prices to 20 cents from its present 40-cent 
    level. These handlers asked: ``What kind of equity is this when price 
    zones are set up so that the price at the plant in Hattiesburg is 30 
    cents higher than for a plant located in Canton 105 miles north of 
    Hattiesburg and only 20 cents lower for plants located in New Orleans 
    105 miles south of Hattiesburg?''
        Finally, Dairy Fresh Corporation, on behalf of its plant in 
    Cowarts, Alabama, excepted to the price proposed for its plant at 
    Cowarts. It argues that there was no proposal to change this price and 
    no record evidence to support the proposed price. The price should be 
    returned to its present $3.38 level, it concludes.
        The price change at Hattiesburg, from $3.48 in the recommended 
    decision to $3.40 in this final decision, will reduce the Hattiesburg 
    price by five cents from its present $3.45 level under Order 94. This 
    plant is in a heavy production area so the lowering of its price should 
    not affect the plant's milk supply. From the standpoint of Class I 
    price alignment, the lower price at Hattiesburg will not disrupt price 
    alignment with nearby competitors. Hattiesburg, for example, is 109 
    miles to New Orleans and 98 miles to Mobile. Based on a transportation 
    allowance of 2.5 cents per 10 miles, the price at Hattiesburg in 
    relation to New Orleans should be no lower than $3.37 [i.e., $3.65 - 
    (11  x  .025)], while the price at Hattiesburg in relation to Mobile 
    should be no lower than $3.40 [i.e., $3.65 - (10  x  .025)].
        With these price changes, there will be a 12-cent difference in 
    price between Hattiesburg and Jackson (i.e., $3.40 - $3.28). This is 
    two cents greater than the difference that now exists between these two 
    locations and provides no Class I price advantage to the Borden plant 
    in Jackson. The 105-mile distance between Jackson and Hattiesburg would 
    support a price difference of 28 cents (i.e., 11  x  .025) between 
    these locations. There is no reason to expect handlers to pay any more 
    than is necessary to obtain an adequate supply of milk for fluid use. 
    The prices at Jackson and Canton are appropriate using this standard.
        A $3.40 price in the new Zone 10 will increase the Cowarts plant's 
    price by 2 cents in comparison to its present $3.38 level under Order 
    93, but it will be lowered by 8 cents in comparison to the $3.48 price 
    for this area in the recommended decision. Southern Alabama is a 
    deficit area and milk is transported to plants in this area from as far 
    away as central Tennessee. A price of $3.48 for Cowarts was proposed in 
    the recommended decision to ensure that the Dairy Fresh plant would be 
    adequately supplied under the merged order, as well as to provide a 
    smooth transition in price from southern Alabama and Georgia into the 
    $3.58 price zone of the Upper Florida marketing area. Like the plants 
    in Mobile, the Cowarts plant now enjoys the relatively high utilization 
    of the Alabama-West Florida order. Under the merged order, the uniform 
    price will probably be lower at Cowarts and the plant may have 
    difficulty attracting a supply of milk. Nevertheless, in view of the 
    strong opposition of Dairy Fresh to any price increase at Cowarts, the 
    price should be lowered to $3.40. Cowarts is more than 190 miles from 
    Mobile, so the 25-cent price difference between Cowarts and Mobile is 
    far below the cost of shipping milk from Cowarts to Mobile. Therefore, 
    the reduction in price at Cowarts will cause no disruption in Class I 
    price alignment with Mobile.
        The Hershey plant at Savannah, Georgia, will experience a two-cent 
    higher Class I price as a result of this change. This minimal price 
    change should have little impact on this plant, which has a relatively 
    high Class II utilization.
        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, which has been modified by the addition of several 
    parishes and counties from Zone 12, now includes only one county that 
    is split between two zones. The portion of Mobile County, Alabama, that 
    is within 20 miles of the Mobile City Hall is in Zone 12, while the 
    remainder of Mobile County is in Zone 11.
        With these modifications, there is now one distributing plant in 
    Zone 11 at Hammond, Louisiana, operated by Superbrand Dairy Products, 
    Inc., and there are two Mid-Am manufacturing plants in the Louisiana 
    parishes of Tangipahoa and Washington. In Tangipahoa Parish, Mid-Am 
    operates a cheese plant in Kentwood. In Washington Parish, which is to 
    the east of Tangipahoa Parish, it operates a butter-powder 
    manufacturing plant in Franklinton.
        At the present time, the Class I differential price at Hammond, 
    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.
        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 based upon this decision should be priced 7 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 $3.40, 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 [[Page 25040]] differential adjusted for location for 
    Zone 12 should be $3.65 or three cents below the recommended decision's 
    price of $3.68.
        At present, the 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 deficit 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 price 
    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.). [[Page 25041]] 
        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.
        It is concluded 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. Baton Rouge and New Orleans should be in the same zone with 
    the same price, and Hammond should be priced 7 cents lower.
        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 adjusted for location for Zone 12 should 
    be $3.65, which is 13 cents below the present price in Baton Rouge and 
    20 cents below the present price in New Orleans. It is also five 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., 28 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 timeframe 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 will 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 $3.65 is the same 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 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 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 Mid-America 
    Dairymen, Inc., which operates a cheese manufacturing plant in 
    Kentwood, Louisiana, and a butter-powder manufacturing plant in 
    Franklinton, Louisiana; Flav-O-Rich, which operates a distributing 
    plant located in Canton, Mississippi; Superbrand Dairy Products, 
    [[Page 25042]] 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 maintaining a $3.65 
    differential price in Mobile and decreasing the price at alternative 
    locations--i.e., by 10 cents at Kentwood, Franklinton, and Hammond, 
    Louisiana; by 20 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.
        In its exception, Mid-Am agreed with the recommended decision in 
    putting Baton Rouge and New Orleans in the same pricing zone. Mid-Am 
    disagreed, however, with also including Hammond in that zone (Zone 12). 
    It argued that the distance from Kentwood, Louisiana, which is the 
    center of the Tangipahoa Parish supply area, to Hammond is 34 miles, 
    but the distance to Baton Rouge is 82 miles and the distance to New 
    Orleans is 73 miles. Mid-Am maintains that the added distance from the 
    supply area justifies at least a 9-cent higher price at New Orleans and 
    Baton Rouge relative to Hammond. Using the same analysis with respect 
    to the distance from Franklinton, Louisiana, to Baton Rouge, New 
    Orleans, and Hammond justifies a price at Hammond that is 7 cents lower 
    than the New Orleans and Baton Rouge prices, according to the 
    cooperative. Mid-Am concluded that to improve alignment between 
    Hammond, Baton Rouge, and New Orleans, the Louisiana parishes of 
    Livingston, Tangipahoa, and St. Tammany and the Mississippi counties of 
    Hancock, Harrison, and Jackson should be added to Zone 11 and the price 
    of Zone 12 should be reduced from $3.68 to $3.65.
        Dairy Fresh of Louisiana, Inc., the operator of a distributing 
    plant at Baker (Baton Rouge), Louisiana, suggested expanding Zone 10 to 
    include Zone 11 and applying a price of $3.48 to this combined zone. It 
    also suggested reducing the price in Zone 12 to $3.58. It argued that 
    no point is served in having a separate zone which only contains Mid-
    Am's two manufacturing plants at Franklinton and Kentwood; reducing the 
    price at these plants to $3.48 would enhance the blend price for the 
    market and would encourage milk to move from this high production area 
    to distributing plants at Hattiesburg, Mississippi; Cowarts, Alabama; 
    and Mobile, Alabama.
        Dairy Fresh also stated that revamping prices in this way will not 
    create any alignment problems with the Upper Florida order or with the 
    Houston/Beaumont area of the Texas order because there are no Texas 
    plants in the immediate vicinity of southern Louisiana. It concluded 
    that its suggested lowering of prices in the Baton Rouge/New Orleans 
    area will restore the relationship that existed between south Louisiana 
    and the Houston area prior to 1991, when the Texas price was reduced by 
    12 cents.
        Barber and Dairy Fresh objected to the prices recommended for the 
    Mobile area. These handlers stated that the Department erred in 
    dismissing their proposal for separate Class I and producer location 
    adjustments. They also wrote that separate location differentials for 
    producers delivering milk to pool plants located within the marketing 
    area are a method that could and should be used in addition to the 
    Class I price to move milk to areas within the market where the milk 
    supply is short.
        Barber and Dairy Fresh also objected to placing Mobile, Alabama, in 
    Zone 12 and increasing the price there by three cents. They urged the 
    Department to reduce their price to $3.58 or at least to the present 
    level of $3.65.
        Finally, Gold Star Dairy objected to the price reduction in 
    southern Louisiana because it ``upsets the competitive balance.'' It 
    stated that ``it is improper to upset the economic balance without 
    evidence of any change in marketing conditions justifying a change in 
    prices.''
        After reviewing the comments cited above and further analyzing the 
    market structure of Zone 12 and the surrounding areas, it is concluded 
    that the Zone 12 price should be lowered from $3.68 to $3.65. Also, as 
    mentioned previously, the Louisiana parishes of Tangipanoa and St. 
    Tammany, and the Mississippi counties of Hancock, Harrison, and Jackson 
    should be moved from Zone 12 to Zone 11. This reduces the price at 
    Hammond by 7 cents. Bulk milk delivered to Hammond is not worth as much 
    as milk delivered to Baton Rouge or New Orleans and it is appropriate 
    to have a lower price at Hammond, as suggested by Mid-Am.
        Livingston Parish should not be shifted from Zone 12 to Zone 11, as 
    suggested by Mid-Am. Although there presently are no plants in this 
    parish, one could be built there in the future and have a price 
    advantage over nearby plants in Baton Rouge. Livingston Parish should 
    remain in Zone 12 to serve as a buffer between Baton Rouge and lower-
    priced Zone 11.
        In Federal order markets, prices gradually increase from the Upper 
    Midwest to the tip of Florida. The present pricing structure, which has 
    evolved over time, reflects the fact that some southern areas 
    occasionally need to import milk from surplus areas to the north. This 
    is not true for every southern area. There may be pockets of heavy 
    production, such as central Tennessee or southern Louisiana, which 
    [[Page 25043]] do not require supplemental milk from other areas, but 
    which have higher prices nevertheless to preserve Class I price 
    alignment with higher-priced areas to the south.
        As noted above, southern Louisiana is a heavy production area. The 
    handlers in Hammond, Baton Rouge, and New Orleans do not have to import 
    milk from distant areas because they have an abundant supply at their 
    doorstep. Because there are no handlers in the Gulf of Mexico, prices 
    do not have to be increased at 2.5 cents per 10 miles through southern 
    Louisiana to preserve price alignment with areas to the south of New 
    Orleans.
        The argument of Barber and Dairy Fresh that prices should be higher 
    in New Orleans so that Dairy Fresh at Hattiesburg can afford to ship 
    and sell packaged milk in New Orleans does not meet the standards of 
    the Agricultural Marketing Agreement Act. Location adjustments reflect 
    the cost of hauling bulk milk from production areas to processing 
    plants. The adjustments compensate producers for the economic service 
    they provide to handlers.
        Similarly, the position of Gold Star Dairy that the reduction in 
    price at New Orleans upsets the competitive balance between Little Rock 
    and New Orleans provides no justification for not reducing a price that 
    obviously is higher than it needs to be.
        The goal of the Federal milk order program is to ensure an adequate 
    supply of milk for fluid use and to establish and maintain orderly 
    marketing conditions. Consumers in New Orleans should not have to pay 
    higher milk prices simply to reflect the transportation cost of 
    shipping packaged products there from Hattiesburg, Texas, Little Rock, 
    or anywhere else because there are milk processing plants in the New 
    Orleans area that can obtain bulk fluid milk at a cost that is less 
    than the cost of hauling packaged milk.
        Zone 6. Immediately north of the base zone, a new, transition zone 
    (Zone 5 in the recommended decision) should be created with a Class I 
    differential adjusted for location of $2.98. Currently, there are no 
    distributing plants in this zone. However, at the time of the hearing 
    there was one distributing plant--the Meadow Gold plant at Gadsden, 
    Alabama--in this zone. Since the hearing, this plant has closed.
        A slightly lower price should apply to Zone 6 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 price in Zone 6 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.
        Just north of Zone 6, the Class I price drops to $2.83 in Zone 5. 
    It is necessary to create an intermediate Zone 6 to eliminate a sharp 
    25-cent drop that otherwise would occur between Zone 5 and the base 
    zone.
        Zone 5. Zone 5 (Zone 4 in the recommended decision) includes the 
    northern tier of counties through Georgia, the northern two tiers of 
    counties through Alabama and Mississippi, and a tier of counties 
    through Arkansas. This zone should have a differential price adjusted 
    for location of $2.83. As mentioned previously, the area of Arkansas 
    included in Zone 5 has been modified from the recommended decision 
    because of the changes made to Zone 4. With the modification, there are 
    no plants in Arkansas in this zone.
        There are no plants in the Georgia portion of Zone 5, 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 price of $2.83).
        There are three plants in the Alabama portion of Zone 5: Meadow 
    Gold at Huntsville (Madison County), Dasi Products (partially 
    regulated) at Decatur (Morgan County), and Shoals Cheese in Florence 
    (Lauderdale County). The Class I price that now applies at these plants 
    under Order 93 is $2.85.
        In the Mississippi portion of Zone 5, there are two fully regulated 
    distributing plants and one cheese plant. Barber Dairy operates a 
    distributing plant in Tupelo (Lee County), and Avent's Dairy operates a 
    distributing plant in Oxford (Lafayette 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 5: 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 price 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 lower than Zone 6 to the south and 6 cents 
    higher than Zone 4 on the north. The 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 4. Zone 4 (Zone 3 in the recommended decision) is comprised of 
    the southernmost tier of counties through the State of Tennessee and 
    has been reconfigured to include two tiers of counties in central 
    Arkansas. It should have a Class I differential adjusted for location 
    of $2.77.
        There are six plants in this zone: Forest Hill Dairy and Harbin Mix 
    in Memphis, Tennessee; Borden, Inc., Coleman Dairy, and Gold Star 
    Dairy, in Little Rock, Arkansas; and Humphrey's Dairy in Hot Springs, 
    Arkansas. At present, the Class I price at these locations under the 
    Central Arkansas order is $2.77. The recommended decision proposed a 
    price of $2.77 for Memphis and a price of $2.83 for the Little Rock 
    area.
        Gold Star Dairy argued in its exception that it had no notice that 
    any price change was contemplated for Little Rock and that to change 
    the price at Little Rock simply to tie together east-west price 
    alignment was inappropriate. It suggested reducing the price at Little 
    Rock to $2.77 by moving six Arkansas counties from Zone 4 to Zone 3.
        Gold Star is incorrect in asserting that it had no notice. In any 
    merger hearing, all order provisions are to be considered and are 
    within the scope of the hearing. However, it is true that no attention 
    was focused on the appropriate price at Little Rock at the hearing. 
    Proponents assumed that the current pricing structure would be adopted.
        A slightly higher price was recommended for the Little Rock area to 
    better align prices east to west and to slightly enhance the uniform 
    price at that location under the merged order. This was an increase of 
    six cents and with the zone configuration in the recommended decision 
    this price level seemed appropriate. However, with the reconfiguration 
    of the zones in this final decision it is appropriate to return the 
    price applicable at Little Rock to $2.77. Accordingly, the Arkansas 
    counties of Polk, Montgomery, Garland, Saline, Pulaski, Lonoke, 
    Prairie, Monroe, and Lee have been moved to the new Zone 4, thereby 
    reducing the price at Little [[Page 25044]] Rock to $2.77, the level 
    that now applies to that area under Order 108.
        Zone 3: A new zone consisting of three counties in western 
    Tennessee and nine counties in Arkansas should be created after 
    reviewing the exceptions to the recommended decision.
        Fleming and Purity opposed the inclusion of the Turner Dairies 
    plant at Covington, Tennessee, in recommended Zone 2 with a price of 
    $2.60. These handlers argued that Covington is in the Memphis 
    Metropolitan Area and that it should retain the same $2.77 price that 
    it had under the Memphis order. They stated that they compete with the 
    Covington plant for route disposition in the Memphis area and would be 
    seriously affected by the change.
        Arkansas Dairy Cooperative Association, Inc. (ADCA), also commented 
    on the proposed pricing for the Covington plant. It noted that while 
    the plant now produces mostly Class II products, the proposed 17-cent 
    lower price at this location could encourage the processing of Class I 
    products there. ADCA also stated that even though Memphis is 36 miles 
    south of Covington, the 17-cent price difference between the two 
    locations would place suppliers of the Covington plant at a 
    disadvantage vis-a-vis suppliers of the Memphis plant. This would 
    create a substantial disincentive to supply that plant, they argued.
        ADCA also commented on other problems which it saw with the 
    proposed Zone 2. It stated that in October 1994 it purchased land in 
    Damascus, Arkansas, to build a receiving station/balancing plant. When 
    it made this commitment, it had no idea that this area would be priced 
    17 cents below the price that had applied to Van Buren County under the 
    Central Arkansas order. It wrote that ``this is an inequitable result 
    which surely would not have occurred if the plant had been in place at 
    the time of the rulemaking and discussed at the hearing.''
        A new zone should be added between recommended Zones 2 and 3 in 
    Arkansas and western Tennessee. The price for this zone is $2.70, which 
    is 7 cents lower than the Zone 3 price and 10 cents higher than the 
    Zone 2 price. The new zone consists of the Arkansas counties of 
    Johnson, Pope, Van Buren, Cliburne, Independence, Jackson, Craighead, 
    Poinsett, and Mississippi; and the Tennessee Counties of Tipton, 
    Lauderdale, and Haywood. This new zone, which includes the Turner 
    Dairies plant at Covington and the plant which ADCA intends to build at 
    Decatur, will reduce the price difference between the Turner Dairies 
    plant at Covington and handlers in Nashville, Memphis, and Little Rock. 
    It will also help to mitigate the price reductions cited by ADCA.
        A $2.70 price for this new zone will improve alignment between 
    Zones 2 and 3. Based on the 36-mile distance between Covington and 
    Memphis, a 7-cent lower price for Covington is a little higher than the 
    10-cent difference that would be justified based on 2.5 cents per 10 
    miles. Similarly, based on a distance of approximately 40-50 miles from 
    Damascus to Little Rock, a difference of at least seven cents is 
    justified between those two points. Milk should be encouraged to move 
    from Damascus to Little Rock, where it is needed by distributing plants 
    for fluid use. In view of the fact that Covington and Memphis were in 
    the same zone under the Memphis order and Van Buren County was part of 
    the base zone under Order 108, it is appropriate to limit the 
    difference to 7 cents between Zone 2 and new Zone 3.
        The new $2.70 zone is not carried through central Tennessee. This 
    is a departure from the pricing zones to the north and south of this 
    zone which extend on an east-west plane through the marketing area. As 
    noted previously, central Tennessee is a heavy supply area from which 
    milk moves to various parts of the marketing area. This area includes 
    Mid-Am's butter-powder plant at Lewisburg, which processes the market's 
    surplus milk. Under the Alabama-West Florida order, the price at this 
    plant is now $2.52, the same as the price applicable to the Purity 
    plant at Nashville and 1.5 cents below the price at the Fleming Dairy 
    plant, which has been regulated under the Georgia order. As proposed in 
    the recommended decision, the price at Lewisburg was $2.60, the same as 
    the price applicable at Murfreesboro and Nashville. This pricing was 
    based, in part, on Fleming's testimony that the price at Lewisburg 
    should be no higher than the price at Murfreesboro because otherwise 
    producers would have an incentive to deliver their milk to Lewisburg 
    for manufacturing use rather than to Murfreesboro for fluid use. The 
    recommended decision attempted to extend this reasoning to the 
    Nashville area as well by including Nashville in the same zone as the 
    Murfreesboro and Lewisburg plants, but, as explained below, the 
    Nashville handlers excepted to the higher price at Nashville and it has 
    been changed.
        With the addition of the new $2.70 zone, a question again arises 
    concerning the proper price at Lewisburg. Based on higher prices to the 
    east and west of Lewisburg, some might argue that Lewisburg should be 
    in the $2.70 zone. Similarly, in terms of north-south Class I price 
    alignment, it could be argued that Lewisburg should be priced at $2.70, 
    seven cents lower than Giles County, immediately below Lewisburg. These 
    considerations, however, are outweighed by the fact that there are no 
    distributing plants in Tennessee south of Murfreesboro which would 
    require a higher price at Lewisburg to preserve Class I price 
    alignment. In addition, because the Lewisburg plant is a surplus 
    processing plant, it is not necessary to increase the price at 
    Lewisburg to $2.70 to assure that the plant receives an adequate supply 
    of milk. Finally, the price at Lewisburg has been very close to the 
    price applicable at the Purity and Fleming plants at Nashville and the 
    necessity of keeping this relationship as close as possible overshadows 
    the potential problem that could arise if a distributing plant is ever 
    built at Lewisburg.
        Zones 1 and 2. With the addition of the new Zone 3, as described 
    above, Zone 2 now consists of 27 counties in central Tennessee and 
    three counties in northwest Arkansas. The price for this zone should be 
    $2.60.
        There are two plants in this zone: The Heritage Farms plant in 
    Murfreesboro (Rutherford County) and the Mid-America Dairymen, Inc., 
    butter-powder manufacturing plant in Lewisburg (Marshall County). The 
    Heritage plant now has a $2.605 price under Order 7 and the Lewisburg 
    plant has a $2.52 price under Order 93.
        The cooperative coalition proposed a price of $2.60 for these two 
    plants. A $2.60 Class I differential adjusted for location also was 
    proposed for these locations in the recommended decision. Neither 
    Heritage nor Mid-Am excepted to this price, and it is the price adopted 
    in this final decision.
        Zone 1 of the Southeast marketing area, as modified in this final 
    decision, includes 21 counties in northern Tennessee and 8 counties in 
    northern Arkansas. There are three plants in this zone: Fleming 
    Companies, Inc., and Purity Dairies, Inc., at Nashville, and Cumberland 
    Creamery at Antioch, Tennessee. The price adopted for this zone is 
    $2.55, which is three cents higher than the level proposed by the 
    cooperative coalition and the Fleming Company.
        This zone 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).
        At present, the Fleming Dairy plant is regulated under Order 7 and 
    has a Class I price of $2.53, while the Purity Dairy 
    [[Page 25045]] plant is regulated under Order 93 and has a Class I 
    price of $2.52. Cumberland Creamery plant is a nonpool plant that makes 
    condensed milk and milk powder.
        The cooperative coalition and the Fleming Company both proposed a 
    price of $2.52 for the Nashville area. However, the cooperative 
    coalition proposed $2.605 for Lewisburg and Murfreesboro, while the 
    Fleming Company proposed a price of $2.55 for those locations.
        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 (i.e, Mid-America Dairymen), butter-powder plant in Lewisburg, 
    Tennessee, the Cumberland Creamery in Antioch, or the Meadow Gold9 
    ice cream plant in Nashville.
    
        \9\This plant recently ceased operations.
    ---------------------------------------------------------------------------
    
        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.
        Based on the testimony of the Fleming Dairy witness, the 
    recommended decision put Nashville and Murfreesboro in the same zone 
    with a Class I differential adjusted for location of $2.60. The 
    recommended decision concluded that there was an abundant supply of 
    milk available to handlers in central Tennessee and, for this reason, 
    it was 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 also stated that it would not be 
    appropriate 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 price 
    applicable in the adjacent Tennessee Valley marketing area. The 
    recommended decision concluded that to provide a common pricing level 
    between the Nashville and Murfreesboro plants, the Nashville price 
    should be raised to $2.60.
        In its exception, Mid-Am stated that the Tennessee Counties of 
    Dickson, Cheatham, Davidson, Wilson, and Smith should be moved from 
    Zone 2 to Zone 1, and the price for Zone 1 should be changed from $2.55 
    to $2.52. The cooperative argued that putting Nashville in Zone 2, as 
    proposed in the recommended decision, results in price alignment 
    problems with handlers fully regulated under the Louisville-Lexington-
    Evansville order (Order 46). In support of this position, Mid-Am noted 
    that Louisville, which has a price of $2.11 under Order 46, is 175 
    miles from Nashville and that, based on a transportation cost of 2.5 
    cents per 10 miles, the price at Nashville should be no more than 44 
    cents higher than the Louisville price. It concluded, therefore, that 
    the price at Nashville should stay at $2.52.
        Fleming Companies, Inc., and Purity Dairies, Inc., which operate 
    distributing plants in Nashville, also opposed the $2.60 price proposed 
    for Nashville. They contend that a higher price is not needed for 
    Nashville because there is an abundant supply of milk in north central 
    Tennessee. They further stated in their exception that there was no 
    evidence in the record to support a higher price at Nashville; the 
    arguments made by Fleming Dairy at the hearing were in support of a 
    lower price at Murfreesboro, not a higher price at Nashville. They also 
    commented that the recommended decision ``creates a Class I price 
    disadvantage for Nashville handlers in competition with Southern Belle 
    and Flav-O-Rich in the southeast Kentucky portion of the Tennessee 
    Valley market, and with Louisville-Lexington-Evansville handlers.'' 
    They repeated their call for a $2.52 price at Nashville and a $2.55 
    price at Murfreesboro.
        The recommended $2.60 for Nashville was based upon the testimony of 
    the Fleming Dairy witness, who indicated that Fleming Dairy was at a 
    competitive disadvantage in procuring milk with the nearby Heritage 
    Farms Dairy plant at Murfreesboro. In its post-hearing brief, Fleming 
    stated that: ``The supply of milk to the three Nashville-area plants 
    comes from counties in central Kentucky and central Tennessee. Most of 
    the supply comes from Kentucky, and is centered around Barren County 
    which supplies over 10 million pounds per month to these plants * * *. 
    The Kroger Murfreesboro plant, like the two Nashville plants, receives 
    milk supplies from southern Kentucky, centered around Glasgow, in 
    Barren County * * *. By reference to Glasgow, the center of the common 
    production area, transportation to Murfreesboro is only six miles 
    greater than transportation to Nashville * * *. The difference in blend 
    prices payable to Central Kentucky producers for milk delivered at 
    comparable distances to the plants in Nashville and Murfreesboro has 
    caused unrest and discontent between neighboring producers.'' (Brief at 
    19-20.)
        Placing aside any consideration of a procurement problem faced by 
    either Purity or Fleming which would justify a higher Class I price, a 
    $2.60 Class I price at Nashville is too high in relation to the Class I 
    price at Louisville. Based upon the 169-mile distance from Louisville 
    to Nashville, the cost of transporting bulk milk from Louisville to 
    Nashville is approximately 43 cents (i.e., 17 x .025). Adding the 43 
    cents to the $2.11 price at Louisville would result in a price of 
    $2.54.
        The recommended decision did not consider the Class I price 
    alignment between Somerset, Kentucky, and Nashville, Tennessee, and 
    between London, Kentucky, and Nashville, Tennessee, because they did 
    not appear to be germane. Somerset and London are northeast of 
    Nashville. Southern Belle operates a distributing plant at Somerset, 
    and Flav-O-Rich operates a distributing plant at London. Both plants 
    are regulated under the Tennessee Valley order. It is 161 miles from 
    Somerset to Nashville and 198 miles from London to Nashville. The Class 
    I price at Somerset and London under the Tennessee Valley order is 
    $2.45. Based on a hauling cost of 2.5 cents per 10 miles, the 
    transportation allowance between Somerset and Nashville should be 43 
    cents (i.e., 17 x .025) and the transportation allowance between London 
    and Nashville should be 48 cents (i.e., 19 x .025). Adding these 
    allowances to the $2.45 Class I price at Somerset or London would 
    justify a Class I price at Nashville of between $2.88 and $2.93. This 
    computation would not appear to support the Fleming/Purity argument 
    that a price of $2.60 at Nashville is too high.
        The Class I differential adjusted for location at Nashville should 
    be changed from $2.60 to $2.55 by moving the Tennessee counties of 
    Dickson, Cheatham, Davidson, Wilson, and Smith [[Page 25046]] from Zone 
    2 to Zone 1. This change will narrow the difference in price between 
    Nashville and Murfreesboro from the present 8 cents to 5 cents. Based 
    on the 43-cent transportation cost between Louisville and Nashville, 
    and the 43-cent transportation cost between Somerset and Nashville, 
    this modest 3-cent price increase at Nashville should pose no Class I 
    price alignment problem for Nashville-area plants. It will have the 
    beneficial effect of increasing slightly the uniform price at Nashville 
    in relation to Louisville, Somerset, London, and Murfreesboro, which 
    may help Nashville-area handlers retain their milk supplies from 
    central Kentucky.
        No change should be made in the Class I price at Murfreesboro. It 
    should remain in Zone 2 with a Class I differential adjusted for 
    location of $2.60.
        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 price in those 
    counties is $2.77. Had those counties been incorporated in the proposed 
    Southeast order, they would have been included in Zone 5, 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 7, 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 adjusted 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 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 adjusted 
    for location 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 or 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 
    [[Page 25047]] 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 
    stated, 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 [[Page 25048]] 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 
    [[Page 25049]] 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. A base-excess plan should 
    be adopted for the merged order. The plan adopted in this final 
    decision is significantly different than the one proposed in the 
    recommended decision.
        Need For a Base-Excess Plan. 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.
        In their exceptions to the recommended decision, Gold Star Dairy 
    and AMPI maintain that Mid-Am, the dominant cooperative in the 
    Southeast marketing area, will not pay its producers base and excess 
    prices. They stated that, historically, base-excess plans have been 
    used to impede the movement of producers from one market to another and 
    are not necessary to advance the provisions of the Act. AMPI emphasized 
    that the plan will be ``especially onerous--and act as an exclusionary 
    barrier--to the flexible and efficient marketing capability of 
    cooperatives whose producers are located to the southwest, west and 
    north of the proposed Southeast marketing area.''
        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. However, it is time-consuming and costly for the 
    market administrator to administer a base-excess plan. If the plan is 
    not used under the merged order to pay producers, it cannot be 
    effective for the intended purpose of leveling out production. Absent a 
    demonstration of use of the plan in paying producers, further 
    consideration should be given to whether the plan is necessary. This 
    decision is written, however, on the basis of the testimony, evidence, 
    and comments on the record of this hearing which demonstrate that the 
    plan is desired, needed, and will be used to pay producers.
        Under the base plan adopted in this final decision, a producer can 
    earn a base by shipping as little as one day's production to the 
    Southeast market during the months of July through December. Of course, 
    such a base will be very small, but the point to be emphasized is that 
    those who argued that the base plan would inhibit the movement of milk 
    on and off the market will have the flexibility to shift milk between 
    plants as conditions may require. The base plan, as modified, should 
    serve its purpose of encouraging producers to level their seasonal 
    production pattern but, at the same time, not be a barrier to the 
    movement of milk on and off the market.
        Base-Forming and Base-Paying Months: 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 
    [[Page 25050]] 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 appropriate base-paying period for this market is February 
    through May. These are clearly the months when additional milk is not, 
    in fact, needed. 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 testimony and the comments received, the 
    cooperative coalition's proposed February-May base-paying period was 
    proposed in the recommended decision and is adopted in this final 
    decision.
        With respect to the base-forming period, the recommended decision 
    concluded that the needs of the market's producers would be met by 
    using the months of September, October, and November. However, many 
    comments were received opposing these months because they were too 
    restrictive. Accordingly, this final decision is modified to meet the 
    needs of all producers by expanding the base-forming months to July 
    through December. However, only each producer's highest four production 
    months will be used to determine each producer's base.
        In their exceptions to the recommended decision, Mid-America, 
    Southern Milk Sales, the Louisiana Farm Bureau Federation, the 
    Mississippi Farm Bureau Federation, and many dairy farmers again stated 
    their support for the months of September through December. Mid-America 
    and Southern Milk Sales argued that the merged order should include a 
    four-month base-forming period of September through December because a 
    shorter period would be unfair to all producers whose milk will be 
    pooled under the order. They maintain that the four months of September 
    through December would balance the desires of producers in both the 
    northern and southern areas of the proposed marketing area.
        The Georgia Milk Producers Association (GMP), Alabama Dairy 
    Producers, and several dairy farmers reiterated their support for the 
    months of September through January as the base-forming period. These 
    commentors argued that the recommended September through November base-
    forming period would place producers located in the southern part of 
    the marketing area at a disadvantage compared to producers located in 
    the northern area due to the summer heat. GMP contends that the 
    lingering effects of the hot summer weather on cows as well as the warm 
    temperatures of late summer and early fall prevent cows from reaching 
    their peak production until the late fall.
        Fleming Dairies reiterated its support for the inclusion of the 
    months of July and August in the base-forming period. Fleming argued 
    that while the average producer will find it easier to establish a 
    ``production benchmark'' during the fall months, establishing a base-
    forming period to provide ease to producers in building a base is not a 
    goal of a base-excess plan. It emphasized that the objective of a base-
    excess plan is to ``encourage more even production of milk throughout 
    the year.'' By excluding the shortest milk production months of July 
    and August from the base-forming period, Fleming contends that a major 
    objective of the statutory seasonal incentive authority would be 
    abandoned. It urged that this error be corrected in the final decision.
        As a result of the comments received, the recommended base-forming 
    period of September through November should be expanded to the months 
    of July through December. However, instead of using every month of this 
    six-month period to determine a producer's base, only the highest four 
    production months should be used. This four-month period will better 
    accomplish the goal of establishing the production benchmark, and it 
    will allow all of the market's producers to compete on equally 
    favorable conditions.
        As noted above, Fleming claims that July and August should be base-
    forming months because these months are low production months when milk 
    is often in short supply. On the other hand, many of the market's 
    producers would also like to see the months of December and January 
    included in the base-forming period because they are accustomed to 
    these months under their present base plans and the inclusion of these 
    months would boost their daily average production.
        The primary reason for initially excluding the months of July, 
    August, December, and January from the base-forming period was because 
    these months would be difficult months for some dairy farmers. However, 
    the modified base-forming period provides producers with much more 
    flexibility. [[Page 25051]] While the inclusion of December may help 
    producers in the southern-most part of the market, the inclusion of 
    July and August, in conjunction with the use of the four highest daily 
    average production months, should result in a balanced plan that is 
    fair to all of the market's producers.
        The month of January was not included in the base-forming period 
    because its inclusion would make it impossible for the market 
    administrator to determine a producer's base in time for the producer 
    to transfer that base with certain knowledge of what the base actually 
    is. Under Sec. 1007.93(a) of the base rules, in order for a transferred 
    base to be effective at the beginning of the February 1 base-paying 
    period it must be transferred by February 15. However, if January had 
    been included in the base-forming period, the market administrator 
    would not have had the information to compute a base until near the end 
    of February. With the July-December base-forming period adopted in this 
    decision, the market administrator will have the time to compute and 
    announce bases by January 31 so that orderly transfers may take place 
    prior to, or close to, the outset of the base-paying period. As a 
    result, producers will not be placed in the position of having to ship 
    their milk for an entire month without knowing with certainty what 
    their base was. By having the information available at the outset of 
    the base-paying period, producers will be in a better position to make 
    informed and timely management decisions.
        Under the plan adopted in this final decision, to qualify for a 
    base, a dairy farmer must be a ``producer'' under the Southeast order 
    during one or more of the months of July through December. To determine 
    each producer's average daily production during the base-forming 
    months, the market administrator will divide the producer's total 
    pounds of producer milk delivered to pool plants or diverted to nonpool 
    plants by the number of days in the month. The sum of the four highest 
    daily averages so computed will then be added together and divided by 
    four to determine the producer's daily average base. If a producer was 
    on the market for less than four months, a zero will be substituted for 
    each month in which no producer deliveries were made. Unless the 
    producer qualifies under the hardship provisions described below, the 
    divisor in this base computation will always be four.
        Under the present base plan provisions and those proposed by the 
    cooperative coalition, accommodation is made for a producer who 
    experienced a substantial reduction in production as a result of a 
    catastrophe, certain diseases, or a quarantine. Since only the four 
    highest months of production out of a total of six months will be used 
    to determine base under the base-excess plan adopted in this decision, 
    it is less likely that this provision will be needed. Nevertheless, 
    such a provision is provided in Sec. 1007.92(c) to accommodate those 
    situations when a producer's production is severely disrupted by fire, 
    storm, or other natural disaster, by brucellosis, bovine tuberculosis, 
    or other infectious diseases, or by a Federal or State quarantine of a 
    producer's farm. In the unlikely event that a disruption in production 
    caused by one or more of these conditions leaves a dairy farmer without 
    four complete months of production from which to compute a base, the 
    dairy farmer may request a base computation based on a lessor number of 
    months by submitting to the market administrator in writing on or 
    before February 1 a statement that establishes to the satisfaction of 
    the market administrator that during four or more of the months in the 
    immediately preceding July through December base-forming period the 
    amount of milk produced on such producer's farm was substantially 
    reduced because of one or more of the conditions described in 
    Sec. 1007.92(c).
        In addition to discussing the conditions specifically included in 
    Sec. 1007.92(c), the recommended decision's findings and conclusions 
    referred to a ``temporary loss of market when cut off by a buying 
    handler.'' The implication of this language, which emanated from the 
    testimony of the cooperative coalition's spokesman but which was not in 
    the proposed rules of the coalition, was not explored.
        Under the base plan provisions adopted in this decision, order 
    language of this nature is unnecessary because a producer can have a 
    ``temporary'' loss of market for as long as two months and still be 
    eligible for a full base by at least qualifying as a producer for the 
    remaining four months of the base-building period. Accordingly, no 
    specific accommodation has to be made for a producer who is temporarily 
    off the market for this reason.
        Producers who do not qualify for a base because they delivered milk 
    to a nonpool plant that became a pool plant after the beginning of the 
    base-forming period should be assigned bases under the order. Such 
    bases should be calculated as if the nonpool plant had been a pool 
    plant during the entire base-forming period. A base assigned in this 
    manner also would not be transferable.
        Transfer Rules: A base earned by a producer may be transferred. 
    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 will 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. However, base 
    transfers to be effective on February 1 must be received by the market 
    administrator no later than February 15. 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.
        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 [[Page 25052]] 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.
        Sections 1007.92, 1007.93, and 1007.94 have been modified to 
    reflect the changes in the base-forming months, in the computation of a 
    producer's base, and the base rules.
        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 [[Page 25053]] 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.
    
    Motions To Reopen the Hearing
    
        Several parties motioned to reopen the hearing. Fleming and Purity 
    argued that there was no proposal to increase the price at Nashville, 
    decrease the price at Covington, decrease the price at Montgomery, or 
    decrease the price at Huntsville. In addition, they state that since 
    the hearing there has been a major restructuring and reorganization of 
    plant ownership and milk supplies in the Southeast and that the 
    dominant cooperative association, Mid-America Dairymen, Inc., has 
    entered into full supply agreements with Meadow Gold, Borden, and 
    Barber Pure Milk Company plants, effectively requiring independent 
    producers supplying those plants to join the cooperative association or 
    lose the market for their milk. Fleming and Purity maintain that Mid-Am 
    knew of these changes but concealed them from the hearing participants, 
    who should have an opportunity to address them.
        Gold Star Dairy requested that the hearing be reopened to receive 
    additional testimony and evidence on the Class I price zones and the 
    size of the marketing area. Gold Star excepted to the increase in Class 
    I price at Little Rock, the 17-cent reduction in price at Covington, 
    Tennessee, and the price reductions in Louisiana, an area that is 
    [[Page 25054]] priced well above Gold Star's location in Little Rock. 
    As far as marketing area is concerned, Gold Star states in its 
    exception that ``in large part Gold Star does not care which order it 
    is pooled on so long as its pricing and competitive price structure 
    does not change.''
        Dairy Fresh Corporation of Greensboro, Alabama, asked for a 
    reopened hearing because the price at its plant in Hattiesburg was 
    increased by 3 cents, while the prices at Canton, Jackson, and 
    Kosciusko, Mississippi, were reduced by 17 cents, 7 cents, and 12 
    cents, respectively, the price at New Orleans was reduced by 17 cents, 
    and the price at Baton Rouge was reduced by 10 cents. In addition, 
    Dairy Fresh did not agree that a 10-cent increase in price was 
    necessary for its Cowarts, Alabama, plant.
        Admittedly, there have been many changes in the Southeast marketing 
    area since the November 1993 hearing. Many of these changes were noted 
    in the recommended decision. Others have been pointed out in this 
    decision. Since these changes are well known to the handlers and 
    producers in this market and to the Department, there is nothing to be 
    gained by reopening the hearing.
        With respect to the arguments of Fleming, Purity, Gold Star, 
    Barber, and Dairy Fresh that they had no notice of the price changes 
    and no opportunity to address the issues, it is determined that, on the 
    contrary, they did have notice and an opportunity to present evidence 
    regarding all provisions of the merged order. Furthermore, they 
    addressed these issues in their exceptions and the Department carefully 
    reviewed their arguments, and, for the most part, made changes as a 
    result of them. In particular, the price at Nashville was reduced from 
    $2.60 to $2.55, the price at Covington was increased from $2.60 to 
    $2.70, the price at Little Rock was reduced from $2.77 to $2.70, the 
    price at Cowarts, Alabama, was reduced from $3.48 to $3.40, the price 
    at Hattiesburg was reduced from $3.48 to $3.40, and the price at Mobile 
    was reduced from $3.68 to $3.65. With respect to price reductions that 
    were made in higher-priced areas to improve alignment or to revise 
    price increases that were made in 1985, it is concluded that Fleming, 
    Purity, Gold Star, and Dairy Fresh have no right to expect prices to be 
    maintained that are higher than necessary simply so that these handlers 
    can sell their milk in higher-priced markets in Alabama, Mississippi, 
    Georgia, and Louisiana.
        The administrative rulemaking procedure has worked as it is 
    supposed to work in this proceeding. Many different proposals were 
    evaluated. They were combined and modified as deemed to be appropriate 
    and interested parties were given an opportunity to comment on the 
    recommended decision. In this final decision, the exceptions to the 
    recommended decision were considered and justified changes were 
    adopted. There is no reason to delay this proceeding for at least 
    another year by reopening the hearing to hear facts that are generally 
    known to everyone involved with this matter. The requests to reopen the 
    hearing, accordingly, are denied.
    
    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 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 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 Southeast order 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, 
    a marketing agreement upon which a hearing has been held;
        (d) All milk and milk products handled by handlers, as defined in 
    the Southeast order, 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 pay, as its pro rata share of such expense, 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.
    
    Rulings on Exceptions
    
        In arriving at the findings and conclusions, and the regulatory 
    provisions of this decision, each of the exceptions received was 
    carefully and fully considered in conjunction with the record evidence. 
    To the extent that the findings and conclusions and the regulatory 
    provisions of this decision are at variance with any of the exceptions, 
    such exceptions are hereby overruled for the reasons previously stated 
    in this decision.
    
    Marketing Agreement and Order
    
        Annexed hereto and made a part hereof are two documents, a 
    Marketing Agreement regulating the handling of milk in the Southeast 
    marketing area and an Order amending the order regulating the handling 
    of milk in the Southeast marketing area, which have been decided upon 
    as the detailed and appropriate means of effectuating the foregoing 
    conclusions. It is hereby ordered that this entire decision and the two 
    documents annexed hereto be published in the Federal Register.
    
    Referendum Order to Determine Producer Approval; Determination of 
    Representative Period; and Designation of Referendum Agent
    
        It is hereby directed that a referenda be conducted and completed 
    on or before the 30th day from the date this decision is issued, in 
    accordance with the procedure for the conduct of referenda (7 CFR 
    900.300-311), to determine whether the issuance of the order as amended 
    and as hereby proposed to be amended, regulating the handling of milk 
    in the Southeast marketing area is approved or favored by producers, as 
    defined under the terms of the individual orders (as amended and as 
    hereby proposed to be amended), who during such 
    [[Page 25055]] representative period were engaged in the production of 
    milk for sale within the aforesaid marketing areas.
        The representative period for the conduct of such referenda is 
    hereby determined to be March 1995.
        The agents of the Secretary to conduct such referenda are hereby 
    designated to be the market administrators of the aforesaid orders.
    
    Determination of Producer Approval and Representative Period
    
        March 1995 is hereby determined to be the representative period for 
    the purpose of ascertaining whether the issuance of the merged order 
    regulating the handling of milk in the Southeast marketing area is 
    approved or favored by producers as defined under the terms of the 
    individual orders (as amended and as hereby proposed to be amended) who 
    during the representative period were engaged in the production of milk 
    for sale within the aforesaid marketing areas.
    
    List of Subjects in 7 CFR Part 1007
    
        Milk marketing orders.
    
        Dated: May 3, 1995.
    Patricia A. Jensen,
    Acting Assistant Secretary, Marketing and Regulatory Programs.
    
    Order Amending the Order Regulating the Handling of Milk in the 
    Southeast Marketing Area
    
        This order shall not become effective unless and until the 
    requirements of Sec. 900.14 of the rules of practice and procedure 
    governing proceedings to formulate marketing agreements and marketing 
    orders have been met.
    
    Findings and Determinations
    
        The findings and determinations hereinafter set forth supplement 
    those that were made when the 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) Findings. A public hearing was held upon certain proposed 
    amendments to the tentative marketing agreements and to the orders 
    regulating the handling of milk in the aforesaid marketing areas. The 
    hearing was held pursuant to the provisions of the Agricultural 
    Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the 
    applicable rules of practice and procedure (7 CFR Part 900).
        Upon the basis of the evidence introduced at such hearing and the 
    record thereof, it is found that:
        (1) The said orders as hereby amended, and all of the terms and 
    conditions thereof, will tend to effectuate the declared policy of the 
    Act;
        (2) 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 the aforesaid marketing areas. The 
    minimum prices specified in the order as hereby 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; and
        (3) The said orders as hereby amended regulate the handling of milk 
    in the same manner as, and is applicable only to persons in the 
    respective classes of industrial or commercial activity specified in, a 
    marketing agreement upon which a hearing has been held;
        (4) All milk and milk products handled by handlers, as defined in 
    the order as hereby amended, are in the current of interstate commerce 
    or directly burden, obstruct, or affect interstate commerce in milk or 
    its products; and
        (5) 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 pay, as its pro rata share of such expense, 5 
    cents per hundredweight or such lesser amount as the Secretary may 
    prescribe, with respect to milk specified in Sec. 1007.85.
    
    Order Relative to Handling
    
        It is therefore ordered that on and after the effective date 
    hereof, the handling of milk in the Southeast marketing area shall be 
    in conformity to and in compliance with the terms and conditions of the 
    following attached order.
         It is proposed to revise 7 CFR part 1007 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.
    
    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 price.
    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 the uniform price.
    1007.61  Computation of uniform price (including weighted average 
    price and uniform prices for base and excess milk).
    1007.62  Announcement of uniform price 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 a 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. [[Page 25056]] 
    
    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: Cheatham, Clay, Davidson, Dickson, Fentress, 
    Henry, Houston, Jackson, Lake, Macon, Montgomery, Obion, Overton, 
    Pickett, Robertson, Smith, Stewart, Sumner, Trousdale, Weakley, and 
    Wilson.
    
    Zone 2
    
        Arkansas counties: Newton, Searcy, and Stone.
        Tennessee counties: Bedford, Benton, Bledsoe, Cannon, Carroll, 
    Chester, Coffee, Crockett, DeKalb, Decatur, Dyer, Gibson, Grundy, 
    Henderson, Hickman, Humphreys, Lewis, Madison, Marshall, Maury, 
    Perry, Putnam, Rutherford, Van Buren, Warren, White, and Williamson.
    
    Zone 3
    
        Arkansas counties: Cleburne, Craighead, Independence, Jackson, 
    Johnson, Mississippi, Poinsett, Pope, and Van Buren.
        Tennessee counties: Lauderdale, Tipton, and Haywood.
    
    Zone 4
    
        Arkansas counties: Conway, Crittenden, Cross, Faulkner, Garland, 
    Lee, Lonoke, Monroe, Montgomery, Perry, Polk, Prairie, Pulaski, 
    Saline, St. Francis, White, Woodruff, and Yell.
        Tennessee counties: Fayette, Franklin, Giles, Hardeman, Hardin, 
    Lawrence, Lincoln, McNairy, Moore, Shelby, and Wayne.
    
    Zone 5
    
        Alabama counties: Colbert, De Kalb, Franklin, Jackson, 
    Lauderdale, Lawrence, Limestone, Madison, Marshall, and Morgan.
        Arkansas counties: Arkansas, Clark, Grant, Hot Spring, Howard, 
    Jefferson, Phillips, Pike, and Sevier.
        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 6
    
        Alabama counties: Blount, Cherokee, Cullman, Etowah, Fayette, 
    Lamar, Marion, Walker, and Winston.
        Arkansas counties: Bradley, Calhoun, Cleveland, Dallas, Desha, 
    Drew, Hempstead, Lincoln, Little River, Nevada, and Ouachita.
        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 7
    
        Alabama counties: Bibb, Calhoun, Clay, Cleburne, Jefferson, 
    Pickens, Randolph, Shelby, St. Clair, Talladega, and Tuscaloosa.
        Arkansas counties: Ashley, Chicot, Columbia, Lafayette, Miller, 
    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 8
    
        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 9
    
        Alabama counties: Autauga, Bullock, Dallas, Elmore, Lowndes, 
    Macon, Marengo, Monroe, 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 10
    
        Alabama counties: Barbour, Butler, Choctaw, Clarke, Coffee, 
    Conecuh, Covington, Crenshaw, Dale, Escambia, Geneva, Henry, 
    Houston, Monroe, Pike, and Washington.
        Georgia counties: Appling, Atkinson, Bacon, Baker, Ben Hill, 
    Berrien, Brantley, Brooks, Bryan, Calhoun, Camden, Charlton, 
    Chatham, Clay, Clinch, Coffee, Colquitt, Cook, Decatur, Dougherty, 
    Early, Echols, Glynn, Grady, Irwin, Jeff Davis, Lanier, Lee, 
    Liberty, Long, Lowndes, McIntosh, Miller, Mitchell, Pierce, Quitman, 
    Randolph, Seminole, Terrell, Thomas, Tift, Turner, Ware, Wayne, and 
    Worth.
        Louisiana parishes: Avoyelles, Catahoula, Concordia, Grant, La 
    Salle, Natchitoches (south of State Highway 6 and U.S. 84), Rapides, 
    Sabine, and Vernon.
        Mississippi counties: Adams, Amite, Covington, Forrest, 
    Franklin, Greene, Jefferson, Jefferson Davis, Jones, Lamar, 
    Lawrence, Lincoln, Marion, Perry, Pike, Walthall, Wayne, 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, St. Tammany, 
    Tangipahoa, Washington, and West Feliciana.
        Mississippi counties: George, Hancock, Harrison, Jackson, 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, Terrebonne, Vermilion, and West Baton Rouge.
    
    
    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). 
    [[Page 25057]] 
    
    
    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), (c) or 
    (d) of this section, or a unit of plants as specified in paragraph (e) 
    of this section, but excluding a plant specified in paragraph (g) of 
    this section. The pooling standards described in paragraphs (a) through 
    (c) of this section are subject to modification pursuant to paragraph 
    (f) 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) A plant located within the marketing area (other than a 
    producer-handler plant or a governmental agency plant) that meets the 
    qualifications described in paragraph (a) of this section regardless of 
    its quantity of route disposition in any other Federal order marketing 
    area.
        (e) 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 (e)(1) of this section; and
        (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.
        (f) 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.
        (g) 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 [[Page 25058]] 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 (or such 
    unit of plants in the case of plants that pool as a unit pursuant to 
    Sec. 1007.7(d)) 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; [[Page 25059]] 
        (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.
    
    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. [[Page 25060]] 
    
    
    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 
    [[Page 25061]] 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; [[Page 25062]] 
        (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 [[Page 25063]] 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 an other 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 another order plant that are in excess of bulk fluid milk 
    products [[Page 25064]] 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)(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. [[Page 25065]] 
    
    
    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 another 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 another 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 the basic formula price for the 
    second preceding month plus $.30.
        (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 price.
    
        The basic formula price shall be the preceding month's average pay 
    price for manufacturing grade milk in Minnesota and Wisconsin using the 
    ``base month'' series, as reported by the Department, adjusted to a 3.5 
    percent butterfat basis using the butterfat differential for the 
    preceding month computed pursuant to Sec. 1007.74 and rounded to the 
    nearest cent, plus or minus the change in gross value yielded by the 
    butter-nonfat dry milk and Cheddar cheese product price formula 
    computed pursuant to paragraphs (a) through (e) of this section.
        (a) The gross values of per hundredweight of milk used to 
    manufacture butter-nonfat dry milk and Cheddar cheese shall be 
    computed, using price data determined pursuant to paragraph (b) of this 
    section and annual yield factors, for the preceding month and 
    separately for the current month as follows:
        (1) The gross value of milk used to manufacture butter-nonfat dry 
    milk shall be the sum of the following computations:
        (i) Multiply the Grade AA butter price by 4.27;
        (ii) Multiply the nonfat dry milk price by 8.07; and
        (iii) Multiply the dry buttermilk price by 0.42.
        (2) The gross value of milk used to manufacture Cheddar cheese 
    shall be the sum of the following computations:
        (i) Multiply the Cheddar cheese price by 9.87; and
        (ii) Multiply the Grade A butter price by 0.238.
        (b) The following product prices shall be used pursuant to 
    paragraph (a) of this section:
        (1) Grade AA butter price. Grade AA butter price means the simple 
    average for the month of the Chicago Mercantile Exchange, Grade AA 
    butter price, as reported by the Department.
        (2) Nonfat dry milk price. Nonfat dry milk price means the simple 
    average for the month of the Western Nonfat Dry Milk Low/Medium Heat 
    price, as reported by the Department.
        (3) Dry buttermilk price. Dry buttermilk price means the simple 
    average for the month of the Western Dry Buttermilk price, as reported 
    by the Department.
        (4) Cheddar cheese price. Cheddar cheese price means the simple 
    average for the month of the National Cheese Exchange 40-pound block 
    Cheddar cheese price, as reported by the Department.
        (5) Grade A butter price. Grade A butter price means the simple 
    average for the month of the Chicago Mercantile Exchange Grade A butter 
    price, as reported by the Department.
        (c) Determine the amounts by which the gross value per 
    hundredweight of milk used to manufacture butter-nonfat dry milk and 
    the gross value per hundredweight of milk used to manufacture Cheddar 
    cheese for the current month exceed or are less than the respective 
    gross values for the preceding month.
        (d) Compute weighting factors to be applied to the changes in gross 
    values determined pursuant to paragraph (c) 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 (d)(1) and (d)(2) of this section:
         (1) Combine the total nonfat dry milk production for the States of 
    Minnesota and Wisconsin, as reported by the Department, for the most 
    recent preceding period, and divide by the annual yield factor for 
    nonfat dry milk, 8.07, to determine the quantity (in hundredweights) of 
    milk used in the production of butter-nonfat dry milk; and
         (2) Combine the total American cheese production for the States of 
    Minnesota and Wisconsin, as reported by the Department, for the most 
    recent preceding period, and divide by the annual yield factor for 
    Cheddar cheese, 9.87, to determine the quantity (in hundredweights) of 
    milk used in the production of American cheese.
         (e) Compute a weighted average of the changes in gross values per 
    hundredweight of milk determined pursuant to paragraph (c) of this 
    section in accordance with the relative proportions of milk determined 
    pursuant to paragraph (d) of this section. [[Page 25066]] 
    
    
    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 38
    Zone 4
    Minus 31
    Zone 5
    Minus 25
    Zone 6
    Minus 10
    Zone 7
    No adjustment
     Zone 8
    Plus 10
    Zone 9
    Plus 20
    Zone 10
    Plus 32
    Zone 11
    Plus 50
    Zone 12
    Plus 57
    
        (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 (2), (3), 
    and (4) of this section, the adjustment shall be determined by 
    subtracting the Class I differential price in Zone 7 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 and Class II prices for the 
    following month, and the Class III and Class III-A prices for the 
    preceding month.
    
    
    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 [[Page 25067]] 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.
    [[Page 25068]]
    
    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 
    [[Page 25069]] 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 prices for base and excess milk 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 current month's butter 
    price less 0.0028 times the preceding month's average pay price per 
    hundredweight, at test, for manufacturing grade milk, in Minnesota and 
    Wisconsin, using the ``base month'' series, adjusted pursuant to 
    Sec. 1007.51(a) through (e), as reported by the Department. The butter 
    price means the simple average for the month of the Chicago Mercantile 
    Exchange, Grade A butter price as reported by the Department.
    
    
    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 another 
    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 
    another 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 [[Page 25070]] 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 another 
    order plant which serves as a supply plant for such partially regulated 
    distributing plant by making shipments to the partially regulated 
    distributed 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 [[Page 25071]] 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 paragraph (c) of this section, a base for each dairy 
    farmer who was a producer pursuant to Sec. 1007.12 during one or more 
    of the immediately preceding months of July through December shall be 
    determined by dividing the total pounds of producer milk delivered by 
    such producer during each of those months by the number of calendar 
    days in the month, adding together the four highest monthly averages so 
    computed, and dividing by four. 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 delivered milk to a nonpool plant that became 
    a pool plant after the beginning of the July-December 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.
        (c) A person who was unable to qualify as a producer during four or 
    more of the immediately preceding months of July through December or 
    who did not have at least four complete months of production, in either 
    case for one or more of the reasons specified in this paragraph, may 
    request a base computation based upon a lesser number of months by 
    submitting to the market administrator in writing on or before February 
    1 a statement that establishes to the satisfaction of the market 
    administrator that during four or more of the months in the immediately 
    preceding July through December 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 as a result of:
        (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 prevented the 
    dairy farmer from supplying milk from the farm of such producer to a 
    plant.
    
    
    Sec. 1007.93  Base rules.
    
        (a) Except as provided in Sec. 1007.92 (b) and (c) 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.
    
    
    Sec. 1007.94  Announcement of established bases.
    
        On or before January 31 of each year, the market administrator 
    shall calculate a base for each person who was a producer during one or 
    more of the preceding months of July through December 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.
    
    [FR Doc. 95-11311 Filed 5-9-95; 8:45 am]
    BILLING CODE 3410-02-P
    
    

Document Information

Published:
05/10/1995
Department:
Agricultural Marketing Service
Entry Type:
Proposed Rule
Action:
Proposed rule.
Document Number:
95-11311
Pages:
25014-25071 (58 pages)
Docket Numbers:
Docket Nos. AO-366-A36, et al., DA-93-21
PDF File:
95-11311.pdf
CFR: (75)
7 CFR 1007.51(a)
7 CFR 1007.52(a)(2)
7 CFR 1046.7(a)
7 CFR 1007.7(a)
7 CFR 1007.8(a)
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