[Federal Register Volume 60, Number 164 (Thursday, August 24, 1995)]
[Proposed Rules]
[Pages 43986-43994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20968]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 164 / Thursday, August 24, 1995 /
Proposed Rules
[[Page 43986]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Parts 1005, 1011, and 1046
[Docket No. AO-388-A8, et al.; DA-94-12]
Milk in the Carolina, Tennessee Valley, and Louisville-Lexington-
Evansville Marketing Areas; Recommended Decision and Opportunity to
File Written Exceptions on Proposed Amendments to Tentative Marketing
Agreements and to Orders
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7 CFR Part Marketing area AO Nos.
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1005...... Carolina................................ AO-388-A8
1011...... Tennessee Valley........................ AO-251-A39
1046...... Louisville-Lexington-Evansville......... AO-123-A66
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AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
SUMMARY: This recommended decision would amend the pooling standards of
the Tennessee Valley and Carolina orders; modify the marketing areas of
the Tennessee Valley and Louisville-Lexington-Evansville orders; change
the location adjustment under the Carolina order for plants located in
the Middle Atlantic marketing area; and change the base-paying months
under the Carolina order.
DATES: Comments are due on or before September 25, 1995.
ADDRESSES: Comments (four copies) should be filed with the Hearing
Clerk, Room 1083, South Building, United States Department of
Agriculture, Washington, DC 20250.
FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,
Order Formulation Branch, USDA/AMS/Dairy Division, 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 proposed rule will not have a
significant economic impact on a substantial number of small entities.
The amendments would permit plants to be regulated under the order in
which they are physically located.
The amendments to the rules proposed herein have been reviewed
under Executive Order 12778, Civil Justice Reform. They are not
intended to have a retroactive effect. If adopted, the proposed
amendments would not preempt any state or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under section
608c(15)(A) of the Act, any handler subject to an order may file with
the Secretary a petition stating that the order, any provision of the
order, or any obligation imposed in connection with the order is not in
accordance with the law and requesting a modification of an order or to
be exempted from the order. A handler is afforded the opportunity for a
hearing on the petition. After a hearing, the Secretary would rule on
the petition. The Act provides that the district court of the United
States in any district in which the handler is an inhabitant, or has
its principal place of business, has jurisdiction in equity to review
the Secretary's ruling on the petition, provided a bill in equity is
filed not later than 20 days after the date of the entry of the ruling.
Prior document in this proceeding:
Notice of Hearing: Issued November 21, 1994; published November 25,
1994 (59 FR 60574).
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
recommended decision with respect to proposed amendments to the
tentative marketing agreements and the orders regulating the handling
of milk in the Carolina, Tennessee Valley, and Louisville-Lexington-
Evansville marketing areas. This notice is issued pursuant to the
provisions of the Agricultural Marketing Agreement Act and the
applicable rules of practice and procedure governing the formulation of
marketing agreements and marketing orders (7 CFR part 900).
Interested parties may file written exceptions to this decision
with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC
20250, by the 30th day after publication of this decision in the
Federal Register. Four copies of the exceptions should be filed. All
written submissions made pursuant to this notice will be made available
for public inspection at the office of the Hearing Clerk during regular
business hours (7 CFR 1.27(b)).
The proposed amendments set forth below are based on the record of
a public hearing held at Charlotte, North Carolina, on January 4, 1995,
pursuant to a notice of hearing issued November 21, 1994 (59 FR 60574).
The material issues on the record of hearing relate to:
1. Marketing area modifications to the Tennessee Valley and
Louisville-Lexington-Evansville orders;
2. Where to regulate a distributing plant that meets the pooling
standards of more than one order;
3. Supply plant pooling standards under the Tennessee Valley order;
4. Distributing plant pooling standards under the Carolina order;
5. Location adjustments under the Carolina order; and
6. Base-paying months under the Carolina order.
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. Marketing Area Modifications to the Tennessee Valley (Order 11) and
Louisville-Lexington-Evansville (Order 46) Orders
Six now-unregulated Kentucky counties between the Order 11 and
Order 46 marketing areas should be added to the Order 11 marketing area
and one county that is now part of the Order 46 marketing area should
be removed and added to the Order 11 marketing area.
A spokesman for Southern Belle Dairy Company, Inc., testified that
the six
[[Page 43987]]
unregulated counties--Clay, Jackson, Laurel, McCreary, Owsley, and
Rockcastle--and the one Order 46 county--Pulaski--are in an area that
is closely associated with the Tennessee Valley marketing area. He
pointed out, for example, that two Order 11 pool plants--the Flav-O-
Rich plant at London and the Southern Belle plant at Somerset--are in
Laurel and Pulaski Counties, respectively.
The witness indicated that Southern Belle had sales in each of the
counties proposed to be added to the marketing area. He also introduced
data showing that 79 percent of the fluid milk sales in the seven-
county area came from the Southern Belle and Flav-O-Rich plants. He
said that a majority of the sales in Pulaski County also came from
Order 11 plants.
There was no opposition to this proposal either at the hearing or
in post-hearing briefs.
The six now-unregulated Kentucky counties should be added to the
Order 11 marketing area and Pulaski County should be removed from the
Order 46 marketing area and added to the Order 11 marketing area. This
seven-county area is closely associated with the Tennessee Valley
market and its addition to the Order 11 marketing area, in conjunction
with the pooling standards adopted in this decision, will add
regulatory stability for the plants with sales in this area. There are
no plants in this seven-county area other than the Southern Belle and
Flav-O-Rich plants and none outside of this area that would become
regulated as a result of the addition of this territory to the
Tennessee Valley marketing area.
2. Where to Regulate a Distributing Plant That Meets the Pooling
Standards of More Than One Order
The pooling standards of the Tennessee Valley and Carolina orders
should be modified to fully regulate a distributing plant that is
located within their respective marketing areas and that meets the
pooling standards of Secs. 1011.7(a) or 1005.7(a), respectively, even
if the plant meets the pooling standards of another order and has more
route disposition in such other order's marketing area.
These amendments will allow a distributing plant at Kingsport,
Tennessee, that is located within the Tennessee Valley marketing area
and that meets all of the pooling standards of the Tennessee Valley
order to be regulated under that order rather than under the Carolina
order, despite the plant's having greater sales in the Carolina
marketing area. Similarly, they will allow a distributing plant located
at Somerset, Kentucky--which, as recommended under Issue No. 1, would
be part of the Order 11 marketing area--to be regulated under Order 11
even if the plant should develop greater sales in the marketing area of
Order 46 or some other order's marketing area. Finally, the amendments
will permit a plant located at Greenville, South Carolina (in the Order
5 marketing area), to be regulated under Order 5 even if the plant has
more sales in the Southeast marketing area (Order 7).
These recommendations and the proposals which prompted them stem
from various pricing problems under these orders that have come about
for a variety of reasons, including the fact that the marketing areas
may not have grown as fast as handlers' distribution areas. The pricing
problems identified on the record of this proceeding relate to Land-O-
Sun Dairies, Inc., at Kingsport, Tennessee; Southern Belle Dairy
Company at Somerset, Kentucky; and Superbrand Dairy Products, Inc., at
Greenville, South Carolina.
Land-O-Sun Dairies, Inc., operates a plant at Kingsport, Tennessee,
which is in the Tennessee Valley marketing area. Because of this
plant's greater route disposition in the Carolina marketing area, it
has been regulated under that order. During the past three years
(January 1992-November 1994), the blend price at Kingsport under Order
5 has averaged 14 cents below the blend price at that location under
Order 11. In some months, the difference has been as high as 32 cents.
Although the Class I price at Kingsport is identical under both of
these orders, the Tennessee Valley order's higher Class I utilization--
e.g., 82.03 percent for Order 11 compared to 77.96 percent for Order 5
during the first 10 months of 1994--has led to a higher blend price
under that order at Kingsport during nearly every month for the past
three years.
A spokesman for Land-O-Sun testified that the Kingsport plant
handles approximately 12 million pounds of milk per month and that
about one-third of its Class I sales are distributed on routes within
the Tennessee Valley marketing area and the remaining two-thirds within
the Carolina marketing area.
The witness testified that Land-O-Sun purchases its raw milk supply
from 140 dairy farmers located in northeast Tennessee and southwest
Virginia within 100 miles of the Kingsport plant. He noted that this
area is also the supply area for other Order 11 pool plants. As a
result, he said, any blend price difference to producers in this common
supply area leads to market instability. Because the Order 11 blend
price is higher than the Order 5 blend price, he stated, Land-O-Sun is
forced to pay over-order prices to retain its producers. He indicated
that Land-O-Sun could not consistently pay these higher prices and
remain a viable business entity.
Southern Belle Dairy at Somerset, Kentucky, has been regulated
under Order 11 since 1989. In recent years, the plant has had nearly
equal sales in the Order 46 and Order 11 marketing areas. If regulation
of the plant had shifted to Order 46, the applicable Class I
differential price would be 19 cents lower than under Order 11 (i.e.,
$2.26 compared to $2.45), but the blend price difference would be even
more substantial. For example, in the past 35 months (January 1992-
November 1994), the Order 46 blend price averaged 30 cents below the
Order 11 blend price at Somerset. In some months during this period,
the difference in blend prices was as much as 67 cents.
At the hearing, a Southern Belle spokesman testified that the
handler sought the marketing stability that would be provided by
regulating the plant under Order 11 based upon its location within the
Order 11 marketing area. The spokesman stated that Southern Belle would
experience procurement problems if it could only pay its producers the
Order 46 blend price in competition with Order 11 handlers--such as the
Flav-O-Rich plant at London, Kentucky, 37 miles east of Somerset--which
also procure milk from the same supply area. He also cited the
marketing instability that would result from the plant shifting back
and forth between the two orders, particularly in view of the differing
base and excess payment plans to producers in each of these orders.
Superbrand Dairy Products at Greenville, South Carolina, has been
regulated under the Georgia order since May 1992 despite the fact that
it is located within the marketing area of the Carolina order and meets
the pooling standards of that order.
A spokesman for Mid-America Dairymen, Inc. (Mid-Am), which has a
full supply contract with the Superbrand plant, testified that the
Carolina order should be amended to provide the same type of pooling
standard that has been proposed for the Tennessee Valley order and that
was incorporated in the Department's recommended (and final) decisions
for the new Southeast order.1 Inclusion of
[[Page 43988]]
this provision in each of these orders will provide regulatory
compatibility throughout the Southeast, he said.
\1\ Official notice is taken of the final decision for the
Southeast order issued on May 3, 1995 (60 FR 25014).
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The witness stated that the Mid-Am proposal would return the
Superbrand plant to its former status as a pool plant under Order 5. In
terms of its sales and procurement pattern, the plant is more closely
associated with the Carolina market, he added.
The Mid-Am spokesman testified that the proposed change in pooling
standards is a departure from the traditional method of determining
where a distributing plant should be regulated when it meets the
pooling standards of more than one order. The traditional method, he
explained, regulated a plant wherever it had the most sales. He said
that the principle behind that practice was to insure that all handlers
having sales in an order area were subject to the same regulatory
provisions as their competition. However, he added, with the advent of
large processing plants with sales distribution over wide geographic
areas, the traditional method of pooling distributing plants has become
obsolete.
There was no opposition to this proposal either at the hearing or
in post-hearing briefs.
For the most part, Federal milk orders have traditionally regulated
plants according to where they had the most sales. The reasoning behind
that policy has been to ensure that all handlers having sales in a
Federal order marketing area were subject to the same minimum prices
(adjusted for plant location) and other regulatory provisions as their
competition. When these provisions were first incorporated in orders,
markets were primarily local in nature. At any given location, it was
common for Class I prices to differ among orders, and it was common for
each order to have a unique set of provisions.
Most of the provisions in Federal milk orders today are
standardized. For example, all orders have uniform classification and
allocation provisions. Similarly, most Federal order Class I prices are
properly aligned. As noted above, for example, the Class I price at
Kingsport, Tennessee, is the same whether Land-O-Sun's plant is
regulated under Order 5 or Order 11; the Southern Belle plant at
Somerset, Kentucky, would be subject to a higher Class I price under
Order 11 than would apply at the plant under Order 46; and the
Superbrand plant at Greenville would be subject to the same Class I
price whether it was regulated under Order 5 or Order 7.
Consequently, it must be concluded that the competitive equity that
was, and continues to be, sought by having competing handlers subject
to the same rules and Class I prices can be achieved in these marketing
areas by pooling distributing plants under the orders applicable to the
marketing areas in which the plants are located. Specifically, the
pooling standards of the Tennessee Valley and Carolina orders should be
amended to fully regulate all distributing plants that meet the orders'
pooling standards and that are located within their respective
marketing areas.
Under the provisions adopted here for the Carolina and Tennessee
Valley orders, a plant that qualifies as a pool distributing plant and
which is located within the marketing area will be regulated under the
order applicable to that marketing area even if it meets the pooling
standards of another order and has greater sales in such other order's
marketing area. The nearby Southeast order, Louisville-Lexington-
Evansville order, and Upper Florida order contain provisions
(Secs. 1007.7(g)(4), 1046.7(e)(3), and 1006.7(d)(3), respectively) that
conform to the proposed provisions by yielding regulation of such
plants to the other order.
Orders 5 and 11 also should be modified to recognize another
order's primacy to regulate a plant that meets such other order's
pooling standards and that is within the other order's marketing area.
This is accomplished in Secs. 1005.7(e)(3) and 1011.7(e)(3).
A clarifying change should also be made to Secs. 1005.7(e)(5) and
1011.7(e)(5). At present, these paragraphs, which are designated as
Secs. 1005.7(d)(4) and 1011.7(d)(4), state that ``the term pool plant
shall not apply to a plant qualified pursuant to paragraph (b) of this
section which also meets the pooling requirements for the month under
another Federal order.'' A problem could arise with this language
because during certain months of the year a supply plant may qualify as
a pool plant by shipping less than 50 percent of its receipts to
distributing plants. For example, if a supply plant shipped 40 percent
of its receipts to pool distributing plants under Order 5 and 40
percent of its receipts to distributing plants under Order 11, both
orders, pursuant to the language quoted above, would yield regulation
of the plant to the other order, leaving the plant in a state of
regulatory limbo. To prevent this unlikely event from occurring, the
paragraph should be modified to read: ``The term pool plant shall not
apply to a plant qualified pursuant to paragraph (b) of this section if
the plant has automatic pooling status under another Federal order or
if the plant meets the pooling requirements of another Federal order
during the month and makes greater qualifying shipments to plants
regulated under such other order than to plants regulated under this
order.''
3. Supply Plant Pooling Standards Under the Tennessee Valley Order
The supply plant pooling provisions for the Tennessee Valley order
should be amended to provide automatic pooling status for a supply
plant which met the order's shipping standards during the preceding
months of July through February.
Armour Food Ingredients Company (Armour) proposed the change in
supply plant pooling standards. A spokesman for Armour testified that
the company operates a supply plant at Springfield, Kentucky, that has
been a pool plant under Order 11 since August 1992. He said that the
facility is a ``dual Grade A/Grade B plant.'' The Grade A part of the
plant is used to assemble Grade A milk from producers' farms for
transshipment to pool distributing plants, while the Grade B facility
is used to process surplus milk into Class III products, he explained.
The witness testified that Order 11 now requires Armour to ship
milk to distributing plants every month of the year. However, much less
milk is needed from Armour during the spring than during the other
months of the year, he said. Consequently, he concluded, Armour and its
distributing plant customers are incurring receiving and hauling costs
for no other purpose than to satisfy the order's shipping requirements.
The witness introduced an exhibit which showed that from August
1992 through October 1994 Armour shipped a monthly average of 71
percent of its receipts to pool distributing plants. The exhibit also
showed that when shipments of surplus milk from these same pool
distributing plants to Armour were subtracted from the receipts from
Armour, the distributing plants, on average, kept 34 percent of the
milk that was sent to them.
There was no opposition to this proposal either at the hearing or
in post-hearing briefs.
The provision proposed by Armour is included in many Federal milk
orders because of the seasonal variation in milk production. This
variation is also evident in the Tennessee Valley market. In 1993, the
average daily production per producer in this market was 2,220 pounds.
However, this daily average reached a low of 1,941 pounds during the
month of July and peaked at 2,481 pounds during May. As a group, the
months of March through June had a
[[Page 43989]]
daily average of 2,375 pounds, compared to 2,149 pounds during the
months of July through February.
There is no merit in requiring supply plants to receive, reload,
and ship milk to distributing plants if the milk is not needed or if
closer milk is available directly from producers' farms. In addition to
the statistics suggesting that supply plant shipments during the months
of March through June are unnecessary, the lack of any contradictory
testimony from Order 11 distributing plant operators must be
interpreted as concurrence with the view that supply plant shipments
are simply not needed during the months of March through June. In view
of this evidence, the proposal should be adopted.
Section 1011.7(b)(3) of the Tennessee Valley order, as proposed to
be amended here, also should be modified to clarify what would happen
if a shipping requirement were instituted during the months of March
through June pursuant to Sec. 1011.7(b)(4). First, it should be
understood that a new supply plant or one that did not meet the order's
shipping requirements during the months of July through February would
be subject to the 40 percent supply plant shipping requirement now in
the order.
If the market is short of milk during the ``free-ride'' months of
March through June and the market administrator determines that
additional milk is needed from pool supply plants pursuant to
Sec. 1011.7(b)(4), any increase in shipping percentage would be added
to the percentage that is then applicable to the plant. For instance,
if the market administrator determines that a 10-percentage point
increase in shipments is needed, a plant that would have had to ship 40
percent of its receipts would be required to ship 50 percent. However,
a plant in ``free-ride'' status, which normally would not have had to
make any shipments, would have to ship 10 percent. The market
administrator's ability to require additional milk from supply plants,
even during the free-ride period of March through June, will help to
ensure that the market has adequate supplies of milk for fluid use
during all months of the year.
At the present time, Secs. 1005.7(b) and 1011.7(b) of the Carolina
and Tennessee Valley orders, respectively, authorize the Director of
the Dairy Division to adjust supply plant shipping standards to obtain
needed shipments of milk or to prevent uneconomic shipments. This
provision was not an issue at the hearing. However, in conjunction with
the other changes in pooling provisions recommended in this decision,
it is recommended that authority to adjust supply plant shipping
standards be given to the market administrator of Orders 5 and 11.
With all of the marketing information immediately available to him
or her, the market administrator is in an ideal position to sense the
changing needs of the market and to obtain industry views concerning
the desirability of adjusting supply plant shipping requirements. As a
result, the market administrator will be able to attend to the need for
such temporary revisions in a timely fashion. Since this change was not
discussed at the hearing, it will not be carried forth to the final
decision in the face of industry opposition. It is being recommended
here as a modification that would better serve the changing needs of
handlers and producers under the Carolina and Tennessee Valley orders.
A similar conforming change also should be made in
Sec. 1011.13(e)(3) of the Tennessee Valley order for the same reasons.
This change would allow the market administrator to increase or
decrease, by 10 percentage points, the diversion limitations applicable
to a proprietary bulk tank handler.
4. Distributing Plant Pooling Standards Under the Carolina Order
Proposals to amend the Order 5 in-area route disposition
requirement for pool distributing plants should not be adopted.
At the present time, a distributing plant must dispose of at least
60 percent of its fluid milk product receipts in Class I during the
months of August through November, January, and February and at least
40 percent in each of the other months to qualify as a pool plant under
Order 5. In addition, at least 15 percent of the plant's route
disposition must be in the marketing area.
Milkco, Inc., testified in support of its proposal to change the
in-area route disposition standard of Order 5 from 15 percent to 10
percent. At the hearing, Milkco modified its proposal to the lesser of
1500 pounds daily or 10 percent of a plant's fluid milk receipts sold
as Class I.
A witness representing Milkco, Carolina Dairies, Hunter Farms,
Inc., Dairy Fresh, Inc., and Pine State Creamery testified that the
original proposal had been modified to include language similar to that
contained in the recommended decision of the proposed Southeast Federal
order.
The witness testified that the reason for proposing a change in the
in-area route disposition requirement was that partially regulated
handlers were constantly increasing their Class I distribution into the
Order 5 marketing area. He estimated that the average distribution for
1994 was between 25 million and 35 million pounds. He claimed that this
distribution is attributed to sales from partially regulated plants
located in Virginia.
The witness explained that the Virginia State Milk Commission
prices Class I sales made outside the State of Virginia at the Federal
order Class II price. He said that this creates a problem of
accountability for those Class I sales moving from Virginia to another
State. He claimed that the possibility exists that, in some instances,
not all of those sales may be accounted for and paid for at the
appropriate price.
The witness stated that the proposed amendment would provide
uniformity between Order 5 and surrounding orders. He also claimed that
the proposed change would not be burdensome to handlers located in
Virginia if these handlers are already paying prices equivalent to, or
greater than, the Order 5 Class I price.
The general manager for Carolina Virginia Milk Producers
Association (CVMPA) also testified in support of the revised proposal.
He stated that the proposal would provide uniformity between Order 5
and neighboring orders and that it would eliminate potential inequities
between Order 5 handlers and handlers regulated by the Virginia Milk
Commission.
The CVMPA representative asserted that the proposal would regulate
some partially regulated plants that may be subject to a lower price
for milk used in fluid milk products than fully regulated plants under
Order 5. He explained that handlers regulated under Order 5 must pay at
least the minimum Federal order class prices for their milk. He claimed
that plants located in Virginia and regulated by the Virginia Milk
Commission have a competitive advantage on raw milk costs compared to
handlers fully regulated under Order 5. The witness indicated that the
Class I price established and regulated by the Virginia Milk Commission
has historically been higher than the Order 5 price but that the
Commission requires that only the Class II price be paid for sales out
of the State.
The CVMPA witness testified that sales from partially regulated
handlers located in Virginia into the Carolina marketing area have a
significant impact on the market. Since January 1992, he pointed out,
sales from these plants have ranged from one to three million pounds of
Class I sales or between .84
[[Page 43990]]
and 2.26 percent of total route disposition in Order 5. He said that
while these Class I sales from Virginia partially regulated plants are
confined to a small portion of the marketing area, they have had a
disruptive effect on the market in eastern North Carolina.
The CVMPA representative testified that Federal orders contiguous
to the Carolina marketing area have more restrictive pool plant
requirements than the Carolina order. He noted that the Tennessee
Valley order's in-area route disposition requirement was 10 percent and
that the recommended Southeast order would fully regulate handlers if a
plant distributed either 10 percent of its total fluid milk receipts or
at least 1500 pounds of Class I sales per day in the marketing area.
Such requirements are appropriate for orders with relatively high Class
I utilization, he said.
Maryland & Virginia Milk Producers Cooperative Association, Inc.
(MVMPCA), proposed a change to the Order 5 in-area route disposition
requirement that would have exactly the opposite effect of Milkco's
proposal. The MVMPCA proposal would base the in-area requirement on 15
percent of ``dairy farmer receipts'' rather than 15 percent of ``total
route disposition.'' Because dairy farmer receipts would be larger than
total route disposition, the proposal would have the effect of making
it more difficult to qualify for full regulation under Order 5.
A spokesman for MVMPCA testified that the proposed change would
amend the Order 5 provision to conform more closely with the provisions
of the Middle Atlantic order (Order 4). He said that these definitions
should be more closely aligned to allow distributing plants in the
Commonwealth of Virginia, which are partially regulated under both
Orders 4 and 5, to be subject to the same in-area route distribution
standard under either Federal order.
Without alignment of these provisions, he said, there could be
results which are neither intended nor orderly. For instance, he
stated, a plant could have more route sales in Order 4 but become fully
regulated under Order 5.
The witness stated that there are currently three dairies partially
regulated in both Orders 4 and 5: Richfood at Richmond, Virginia; Land-
O-Sun Dairies, Inc., at Portsmouth, Virginia; and Marva Maid Dairy at
Newport News, Virginia. He said that these Virginia plants are the only
partially regulated distributing plants subject to Order 5 other than
the several plants which distribute long-shelf-life fluid milk products
in a broad geographic area over most of the United States.
Consequently, he concluded, the MVMPCA proposal would not have a
substantial impact upon any other plants.
A witness representing Richfood Dairy, Inc. (Richfood), Richmond,
Virginia, testified in opposition to Milkco's proposal to reduce the
Order 5 in-area route disposition requirement and in support of
Richfood's proposal to increase the requirement from 15 percent to 20
percent.
The witness stated that Richfood has about 83 percent of its fluid
milk product sales in that part of Virginia that is outside the Middle
Atlantic (Order 4) marketing area. The plant has approximately 12
percent of its sales in the Carolina marketing area, 4 percent in the
Order 4 marketing area, and the remaining 1 or 2 percent in the Ohio
Valley marketing area. Richfood's sales into the Carolina marketing
area account for about 1 percent of the market's total in-area sales,
according to the witness.
The Richfood witness stated that Richfood primarily has fluid milk
sales in the eastern Virginia market with some in the western Virginia
market. During October 1994, the witness noted, the eastern and western
markets' Class I prices were $16.29 and $16.02, respectively. He said
that these Virginia prices, based on the way in which Federal order
Class I prices are set, would represent October Class I differentials
of $4.56 for the eastern market and $4.29 for the western market.
Federal order Class I differentials of this magnitude, he emphasized,
are not even found in Miami, the highest priced location under the
Federal order system. These facts, he claimed, show that purchasers of
raw milk in Virginia do not have an unfair competitive advantage over
handlers regulated under a Federal order. He concluded that a plant
with 10 percent of its sales in the Carolina marketing area and 80
percent in Virginia should not be forced to be fully regulated under
Order 5.
The administrator of the Virginia State Milk Commission (the
Commission) testified in opposition to Milkco's original proposal. The
administrator stated that pooling Virginia plants that have less than
15 percent of their total sales in a Federal order marketing area would
be disruptive to the Commission's ability to price and pool milk in the
Virginia marketing areas. He argued that there are less intrusive ways
to accomplish class price integrity for pooling producer milk.
The witness stated that the Commission was willing to assist the
Department to ensure proper reporting and pricing within Federal milk
marketing areas to alleviate the concerns of those who have doubts that
Virginia's out-of-area prices are being enforced. The witness explained
that the Commission has the ability to report sales by Virginia plants
into Federal orders in a timely and accurate manner, and is willing to
provide such information to the appropriate Federal order market
administrator to help enforce proper pricing.
Neither Milkco's proposal, which would make it easier to fully
regulate an out-of-area plant, nor MVMPCA's or Richfood's proposal,
which would make it harder to fully regulate an out-of-area plant,
should be adopted.
Proponents of Milkco's proposal argued that the amount of sales
into the Carolina marketing area from partially regulated plants
located in Virginia is constantly increasing due to the presence of
these plants. Record evidence does not support this argument. For
instance, route disposition in Order 5 by partially regulated plants
during the months of July through October 1994 was lower than for the
same period of 1993. In addition, statistics show that in-area route
disposition into Order 5 from partially regulated plants located in
Virginia have been at a relatively constant level over the past two
years. For example, in 1993 and 1994, the average share of total Order
5 Class I route disposition from these plants was 2.05 and 1.95
percent, respectively.
No evidence presented at the hearing supported the arguments
advanced by Milkco and CVMPA concerning the alleged competitive
advantage that partially regulated plants in Virginia have in the
Carolina marketing area. The record is devoid of any data to support
this claim.
With respect to proponents' arguments that changes in Order 5 would
bring this order into conformance with the Middle Atlantic order or the
Southeast order, marketing conditions in the Carolina order do not
warrant any change to the in-area route disposition requirement for
this reason. Moreover, it is not clear why differences in the in-area
route disposition requirements of these orders would matter in most
circumstances. The only area where this issue seems to be particularly
acute is in Virginia. Even in Virginia, however, there is an
insufficient basis to conclude that any competitive advantage exists
that would warrant undermining of the Virginia State Milk Commission
regulation.
The in-area route disposition requirement is a locally tailored
standard that indicates when a plant is
[[Page 43991]]
sufficiently associated with a market to warrant full regulation under
the order regulating that marketing area. Whether the standard should
be 10 percent or 15 percent depends upon particular circumstances in
that area and the demonstrated need for one standard or the other.
Based on the testimony and data in this hearing record, the present 15
percent in-area route disposition requirement under Order 5 should
remain unchanged.
5. Location Adjustments Under the Carolina Order
The location adjustment under the Carolina order for a location
within the Middle Atlantic Federal order marketing area should be
determined by subtracting the Order 4 Class I price at that location
from the base zone Class I price specified in Order 5.
At the present time, the Order 5 location adjustment for a plant
located in the State of Maryland is based upon the shortest hard-
surfaced highway distance, as determined by the market administrator,
that such plant is from Greensboro, North Carolina. Once that distance
is determined, it is broken down into 10-mile increments (except for
the last increment, which may be smaller than 10 miles), which are then
multiplied by 2.5 cents to determine the location adjustment. Thus, for
example, the location adjustment for a plant that is located 295 miles
from Greensboro would be 75 cents (i.e., 30 x 2.5=.75).
Maryland and Virginia Milk Producers Cooperative Association
proposed a change in the location adjustment applicable to its butter/
powder plant at Laurel, Maryland. Initially, the cooperative proposed
treating the Laurel plant as if it were within the State of Virginia;
this would result in a zero location adjustment at Laurel. However, at
the hearing a spokesman for the cooperative stated that it would
support an alternative proposal that would subtract the Order 4 Class I
differential price at Laurel (i.e., $3.03) from the Order 5 Class I
price at Greensboro (i.e., $3.08), which results in a location
adjustment of minus 5 cents. The witness stated that ``our only caveat
to this pricing formula is that the Order 5 language should be amended
so that the price at Strasburg, Virginia, is established on the same
basis as the price at Laurel, Maryland.''
The cooperative's spokesman testified that MVMPCA supplies the
Kroger Westover Dairy Order 5 pool distributing plant at Lynchburg,
Virginia, on a year-round basis. In addition, he said that since 1992
the cooperative has supplied supplemental milk to nine other Order 5
distributing plants on a seasonal basis.
The witness said that MVMPCA has served as a seasonal balancing
agent in supplying Order 5 plants. He introduced an exhibit showing
that MVMPCA's monthly sales to Order 5 plants reach a peak during the
short production months of July through October.
The witness stated that when producers' milk is not needed by Order
5 plants, it is diverted to MVMPCA's butter-powder plant at Laurel,
which serves as a major balancing plant for the Middle Atlantic region.
The witness also noted that there is another balancing facility for
Order 5 surplus milk--the Valley Milk butter/powder plant located at
Strasburg, Virginia--which is approximately 80 miles west of Laurel and
outside of any Federal order marketing area. He said that Order 5 now
prices milk in an inequitable manner by providing a base zone uniform
price for milk that is diverted to Strasburg, but a minus 75-cent
location adjustment for milk that is diverted to Laurel.
There was no opposition to this proposal either at the hearing or
in the post-hearing briefs that were filed.
MVMPCA's argument and alternative proposal for pricing milk at
Laurel is persuasive and should be adopted. The location adjustment at
Laurel clearly should not be minus 75 cents. It should be minus 5
cents, the difference between the Order 5 base zone Class I price and
the Order 4 Class I price at Laurel.
The appropriate Federal order Class I price at Laurel, Maryland, is
the price established for that location under the Middle Atlantic
Federal order, which encompasses Laurel. Thus, if a distributing plant
located at Laurel were to become regulated under Order 5, its Class I
price would be the same as the price that would apply under Order 4.
This would ensure competitive pricing among competing handlers.
Determining location adjustments for plants in this manner helps to
assure the proper alignment of Class I prices throughout the Federal
order system and to minimize procurement problems for plants that are
located in one Federal order marketing area but regulated under a
different order.
The evidence introduced by MVMPCA shows that its producers
supplying the Order 5 market are located as far south as the Virginia/
North Carolina border and as far north as Cumberland County, Maryland.
The exhibit, for example, shows that MVMPCA has producers in Halifax
County, Virginia, just north of the Order 5 base zone. When producer
milk from Halifax is delivered to a distributing plant at Lynchburg or
to a North Carolina handler in the base zone, the milk is priced at the
base zone price. Yet, under present order provisions, if the milk is
not needed for fluid use by an Order 5 distributing plant and must be
diverted to MVMPCA's butter-powder plant at Laurel, 247 miles away, it
receives 75 cents less than the base zone price. Consequently, not only
does MVMPCA receive a much lower price for this milk, it also absorbs
the hauling cost to get the milk to Laurel.
A location adjustment of minus 5 cents at Laurel will narrow the
difference to 5 cents between the Laurel and Strasburg plants. This
adjustment should alleviate the inequity that now exists in pricing
between the two plants. To further reduce the difference in price by
imposing a minus 5-cent location adjustment at Strasburg, as suggested
by MVMPCA, would entail changing location adjustments throughout the
State of Virginia, which goes beyond the scope of the hearing
proposals.
6. Base-Paying Months Under the Carolina Order
Maryland & Virginia Milk Producers Cooperative Association, Inc.,
originally submitted a proposal to delete the month of June from the
base-paying period of the Order 5 base and excess payment plan. At the
hearing, however, the cooperative modified its proposal to add the
month of February as well as delete the month of June. As modified, the
base-paying months would be February through May.
The MVMPCA witness stated that the purpose of the base-excess plan
is to provide producers with an incentive to level their production on
a seasonal basis. He indicated that the plan encourages production
during the months when milk is needed for fluid use and discourages
production during flush production months. Under current marketing
conditions, he contended, June is not a surplus month but a month when
supplemental supplies are frequently needed by Order 5 distributing
plants. Likewise, he asserted that February is a month of substantial
surplus production and should be added to the base-paying period rather
than remain a base neutral month.
During 1992 and 1993, the MVMPCA witness noted, daily average
production per Order 5 producer from May to June declined about 8
percent, from 4,259 pounds per day to 3,978, and from 4,424 to 4,076,
respectively. However, he indicated that daily average production in
Order 5 in February 1993 of 4,684 pounds was the highest production
[[Page 43992]]
month of the year, and production in February 1992 was the third
highest month.
The witness also testified that a collateral consequence of
including June as a base paying month is that when supplemental
supplies are needed under Order 5, unnecessary and inefficient
movements of milk are required to avoid the penalty of absorbing the
excess price for supplies of milk that are required for the market's
Class I needs. The witness explained that when supplemental milk is
needed during the month of June, MVMPCA avoids the penalty of receiving
only the excess price for milk delivered directly from producers' farms
by instead delivering plant milk from its Laurel plant. To do this,
however, the cooperative must receive the milk at Laurel, reload it
onto a tank truck, and ship it to an Order 5 distributing plant. He
said that the modified proposal would eliminate unnecessary and
inefficient movements of milk for the sole purpose of avoiding the
order's excess price.
There was no opposition to this proposal either at the hearing or
in post-hearing briefs.
The modified proposal to change the base-paying period from March
through June to February through May should be adopted. The removal of
June and the addition of February to the base-paying period would bring
the base-paying months into closer conformity with the Class I needs of
the market.
For the past three years, the average Class I utilization in
January has been 77.8 percent while the June Class I utilization has
averaged 79.8 percent for this same time period. By comparison, the
average Class I utilization for the months of February through May has
been 75.6, 75.7, 73.9, and 75.1 percent, respectively. The record also
shows that June is a month in which supplemental supplies of milk are
needed to meet the Class I needs of the market.
On the basis of the statistical data and the testimony presented at
the hearing, the month of February should be included in the base-
paying period and June deleted to change the base-paying period to
February through May. These changes should result in a base and excess
plan that better serves the needs of the market and that will avoid the
unnecessary and inefficient movements of needed supplemental milk
described by MVMPCA.
Several conforming changes in order language have been made in
response to the addition of February and the removal of June as a base-
paying month. In Sec. 1005.32(a), dealing with ``other reports,'' the
words ``March through June'' should be changed to ``February through
May''. In the introductory text of Sec. 1005.61(a) and in
Sec. 1005.61(a)(5), the words ``July through February'' must be changed
to ``June through January'', and in Sec. 1005.61(b) the words ``March
through June'' must be changed to ``February through May''. In
Secs. 1005.90, 1005.91, and 1005.93(b) the words ``March through June''
must be changed to ``February through May'', and the words ``February
1'' in Sec. 1005.93(b) and Sec. 1005.94 should be changed to ``January
1'' to maintain the existing relationship between the start of the
base-paying period and the time when transfers must be completed
without the imposition of conditions concerning the receipt or transfer
of additional base. Finally, ``March 1'' should be changed to
``February 1'' in Sec. 1005.93(e).
Motion for a New Hearing
Purity Dairy and Fleming Dairy, both of Nashville, Tennessee,
argued that the remedies proposed at this hearing were not sufficient
to address some major problems. They maintain that while the proposed
amendments would temporarily correct some problems, in the long run
these remedies would only make the problems worse. They urged the
Secretary to hold a new hearing to consider a merger of Orders 5, 11,
and 46 or the merger of Orders 5 and 11 with the proposed Southeast
marketing area.
A major study of Orders 5, 11, and 46 and other marketing areas is
currently underway at Cornell University. One of the purposes of this
study is to develop recommendations for a merged order in this area.
There have been several major changes in cooperative
representation, supply arrangements, and plant ownership in these
markets. Milk has been shifting among the markets. The alleged problem
in south central Kentucky of misaligned uniform prices causing Purity
and Fleming to be at a competitive disadvantage for milk supplies has
been corrected by the association of additional milk with Order 11,
which has lowered that order's Class I utilization. There is no point
in considering a merger of orders in this area until such time as
producers and handlers propose such a merger. For all of these reasons,
the motion to hold a new hearing is 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 aforesaid orders were first issued and
when they were amended. The previous findings and determinations are
hereby ratified and confirmed, except where they may conflict with
those set forth herein.
(a) The tentative marketing agreements and the 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 marketing areas, and the minimum
prices specified in the tentative marketing agreements and the orders,
as hereby proposed to be amended, are such prices as will reflect the
aforesaid factors, insure a sufficient quantity of pure and wholesome
milk, and be in the public interest;
(c) The tentative marketing agreements and the orders, as hereby
proposed to be amended, will regulate the handling of milk in the same
manner as, and will be applicable only to persons in the respective
classes of industrial and commercial activity specified in, marketing
agreements upon which a hearing has been held; and
(d) All milk and milk products handled by handlers, as defined in
the tentative marketing agreements and the orders as hereby proposed to
be amended, are in the current of interstate commerce or directly
burden, obstruct, or affect interstate commerce in milk or its
products.
Recommended Marketing Agreements and Order Amending the Orders
The recommended marketing agreements are not included in this
decision because the regulatory provisions thereof would be the same as
those contained in the orders, as hereby proposed to be amended. The
following order amending the orders, as amended, regulating the
handling of milk in the aforesaid marketing areas is recommended as the
detailed and
[[Page 43993]]
appropriate means by which the foregoing conclusions may be carried
out.
List of Subjects in 7 CFR Parts 1005, 1011, and 1046
Milk marketing orders.
For the reasons set forth in the preamble, title 7, parts 1005,
1011, and 1046 are proposed to be amended as follows:
1. The authority citation for 7 CFR parts 1005, 1011, and 1046
continues to read as follows:
Authority: 7 U.S.C. 601-674.
PART 1005--MILK IN THE CAROLINA MARKETING AREA
2. In Sec. 1005.7, the reference ``(d)'' in the introductory text
is revised to read ``(e)'', in paragraph (b) the words ``Director of
the Dairy Division'' and ``Director'' are changed to ``market
administrator'' wherever they appear, paragraph (d) is redesignated as
paragraph (e) and revised, and a new paragraph (d) is added to read as
follows:
Sec. 1005.7 Pool plant.
* * * * *
(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) The term ``pool plant'' shall not apply to the following
plants:
(1) A producer-handler plant;
(2) A governmental agency plant;
(3) A plant with route disposition in this marketing area that is
located within the marketing area of another Federal order and that is
fully regulated under such order;
(4) A plant qualified pursuant to paragraph (a) of this section
which is not located within any Federal order marketing area but which
also meets the pooling requirements of another Federal order and from
which there is a greater quantity of route disposition, except filled
milk, during the month in such other Federal order marketing area than
in this marketing area; and
(5) A plant qualified pursuant to paragraph (b) of this section if
the plant has automatic pooling status under another Federal order or
if the plant meets the pooling requirements of another Federal order
during the month and makes greater qualifying shipments to plants
regulated under such other order than to plants regulated under this
order.
Sec. 1005.32 [Amended]
3. In Sec. 1005.32(a), the words ``March through June'' are revised
to read ``February through May'' wherever they appear.
4. In Sec. 1005.53, paragraph (a)(6) is redesignated as paragraph
(a)(7) and revised, and a new paragraph (a)(6) is added to read as
follows:
Sec. 1005.53 Plant location adjustments for handlers.
* * * * *
(a) ***
(6) For a plant located within the Middle Atlantic Federal Order
Marketing Area (Part 1004), the adjustment shall be computed by
subtracting the base zone Class I price specified in Sec. 1005.50(a)
from the Class I price applicable at such plant under the Middle
Atlantic Federal Order; and
(7) For a plant located outside the areas specified in paragraphs
(a)(1) through (a)(6) of this section, the adjustment shall be a minus
2.5 cents for each 10 miles or fraction thereof (by the shortest hard-
surfaced highway distance as determined by the market administrator)
that such plant is from the nearer of the city halls in Greenville,
South Carolina, or Charlotte or Greensboro, North Carolina.
* * * * *
Sec. 1005.61 [Amended]
5. In Sec. 1005.61 paragraphs (a) introductory text and (a)(5), the
words ``July through February'' are revised to read ``June through
January'' and in paragraph (b) the words ``March through June'' are
revised to read ``February through May''.
Secs. 1005.90 and 1005.91 [Amended]
6. In Secs. 1005.90 and 1005.91, the words ``March through June''
are revised to read ``February through May'' wherever they appear.
Sec. 1005.93 [Amended]
7. In Sec. 1005.93 paragraph (b), the words ``March through June''
are revised to read ``February through May'' wherever they appear, the
words ``February 1'' are revised to read ``January 1'', and in
paragraph (e) the words ``March 1'' are revised to read ``February 1''.
Sec. 1005.94 [Amended]
8. In Sec. 1005.94, the words ``February 1'' are revised to read
``January 1''.
PART 1011--MILK IN THE TENNESSEE VALLEY MARKETING AREA
9. Section 1011.2 is amended by revising paragraph (b) to read as
follows:
Sec. 1011.2 Tennessee Valley Marketing Area.
* * * * *
(b) In Kentucky, the counties of Bell, Breathitt, Clay, Harlan,
Jackson, Knott, Knox, Laurel, Leslie, Letcher, McCreary, Owsley, Perry,
Pulaski, Rockcastle, and Whitley.
* * * * *
10. In Sec. 1011.7, the reference ``(d)'' in the introductory text
is revised to read ``(e)'', paragraph (b) is revised, paragraph (d) is
redesignated as paragraph (e) and revised, and a new paragraph (d) is
added to read as follows:
Sec. 1011.7 Pool plant.
* * * * *
(b) A plant, other than a plant described in paragraph (a) of this
section, from which fluid milk products, except filled milk, are
shipped to plants described in paragraph (a) of this section subject to
the following additional conditions:
(1) During the months of August through November, January and
February, such shipments must equal not less than 60 percent (40
percent during the months of December and March through July) of the
total quantity of milk approved by a duly constituted regulatory agency
for fluid consumption that is received during the month at such plant
from handlers described in Sec. 1011.9(c) and (d) and from dairy
farmers, including milk that is diverted from the plant pursuant to
Sec. 1011.13 but excluding milk diverted to the plant;
(2) The operator of a plant described in this paragraph may include
milk diverted from the plant to plants described in paragraph (a) of
this section for up to one-half of the shipments required pursuant to
this paragraph;
(3) A plant which meets the shipping requirements specified in this
paragraph during the months of July through February shall be a pool
plant during the following months of March through June unless the milk
received at the plant does not continue to meet the requirements of a
duly constituted regulatory agency, the plant fails to meet a shipping
requirement instituted pursuant to paragraph (b)(4) of this section, or
a written application is filed by the plant operator with the market
administrator on or before the first day of any such month requesting
that the plant be designated a nonpool plant for such month and for
each subsequent month through June during which it would not otherwise
qualify as a pool plant; and
(4) The shipping requirements described in paragraphs (b)(1) and
(b)(3) of this section may be increased or
[[Page 43994]]
decreased up to 10 percentage points by the market administrator if he
or she finds that revision is necessary to obtain needed shipments or
to prevent uneconomic shipments. Before making such a finding, the
market administrator shall investigate the need for revision either at
his or her own initiative or at the request of interested persons. If
the investigation shows that a revision may be appropriate, the market
administrator shall issue a notice stating that the revision is being
considered and invite data, views, and arguments.
(c) ***
(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) The term ``pool plant'' shall not apply to the following
plants:
(1) A producer-handler plant;
(2) A governmental agency plant;
(3) A plant with route disposition in this marketing area that is
located within the marketing area of another Federal order and that is
fully regulated under such order;
(4) A plant qualified pursuant to paragraph (a) of this section
which is not located within any Federal order marketing area but which
also meets the pooling requirements of another Federal order and from
which there is a greater quantity of route disposition, except filled
milk, during the month in such other Federal order marketing area than
in this marketing area; and
(5) A plant qualified pursuant to paragraph (b) of this section if
the plant has automatic pooling status under another Federal order or
if the plant meets the pooling requirements of another Federal order
during the month and makes greater qualifying shipments to plants
regulated under such other order than to plants regulated under this
order.
Sec. 10011.13 [Amended]
11. In Sec. 1011.13 paragraph (e)(3), the words ``Director of the
Dairy Division'' and ``Director'' are revised to read ``market
administrator'' wherever they appear.
PART 1046--MILK IN THE LOUISVILLE-LEXINGTON-EVANSVILLE MARKETING
AREA
Sec. 1046.2 [Amended]
12. In Sec. 1046.2, under ``Kentucky Counties'' the word
``Pulaski'' is removed.
Dated: August 17, 1995.
Lon Hatamiya,
Administrator.
[FR Doc. 95-20968 Filed 8-23-95; 8:45 am]
BILLING CODE 3410-02-P
