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Wednesday,

September 21, 2005

Part II

Department of
Agriculture
Agricultural Marketing Service

7 CFR Parts 1005 and 1007


Milk in the Appalachian and Southeast
Marketing Areas; Partial Decision on
Proposed Amendments to Marketing
Agreements and to Orders; Proposed Rule

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55458 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules

DEPARTMENT OF AGRICULTURE such order by filing with the and a total of 51 plants associated with
Department a petition stating that the the Southeast order (32 fully regulated
Agricultural Marketing Service order, any provision of the order, or any plants, 6 partially regulated plants, and
obligation imposed in connection with 13 exempt plants). The number of plants
7 CFR Parts 1005 and 1007 the order is not in accordance with the meeting the small business criteria
[Docket No. AO–388–A15 and AO–366–A44; law. A handler is afforded the under the Appalachian and Southeast
DA–03–11] opportunity for a hearing on the orders were 13 (or 36 percent) and 13
petition. After a hearing, the Department (or 25 percent), respectively.
Milk in the Appalachian and Southeast would rule on the petition. The Act The proposed amendments adopted
Marketing Areas; Partial Decision on provides that the district court of the in this partial final decision would
Proposed Amendments to Marketing United States in any district in which expand the Appalachian milk marketing
Agreements and to Orders the handler is an inhabitant, or has its area to include 25 counties and 15 cities
principal place of business, has in the State of Virginia that currently are
AGENCY: Agricultural Marketing Service, jurisdiction in equity to review the not in any Federal milk marketing area
USDA. Department’s ruling on the petition, (the partial recommended decision
ACTION: Proposed rule; partial final provided a bill in equity is filed not inadvertently referenced ‘‘14 cities’’
decision. later than 20 days after the date of the verses ‘‘15 cities’’). This decision adopts
entry of the ruling. proposed amendments to the producer
SUMMARY: This partial final decision milk provisions of the Appalachian and
adopts proposed amendments to the Regulatory Flexibility Analysis and Southeast milk orders that would
Appalachian and Southeast marketing Paperwork Reduction Act prevent producers who share in the
areas as contained in a partial In accordance with the Regulatory proceeds of a state marketwide pool
recommended decision published in the Flexibility Act (5 U.S.C. 601 et seq.), the from simultaneously sharing in the
Federal Register on May 20, 2005. Agricultural Marketing Service has proceeds of a Federal marketwide pool
Specifically, this decision would considered the economic impact of this on the same milk. In addition, this
expand the Appalachian milk marketing action on small entities and has certified decision adopts proposed amendments
area, eliminate the ability to that this proposed rule will not have a to the transportation credit provisions of
simultaneously pool the same milk on significant economic impact on a the Appalachian and Southeast orders.
the Appalachian or Southeast order and substantial number of small entities. The proposed amendments to expand
on a State-operated milk order that has For the purpose of the Regulatory the Appalachian marketing area would
marketwide pooling, and amend the Flexibility Act, a dairy farm is likely continue to regulate under the
transportation credit provisions of the considered a ‘‘small business’’ if it has Appalachian order two fluid milk
Southeast and Appalachian orders. The an annual gross revenue of less than distributing plants located in Roanoke,
orders as amended are subject to $750,000, and a dairy products Virginia, and Lynchburg, Virginia, and
approval by producers in the affected manufacturer is a ‘‘small business’’ if it shift the regulation of a distributing
markets. has fewer than 500 employees. For the plant located in Mount Crawford,
purposes of determining which dairy Virginia, from the Northeast order to the
FOR FURTHER INFORMATION CONTACT:
farms are ‘‘small businesses,’’ the Appalachian order.
Antoinette M. Carter, Marketing
$750,000 per year criterion was used to The proposed amendments would
Specialist, USDA/AMS/Dairy Programs,
establish a production guideline of allow the Kroger Company’s (Kroger)
Order Formulation and Enforcement
500,000 pounds per month. Although Westover Dairy plant, located in
Branch, STOP 0231–Room 2971, 1400
this guideline does not factor in Lynchburg, Virginia, that competes for a
Independence Avenue, SW.,
additional monies that may be received milk supply with other Appalachian
Washington, DC 20250–0231, (202) 690–
by dairy producers, it should be an order plants to continue to be regulated
3465, e-mail address:
inclusive standard for most ‘‘small’’ under the order if it meets the order’s
antoinette.carter@usda.gov.
dairy farmers. For purposes of minimum performance standards. The
SUPPLEMENTARY INFORMATION: This determining a handler’s size, if the plant plant has been regulated by the
administrative action is governed by the is part of a larger company operating Appalachian order since January 2000.
provisions of Sections 556 and 557 of multiple plants that collectively exceed In addition, the proposed amendments
Title 5 of the United States Code and, the 500-employee limit, the plant will would remove the disruption that
therefore, is excluded from the be considered a large business even if occurs as a result of the Dean Foods
requirements of Executive Order 12866. the local plant has fewer than 500 Company’s (Dean Foods) Morningstar
These proposed amendments have employees. Foods plant, located in Mount
been reviewed under Executive Order During February 2004, the month in Crawford, Virginia, shifting its
12988, Civil Justice Reform. This rule is which the hearing was held, the milk of regulatory status under the Northeast
not intended to have a retroactive effect. 7,311 dairy farmers was pooled on the order.
If adopted, this proposed rule will not Appalachian (Order 5) and Southeast The Appalachian order currently
preempt any state or local laws, (Order 7) milk orders (3,395 Order 5 contains a ‘‘lock-in’’ provision that
regulations, or policies, unless they dairy farmers and 3,916 Order 7 dairy provides that a plant located within the
present an irreconcilable conflict with farmers). Of the total, 3,252 dairy marketing area that meets the order’s
this rule. farmers (or 96 percent) and 3,764 dairy minimum performance standard will be
The Agricultural Marketing farmers (or 96 percent) were considered regulated by the Appalachian order
Agreement Act of 1937, as amended (7 small businesses on the Appalachian even if the majority of the plant’s Class
U.S.C. 601–674) (Act), provides that and Southeast orders, respectively. I route sales are in another marketing
administrative proceedings must be During February 2004, there were a area. The proposed expansion along
exhausted before parties may file suit in total of 36 plants associated with the with the lock-in provision would
court. Under section 608c(15)(A) of the Appalachian order (25 fully regulated regulate fluid milk distributing plants
Act, any handler subject to an order may plants, 7 partially regulated plants, 1 physically located in the marketing area
request modification or exemption from producer-handler, and 3 exempt plants) that meet the order’s minimum

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Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules 55459

performance standard even if the marketwide pooling of milk. Since the significantly disadvantage any handler
majority of their sales are in another 1960’s, the Federal milk order program that is smaller than the industry
Federal order marketing area. has recognized the harm and disorder average.
Accordingly, the proposed amendments that result to both producers and Prior documents in this proceeding:
would regulate three distributing plants handlers when the same milk of a Notice of Hearing: Issued January 16,
under the Appalachian order: Kroger’s producer is simultaneously pooled on 2004; published January 23, 2004 (69 FR
Westover Dairy, located in Lynchburg, more than one Federal order. When this 3278).
Virginia; Dean Foods’ Morningstar occurs, producers do not receive Partial Recommended Decision:
Foods plant, located in Mount uniform minimum prices, and handlers Issued May 13, 2005; published May 20,
Crawford, Virginia; and National Dairy receive unwarranted competitive 2005 (70 FR 29410).
Holdings’ Valley Rich Dairy, located in advantages.
Roanoke, Virginia. Based on Small The need to prevent ‘‘double pooling’’ Preliminary Statement
Business Administration criteria these became critically important as A public hearing was held upon
are all large businesses. distribution areas expanded, orders proposed amendments to the marketing
This decision adopts proposed merged, and a national pricing surface agreements and orders regulating the
amendments to the transportation credit was adopted. Milk already pooled under handling of milk in the Appalachian
provisions of the Appalachian and a State-operated program and able to and Southeast marketing areas. The
Southeast orders. The Appalachian and simultaneously be pooled under a hearing was held, pursuant to the
Southeast orders contain provisions for Federal order has essentially the same provisions of the Agricultural Marketing
a transportation credit balancing fund undesirable outcomes that Federal Agreement Act of 1937, as amended (7
from which payments are made to orders once experienced and U.S.C. 601–674), and the applicable
handlers to partially offset the cost of subsequently corrected. Accordingly, rules of practice and procedure
moving bulk milk into each marketing proposed amendments to eliminate the governing the formulation of marketing
area to meet fluid milk demands. ‘‘double pooling’’ of the same milk on agreements and marketing orders (7 CFR
The proposed amendments adopted the Appalachian or Southeast order and part 900), at Atlanta, Georgia, on
in this final decision would increase the a State-operated milk order that has February 23–26, 2004, pursuant to a
maximum rate of the transportation marketwide pooling are adopted. notice of hearing issued January 16,
credit assessment of the Appalachian The proposed amendments would be 2004, and published January 20, 2004
and Southeast orders by 3 cents per applied to all Appalachian and (69 FR 3278).
hundredweight. Specifically, the Southeast order participants (producers
Upon the basis of the evidence
proposed amendments would increase and handlers), which consist of both
introduced at the hearing and the record
the maximum rate of assessment for the large and small business. Since the
thereof, the Department, on May 13,
Appalachian order from 6.5 cents per proposed amendments adopted in this
2005, issued a Partial Recommended
hundredweight to 9.5 cents per final decision would be subject to all the
Decision containing notice of the
hundredweight while increasing the orders’ producers and handlers
opportunity to file written exceptions
maximum rate of assessment for the regardless of their size, the provisions
thereto.
Southeast order from 7 cents per are not expected to provide a
hundredweight to 10 cents per competitive advantage to any The material issues, findings,
hundredweight. Increasing the participant. Accordingly, the proposed conclusions, and rulings of the Partial
transportation assessment rates will amendments will not have a significant Recommended Decision are hereby
tend to minimize the exhaustion of the economic impact on a substantial approved and adopted and are set forth
transportation credit balancing fund number of small entities. in herein. The material issues on the
when there is a need to import A review of reporting requirements record of the hearing relate to:
supplemental milk from outside the was completed under the Paperwork 1. Merger of the Appalachian and
marketing areas to meet Class I needs. Reduction Act of 1995 (44 U.S.C. Southeast Marketing Areas.
Currently, the Appalachian and Chapter 35). It was determined that a. Merging the Appalachian and
Southeast orders provide that these adopted proposed amendments Southeast milk marketing areas and
transportation credits shall apply to the would have no impact on reporting, remaining fund balances.
milk of a dairy farmer who was not a recordkeeping, or other compliance b. Expansion of the Appalachian
‘‘producer’’ under the order during more requirements because they would marketing area.
than two of the immediately preceding remain identical to the current c. Transportation credits provisions.
months of February through May but requirements. No new forms are 2. Promulgation of a new ‘‘Mississippi
not more than 50 percent of the milk proposed and no additional reporting Valley’’ milk order.
production of the dairy farmer, in requirements would be necessary. 3. Eliminating the simultaneous
aggregate, was received as producer This action does not require pooling of the same milk on a Federal
milk under the order during those two additional information collection that milk order and a State-operated milk
months. The proposed amendments requires clearance by the Office of order that provides for marketwide
contained in this final decision would Management and Budget (OMB) beyond pooling.
provide the Market Administrator of the currently approved information 4. Producer-handler provisions.
Appalachian order and the Market collection. The primary sources of data This partial final decision deals only
Administrator of the Southeast order the used to complete the forms are routinely with Issues 1 through 3. Issue No. 4 will
discretionary authority to adjust the 50 used in most business transactions. be addressed separately in a
percent milk production standard. Forms require only a minimal amount of forthcoming decision.
This decision adopts proposed information which can be supplied
amendments that would prohibit the without data processing equipment or a Findings and Conclusions
simultaneous pooling of the same milk trained statistical staff. Thus, the The following findings and
on the Appalachian or Southeast milk information collection and reporting conclusions on the material issues are
marketing orders and on a State- burden is relatively small. Requiring the based on evidence presented at the
operated order that provides for the same reports for all handlers does not hearing and the record thereof:

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1. Merger of the Appalachian and the Appalachian and Southeast orders number of dairy farmers in the
Southeast Marketing Areas one market in terms of the distribution southeastern States of Alabama,
of revenues, the allocation and pooling Arkansas, Georgia, Kentucky, Louisiana,
1a. Merging the Appalachian and
of marketing costs, milk supply and Mississippi, Missouri, North Carolina,
Southeast Milk Marketing Areas and
demand, and the development of its South Carolina, Tennessee, and Virginia
Remaining Fund Balances
annual budget, the witness explained. declined from 11,712 to 7,180. This
This decision does not adopt a The proponent cooperatives’ witness decrease, the witness explained,
proposal that would merge the current stated that the proposed merged milk parallels the trend of a drop in the
Appalachian marketing area and order would create a milk market which number of dairy farmers pooled on the
Southeast milk marketing area into a would be commonly supplied and current Appalachian and Southeast
single marketing area under a proposed deserving of a common blend price. The orders. The witness stated that based on
single milk order. Accordingly, a witness testified that the continued the final decision for Federal Order
proposal that would combine the fund existence of the separate Appalachian Reform (issued March 12, 1999, and
balances of the current Appalachian and and Southeast Federal milk orders published April 2, 1999 (64 FR 16025),
Southeast orders is rendered moot and across a functionally single fluid milk 8,180 dairy farmers were expected to
is not adopted in this final decision. marketing area inhibits market pool their milk on the consolidated
The Appalachian marketing area efficiency in supplying and balancing Appalachian and Southeast orders.
consists of the States of North Carolina the market, creates unjustified blend However, the witness noted only 7,243
and South Carolina, parts of eastern price differences, encourages dairy producers supplied milk to the
Tennessee, Kentucky excluding uneconomic movements of milk, and two orders during December 2003.
southwest counties, 7 counties in results in the inequitable sharing of the The proponent cooperatives’ witness
northwest/central Georgia, 20 counties Class I proceeds of what should be a stressed that there is an acute milk
in southern Indiana, 8 counties and 2 single market. deficit in the Appalachian and
cities in Virginia, and 2 counties in The proponent cooperatives’ witness Southeast Federal orders. Referencing
West Virginia. The Southeast order stated that different blend prices and
marketing area consists of the entire data obtained from the USDA National
different and separate pool qualification
States of Alabama, Arkansas, Louisiana, Agricultural Statistics Service (NASS)
requirements constitute disruptive
Mississippi, Georgia (excluding 7 for the States of Alabama, Arkansas,
conditions that would be removed by a
northern counties), southern Missouri, Georgia, Kentucky, Louisiana,
merger of the orders. The witness
western/central Tennessee, and Mississippi, Missouri, North Carolina,
asserted that the proposed merger
southern Kentucky. South Carolina, Tennessee, and Virginia
would allow producer milk to flow
A witness testifying on behalf of (southeast region), the witness testified
more freely between pool plants and
Southern Marketing Agency, Inc. that a decline in dairy farmers led to a
provide for the equal sharing of
(SMA), presented testimony in support decline in milk production in the
balancing costs across all producers in
of Proposals 1 and 2 as contained in the southeast region. The witness noted
the proposed merged milk order.
hearing notice published in the Federal The proponent cooperatives’ witness milk production decreased from 13,518
Register (69 FR 3278). Proposal 1 would stressed that the adoption of the million pounds in 1996 to 10,671
merge the current Appalachian and proposed merged milk order would million pounds in 2003 a decline of 21
Southeast marketing areas into a single assure producers that milk would be percent. The witness asserted that this
marketing area (hereafter referred to as sold at reasonable minimum prices and decline coupled with an increase in
the proposed merged milk order) and producers would share pro rata in the population has resulted in a major
Proposal 2 would combine the returns from sales of milk including expansion of the milkshed for the
remaining balances of funds of the milk not needed for fluid use. The southeastern region of the United States.
current Appalachian and Southeast witness further stated that handlers According to the proponent
orders if the proposed merged order was would be assured that competitors cooperatives’ witness, 9,072 million
adopted. According to the witness, SMA would pay a single set of minimum pounds of Class I producer milk was
is a marketing agency whose prices for milk set by the established pooled on the combined Appalachian
cooperative members include Arkansas order. The witness stated that a and Southeast orders during 2003. The
Dairy Cooperative Association, Inc. proposed merged milk order is in the witness said marketings of milk
(ADCA), Dairy Farmers of America, Inc. public interest because it assures that an produced in the southeastern region was
(DFA), Dairymen’s Marketing adequate supply of high quality milk 10,671 million pounds in 2003, which
Cooperative, Inc. (DMC), Lone Star Milk will be available for consumers. means 85 percent of Grade A milk
Producers, Inc. (Lone Star), Maryland & The proponent cooperatives’ witness production was needed for Class I use
Virginia Milk Producers Cooperative noted that the adoption of a new Federal on an annual basis.
Association, Inc. (MD&VA), and order is contingent upon being able to In 1996, the proponent witness
Southeast Milk, Inc. (SMI) (proponent show that interstate commerce occurs in testified, it was anticipated that 72 fluid
cooperatives). the proposed marketing area. It is the milk processing plants were or would
The witness for the proponent opinion of the witness that ‘‘interstate become fully regulated distributing
cooperatives said SMA was created in commerce’’ does exist due to the plants on the consolidated Appalachian
response to a changing market structure movement of bulk and packaged milk and Southeast orders. However, the
and is an extension of the cooperatives’ products within, into, and out of the witness noted, only 52 remained
initiative to consolidate and seek Appalachian and the Southeast regulated by the orders during
enhanced marketing efficiencies. The marketing areas—the proposed December 2003. The witness indicated
witness indicated that SMA pools marketing area. that of the fully regulated pool plants
certain costs and returns for its The proponent cooperatives’ witness existing in both January 1996 and
cooperative member producers noted a trend of larger geographical December 2003, more than two-thirds
supplying distributing plants fully areas being served by fewer Federal have experienced at least one ownership
regulated under the Appalachian and milk marketing orders. Specifically, the change and some have experienced
Southeast milk orders. SMA considers witness said between 1996 and 2003 the several ownership changes.

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The proponent cooperatives’ witness Kentucky, central Tennessee, central the separate orders in an effort to
cited a set of criteria used for North Carolina, western South Carolina, alleviate disruptive blend price
consolidation of marketing areas and and central and southern Georgia have differences. The witness testified that
orders during the reform process. The supplied milk to plants regulated under while this procedure has resolved some
witness said this list included Appalachian or Southeast orders. The blend price differences, their procedure
overlapping route sales and areas of witness said milk of dairy farmers does not result in removing inequitable
milk supply, the number of handlers located in the Central marketing area blend prices for all producer milk
within a market, the natural boundaries, and Southwest marketing area, and pooled on the separate orders.
the cooperative associations operating dairy farmers located in northwestern Regarding the commonality of
in the service area, provisions common Indiana and south central Pennsylvania, cooperative associations in the two
to the existing orders, milk utilization in have supplied fluid milk plants marketing areas, the proponent
common dairy products, disruptive regulated by the Appalachian and cooperatives’ witness stated that
marketing conditions, and Southeast orders. cooperative membership is an
transportation differences. In December 2003, the witness stated, indication of market association and
The proponent cooperatives’ witness dairy farmers located in 28 states provides support for the consolidation
testified that significant competition for supplied milk to handlers regulated of marketing areas. The witness noted
sales between plants exists between the under the Appalachian or Southeast that the six SMA member cooperatives
Appalachian and Southeast marketing orders. Sixteen of the 28 states supplied accounted for approximately 734
areas. The witness noted that a milk to both marketing areas and 13 million pounds of producer milk during
‘‘corridor of competition’’ is the shared states were located wholly or partially November 2003, which represents about
border of the Appalachian and within the proposed merged milk order 67 percent of the total producer milk
Southeast. The witness testified that marketing area, the witness noted. that would be pooled on the proposed
Federal milk order data for 2003 shows The witness for the proponent merged milk order. Also, the witness
Class I disposition on routes inside the cooperatives testified that the proposed stated these cooperatives market milk of
Southeast order by Appalachian order merged milk marketing area and order other cooperatives whose member
pool plants was 11.25 percent of the would rank second in Class I utilization producers’ milk would be pooled on the
total Class I route disposition by all representing 19.5 percent of total Class proposed merged milk order. Using
plants in the Southeast order. According I sales in all Federal milk orders. Using November 2003, the witness stated
to the witness, Class I route disposition annual Federal milk order data, the approximately 871 million pounds or 79
in the Southeast marketing area by witness noted that for 2003, Class I percent of the producer milk pooled
Appalachian order pool plants has utilization for the Appalachian and under the proposed merged milk order
increased in total by 11.1 percentage Southeast marketing areas was 70.36 would be represented by these
points since January 2000 (i.e., 5.9 percent and 65.47 percent, respectively. proponent cooperatives.
percentage points from 2000 to 2001, 2.1 The witness said the combined Class I The witness for the proponent
percentage points from 2001 to 2002, utilization for the proposed merged milk cooperatives pointed out that the
and 1.9 percentage points from 2002 to marketing area would have been 67.77 regulatory provisions of the
2003). In addition, the witness stated percent for 2003 or 9,072 million Appalachian and Southeast orders are
that record data reveals that Class I pounds of 13,386 million pounds of similar in most respects except for the
route disposition by Appalachian order producer milk pooled. qualification standards for producer
pool plants into the Southeast marketing The proponent cooperatives’ witness milk and a producer. While not a
area was 63.9 percent of the total Class noted that milk not needed for fluid Federal milk order regulatory provision,
I disposition by all nonpool plants for uses in the Appalachian marketing area the proponent witness stated that the
the Southeast order during 2003. is primarily used in Class II and Class common handling of costs and returns
According to the proponent IV while milk not needed for fluid uses for milk that would be pooled on the
cooperatives’ witness, all of the in the Southeast marketing area is proposed merged milk order recognized
distributing plants currently regulated primarily used in Class III. For 2003, the similar marketing conditions within the
under the Appalachian and Southeast witness noted that non-fluid milk proposed marketing area.
orders are expected to be fully regulated utilization for the Appalachian order The proponent cooperative witness
by the proposed merged milk order. was 14.41 percent Class II, 7.11 percent testified that the proposed merged milk
Using December 2003 data, the witness Class III, and 8.12 percent Class IV, order should retain the Appalachian
stated that the proposed merged milk while the non-fluid milk utilization for order pool plant provisions. The witness
order would have had a Class I route the Southeast order was 9.97 percent recommended adopting provisions that
distribution of 773.4 million pounds. Class II, 17.79 percent Class III, and 6.78 would allow the pooling of a supply
The witness added that 86.58 percent of percent Class IV. The witness stressed plant operated by a cooperative
Class I sales would have been from milk that these differing uses of milk result association that is located outside the
produced in the proposed marketing in different blend prices between the marketing area but within the State of
area. The witness stated that the Appalachian and Southeast orders Virginia. The witness stated that the
proposed Southeast marketing area which leads to disorderly marketing proposed merged milk order should
would rank third in the total number of conditions. The witness emphasized include the Appalachian order ‘‘split’’
pool plants regulated by a Federal milk that differences in blend prices between pool plant provision which would
order. the two orders is largely due to continue to provide for defining that
The proponent cooperatives’ witness significant differences in uses and portion of a pool plant designated as a
stated that there is substantial and prices in the manufacturing classes and ‘‘nonpool plant’’ that is physically
significant overlap of the supply of is not necessarily due to significant separate and operates separately from
producer milk for the Appalachian and differences in Class I milk utilization. the pool portion of such plant.
Southeast marketing areas. The witness The witness explained that SMA in The proponent cooperatives’ witness
noted Federal order data for 2000 April 2002 began the common pooling stated that lock-in provisions should be
through 2003 shows that dairy farmers of the costs and returns to supply the included in the proposed merged milk
located in southern Indiana, central customers of member cooperatives in order. According to the witness,

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distributing plants in the Southeastern The proponent cooperatives’ witness Appalachian and Southeast orders make
markets have been ‘‘locked in’’ or fully proposed that the reserve balances of it difficult to ensure the pooling of milk
regulated as pool plants under the order the marketing services, administrative on the orders. The witnesses contended
in which they are physically located expense, producer-settlement funds, a merger of the Appalachian and
since the mid-1980s. The witness and the transportation credit balancing Southeast marketing areas and orders
testified that unit pooling distributing funds that have accrued in the would enhance market equity, allow for
plants on the basis of their physical individual Appalachian and Southeast increased efficiencies in supplying a
location should be retained in the orders be merged or combined in their deficit milk region, and eliminate the
proposed merged milk order. The entirety if the proposed merged milk disruptive and disorderly marketing
witness noted that the Appalachian and order is adopted. The witness explained conditions that currently exist in the
Southeast orders currently provide that that the handlers and producers Appalachian and Southeast orders by
two or more plants operated by the same servicing the milk needs of the eliminating blend price differences.
handler that are located within the individual orders would continue to A witness representing Georgia Milk
marketing area may qualify for pool furnish the milk needs of the proposed Producers, Inc. (GMP), testified in
status as a unit by meeting the in-area marketing area. opposition to the merger as proposed in
Class I route disposition standards According to the proponent Proposals 1 and 2. The witness was of
specified for pool distributing plants. cooperatives’ witness, it would be the opinion that USDA had made a
The witness for the proponent appropriate to combine the reserve mistake in 2000 when the western part
cooperatives explained that lock-in balances of the orders’ marketing service of the current Southeast marketing area,
provisions help to preserve the viability funds since marketing service programs which had a lower Class I utilization,
of capital investments in pool for producers would continue under the was added to the Southeast marketing
distributing plants. The witness proposed merged milk order. In regards area which had a higher Class I
indicated that lock-in provisions in the to the administrative expense funds, the utilization.
Southeast and Appalachian orders witness stated that it would be equitable Other testimony presented on behalf
and more efficient to combine the of GMP, and relying on 1997 data,
adequately provide for regulatory
remaining administrative funds indicated that milk production in
stability for pool plants on the edge of
accumulated under the individual Georgia fell short of Georgia’s fluid milk
a market area that may shift regulatory
orders. In addition, the witness demand by about 122 million pounds as
status between two orders due to
indicated that this would enable the compared to only 4 to 11 million pound
changes in route disposition patterns.
producer-settlement funds and the supply shortfalls in the other states
The proponent cooperatives’ witness included in the proposed merged milk
transportation credit funds of the
recommended changing the ‘‘touch order area. The witness stated that the
proposed merged milk order to continue
base’’ requirement of the producer milk widening supply-demand gap will
without interruption.
provision from a ‘‘days’’ production Witnesses for Maryland & Virginia accelerate as population increases and
standard to a ‘‘percentage’’ production Milk Producers Cooperative, Inc. milk production declines in Georgia.
standard. This change, the witness (MD&VA), Arkansas Dairy Cooperative, The GMP witness stated that: ‘‘Based on
stated, will accommodate pooling the Inc. (ADCA), Lone Star Milk Producers, the decline in production in the region
milk of large producers who ship Inc. (Lone Star), and Dairymen’s compared to the growth in demand,
multiple loads of milk per day. The Marketing Cooperative, Inc. (DMC), USDA has not sufficiently considered
witness proposed that individual testified in support of consolidating the the needs of the dairy farmers in the
producers deliver 15 percent of their current Appalachian and Southeast milk states covered by the Order.’’ According
monthly milk production (equivalent to orders into a single milk order. to the witness, GMP dairy farmers have
approximately 4.5 days of milk According to witnesses, MD&VA is lost income each time the Southeast
production) to a pool plant during comprised of 1,450 to 1,500 dairy Federal order has been expanded.
January through June and 33 percent farmers, ADCA has 160 member dairy The GMP witness testified that a
(equivalent to about 10 days of milk farmers, Lone Star is comprised of about rejection of the proposed merged milk
production) of their of monthly milk 160 member dairy farmers, and DMC is order together with the creation of a
production during the months of July comprised of 168 member dairy farmers. new Mississippi Valley Order, as offered
through December. The witness stated The witnesses indicated that all of the by Proposal 5, would be the first step to
that the 33 percent production standard cooperatives are members of SMA and help rectify the mistake made in Federal
is a reasonable minimum requirement that the milk of their dairy farmer milk order reform. The witness
for establishing a producer’s association members is shipped to plants regulated supported raising the utilization in the
with the market during the short by the Appalachian or Southeast orders. most deficit areas of the Southeastern
production months of July through The MD&VA witness asserted that the States by creating a Mississippi Valley
December. Under their proposal, the consolidation of the current order and combining the high
milk of a dairy farmer would be eligible Appalachian and Southeast marketing utilization areas of the remainder of the
for diversion to a nonpool plant the first areas and orders is necessary due to current Southeast order (Order 7) into a
day of the month during which the milk changes in the marketing structure (i.e., new smaller Southeast Order.
of such dairy farmer meets the order’s milk production and processing sectors) The GMP witness asserted that
touch base requirements. in the southeastern United States. The historically, the larger the marketing
The proponent cooperatives’ witness witness was of the opinion that the area area, the higher the balancing costs in a
indicated that their proposal contains covered by the two current orders is deficit market. The witness further
current Southeast order language that essentially a single market and that all asserted that transportation credits shift
limits the total amount of producer milk of the producers delivering milk to the part of that cost to the entire market
that may be diverted by a pool plant market should share a common Federal rather than to the dairy farmers in the
operator or cooperative association to 33 order blend price. order who are members of cooperatives.
percent during the months of July The witnesses for MD&VA, ADCA, The witness testified that transportation
through December and 50 percent Lone Star, and DMC stated the producer credits unintentionally encourage the
during January through June. milk requirements under the current importation of milk rather than

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encourage increased production of local milk pricing program for producers relative blend prices determine where
milk. supplying milk to plants with Class I milk is shipped and pooled. According
A witness representing the Kroger sales within the State. The witness to the witness the disincentives
Company (Kroger) testified in support of indicated that DFA opposes any change associated with increased transportation
the proposed merger of the Appalachian to the proposed merged milk order costs increase faster than the incentives
and Southeast orders. According to the provisions that may cause conflicts from the higher location value of the
witness, Kroger owns and operates between the operations of the Virginia merged order blend price. The witness
Winchester Farms Dairy, in Winchester, State Milk Commission and the Federal cited the St. Louis/southern Illinois area
Kentucky, and Westover Dairy, in milk marketing order program. and its chronic milk deficit as a prime
Lynchburg, Virginia. The witness stated A witness representing Prairie Farms example of these phenomena.
that both plants are pool distributing testified in opposition to Proposals 1 Post-hearing briefs addressing
plants regulated on the Appalachian and 2. The witness indicated that the Proposals 1 and 2 were submitted by
milk order. The witness stated that fluid milk industry would be better SMA, Dean Foods, and Prairie Farms.
Kroger owns and operates Heritage served by more Federal milk marketing The proponent cooperatives for the
Farms Dairy in Murfreesboro, orders covering smaller areas rather proposed merged milk order, submitted
Tennessee, and Centennial Farms Dairy than fewer Federal milk marketing a post-hearing brief reiterating their
in Atlanta, Georgia, both fully regulated orders covering large areas. The witness support for the merger of the
distributing plants under the Southeast indicated that Federal milk order reform Appalachian and Southeast orders. The
milk order. left ‘‘dead zones’’ in the States of Illinois brief described conditions existing in
According to the Kroger witness, their and Missouri, near St. Louis. According the Appalachian and Southeast orders
Winchester, Kentucky, plant was to the witness, this area is not able to as disruptive and disorderly, and
associated with the Ohio Valley order attract a fluid milk supply and asserted that these conditions are
(now part of the Mideast order) from experiences weekly fluid milk deficits. symptoms of a market that has changed
1982 to 1988, with the Louisville- The Prairie Farms witness indicated significantly since the orders were
Lexington-Evansville order from 1988 that the low per capita milk production promulgated by Federal order reform,
through 1999, and with the Appalachian in Illinois, in combination with effective January 1, 2000.
order since 2000. The witness indicated economic incentives to move the milk According to the proponent
that previous decisions by USDA produced in Illinois and eastern cooperatives’ brief, a merger of the
adopted pool plant provisions that Missouri into the Appalachian and existing orders would bring blend price
allowed their Winchester, Kentucky, Southeast orders, has caused disorderly uniformity, recognize inter-order
plant to be regulated under the marketing conditions. The witness competition and integrate Class I sales
Appalachian order. According to the indicated that the blend price within the proposed merged milk order,
witness, being regulated by the differences between the Upper Midwest recognize common supply areas within
Appalachian order retains that plant’s order and the Central order are not the proposed merged milk order, and
ability to procure milk with a higher sufficient to cover the transportation allow producer milk to move more
blend price when compared with the cost of moving milk to the ‘‘dead freely between pool plants within the
Mideast order. zones’’. The witness testified that at an proposed marketing areas. In addition,
The Kroger witness indicated that October 31, 2001, meeting, DFA— proponents contended it would equalize
with the exception of the Murfreesboro, Prairie Farms’ major supplier— the costs of balancing within the
Tennessee, plant, which has a minority indicated that they would no longer be proposed marketing area, erase the
supply of milk from independent able to provide supplemental milk artificial line that separates a common
producers, all of the Kroger pool supplies to Prairie Farms due to the lack milk market, and recognize the common
distributing plants are supplied by Dairy of incentives and expenses. pooling of costs and returns for
Farmers of America, Inc. The witness The Prairie Farms witness stated that producer milk within the proposed
indicated that if their Winchester plant today’s dairy environment shows that merged order. The brief asserts that no
were to again be associated with the the current order system needs to be additional parties would become
Mideast order, the returns to the milk reconfigured and inequities fixed regulated as a result of the proposed
supplying cooperative would be system-wide. The witness asserted that merged milk order. According to the
reduced due to the lower Mideast order the consequences for nearby marketing proponent cooperatives’ brief, other
blend price. The witness requested that areas and adjacent orders must be options that forestall a complete merger
the current Appalachian order pool considered when revising or merging are inadequate to correct the present
plant definition be included in the orders. The witness indicated that disruptive and disorderly conditions in
proposed merged milk order. This market efficiency suffers and difficulties the separate orders.
request, according to the witness, would occur in supplying and balancing the Opposition to Proposal 1 was
permit their plant located in market at all Federal milk order borders. reiterated by Dean Foods and Prairie
Winchester, Kentucky, to continue its The witness indicated that the lines Farms in a joint post-hearing brief. The
association with the proposed merged drawn between marketing areas create brief suggested that blend price
milk order rather than with the Mideast unjustified blend price differences, differences between orders cause milk
order. encourage uneconomic movements of to move to where it is most needed.
A witness representing Dairy Farmers milk, and result in the inequitable Dean Foods and Prairie Farms stated
of America, Inc. (DFA), testified that the sharing of Class I proceeds. that without blend price differences
proponents do not anticipate any A witness representing Dean Foods milk movements between and within
difficulties from merging of the two testified in opposition to the proposed marketing areas are impaired. The
orders or expanding the proposed merger of the Appalachian and the opponents brief suggested a national
merged milk order area to include Southeast market areas. According to hearing in order to consider
additional Virginia counties. According the witness, more and smaller order simultaneously all marketing regions
to the witness, the Virginia State Milk areas create more flexible incentives to because the results of one proceeding
Commission has been able to deliver milk to Federal order pool directly affects other regions. The brief
simultaneously operate a producer base plants. According to the witness, stated that combining the Appalachian

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and Southeast marketing areas was Accordingly, the merger proposal may transportation credit funds of the two
considered but was not adopted under be considered by the Department. orders and other amendments to the
Federal milk order reform. A partial recommended decision orders’ transportation credit provisions,
The Dean Foods and Prairie Farms published in the May 13, 2005, Federal development of reciprocal producer
joint brief stated that market Register (70 FR 29410) found that qualification standards on the two
administrator data demonstrates that record evidence does not support orders, adjustments in the orders’
moving milk to where it is needed merging the Southeast and Appalachian producer milk qualification provisions,
through blend price differences marketing areas or substantiate the need and amendments to the orders’ pool
effectively moves milk from the west to for merging these two separate plant provisions. SMA contended that
the east for the Southeast marketing area marketing order areas. Record evidence the proposed merger is the only viable
and from north to south for the of this proceeding clearly demonstrates alternative to resolving all the issues in
Appalachian marketing area. The brief that the measure of association between the proposed marketing area.
offered the St. Louis area as an example the Appalachian and Southeast DFA expressed disappointment at the
of blend price differences that are marketing areas in terms of overlapping recommended denial of the proposed
sometimes too small to cover additional Class I route sales and overlapping milk merger and stated that the main concern
costs of transporting milk to major procurement areas is relatively of DFA and other proponent
metropolitan area for fluid use. The unchanged since the consolidated cooperatives is the additional costs
brief indicated that similar problems orders were implemented in January associated with serving the market in
could result elsewhere if the two orders 2000. The evidence of this record does two marketing areas. According to DFA,
are merged. not indicate that current marketing the proposed merger is critical because
In their joint brief, Dean Foods and conditions within the two marketing the milk supply relative to demand in
Prairie Farms suggested that although a areas are disorderly. the southeastern region grows even
majority of dairy market participants Southern Marketing Agency, Inc., more deficit each month. The
may favor a merger, it is important to (SMA) and Dairy Farmers of America, cooperative stated that servicing a
consider the minority opinion. The brief Inc., (DFA) filed comments in response deficit milk market is an extremely
also requested the inclusion of the to the partial recommended decision expensive proposition and suggested
Kentucky counties of Ballard, Calloway, expressing opposition to the that efforts to reduce marketing costs be
Carlisle, Fulton, Graves, Hickman, Department’s denial of the proposed given the most serious consideration.
Marshall, and McCracken in the merger. They noted that the proposed DFA contended the proposed order
Southeast marketing area if Proposal 1 merger was supported by a substantial merger would aid the market’s suppliers
is denied and Proposal 5 is adopted. portion of market participants servicing in returning more dollars to dairy
Dean Foods and Prairie Farms’ joint the Class I needs of the market with farmers.
brief contended that the proposal to minimal opposition from milk SMA and DFA contended the partial
merger the Appalachian and Southeast processing companies. In comments recommended decision provided no set
orders brings forth a significant policy filed by MD&VA and ADCA, the standards regarding overlapping Class I
and legal question the Department must cooperatives maintained their support route disposition and milk procurement
address prior to issuing a decision on for the proposed order merger. areas which the denial of the proposed
the merits of the proposal. The proposed In comments and exceptions filed in merger was based. They asked that a
merger, if adopted, would cause the response to the recommended decision, standard be identified or developed and
number of Federal orders to fall to both SMA and DFA contended that the communicated to the industry. DFA
below the minimum number of 10 proposed order merger is needed due to indicated the partial recommended
required by Congress in the 1996 Farm the milk supply relative to the demand decision provided references to the 1999
Bill, they stated. for milk southeastern region of the Federal order reform decision that do
A written statement submitted on United States. The proponents continue not explicate the objective basis of that
behalf of LuVel Dairy Products, Inc., to maintain that the two marketing decision but rather simply invokes the
requested that the administrative orders are effectively a single fluid decision. DFA insisted the industry
requirements of the producer-settlement market. would be better served by more
fund be modified to extend the time SMA reiterated the need for the transparent decision-making criteria.
period in which payments to the fund merger of the marketing areas and As proposed in the partial
are due by one full business day and to orders stating logistical and marketing recommended decision, this decision
allow payments due to the fund to be efficiency in supplying these deficit finds that record evidence does not
submitted overnight instead of through markets with supplemental milk is support merging the Southeast and
the electronic wiring of funds. However, paramount to the area producers, to Appalachian marketing areas. Record
this was not a noticed proposal and no processors of milk, and ultimately to evidence of this proceeding does not
evidence or witness was available to consumers. SMA contended that the substantiate the need for merging these
testify regarding this written request. milk deficit condition in the southeast two separate marketing order areas.
The 1996 Farm Bill mandated that region necessitates the importation of Overlap of Class I route disposition
Federal milk orders be consolidated to milk from wherever it is available, between the two marketing areas is
not less than 10 or more than 14. The which currently is the Southwest and relatively unchanged since the separate
Federal order reform final decision Mideast marketing areas. The orders were created in 2000. The
issued March 12, 1999, and published proponents asserted that daily interplay overlap in milk supply areas for plants
in the Federal Register April 2, 1999 (64 of the milk supply to the Appalachian in the Appalachian and Southeast
FR 16026), meet the requirements set and Southeast marketing areas from marketing areas remains minimal and
forth in the 1996 Farm Bill through the these outside-area locations unchanged since 2000. Blend price
consolidation of the 31 Federal milk demonstrates the absolute need to merge differences and other marketing
orders into 11 orders. The Agricultural the two orders. conditions in the two marketing areas
Marketing Agreement Act of 1937 (Act), SMA stated that other alternatives to raised by the proponents are not
as amended, provides the Department the proposed merger were considered significantly different from conditions
the authority to issue and amend orders. including the merger of the existing in 2000. The proponents have

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not demonstrated that the current overlapping milk procurement areas is consolidated Appalachian order
marketing conditions are disorderly. relatively unchanged since the marketing area and the proposed
The proponents have not made a consolidated orders became effective in consolidated Southeast order marketing
convincing case that the current January 2000. area be combined into a single
marketing conditions are disorderly. Several criteria were used by the consolidated Southeast marketing area.
The Act provides that milk orders Department in determining which of the Also, the Kentucky Farm Bureau
may be issued where the marketing of 31 milk order marketing areas exhibited Federation requested a single Federal
milk is in the current of interstate or a sufficient measure of association in order consisting of the proposed
foreign commerce or where it directly terms of sales, procurement area, and consolidated Appalachian and
burdens, obstructs, or affects interstate other structural relationships to warrant Southeast marketing areas including all
or foreign commerce. Federal milk consolidation or mandated by the 1996 of the State of Kentucky.
orders define the terms under which Farm Bill into the current 10 milk The proponents for merging the two
handlers in specified markets purchase marketing areas. These criteria included consolidated marketing areas contended
milk from dairy farmers. The orders are overlapping route disposition, that common procurement areas
designed to promote the orderly overlapping areas of milk supply, between the orders would result in
exchange of milk between dairy farmers number of handlers within a market, different blend prices paid to producers
(producers) and the first buyers natural boundaries, cooperative if the orders were not consolidated. The
(handlers) of milk. As the proponents associations, common regulatory Federal order reform final decision
assert, orders do provide terms and provisions, and milk utilization in rejected this assertion stating that ‘‘As
provisions to identify those who are common dairy products. discussed in the proposed rule,
supplying the Class I needs of a market The primary factors during reform consolidating the Carolina and
and thus, should share in the order that supported the creation of the Tennessee Valley markets with the
revenues. The record evidence of this consolidated Appalachian milk order Southeast does not represent the most
proceeding does not support a finding marketing area and the consolidated appropriate consolidation option
that the current Appalachian and Southeast milk order marketing area because of the minor degree of
Southeast milk orders are not achieving were overlapping route sales and milk overlapping route disposition and
the goal of orderly marketing. procurement areas between the producer milk between these areas’’ (64
Proponents in providing justification marketing areas. The determinations FR 16060). Accordingly, the order
to merge the Appalachian and Southeast were based on an analysis of milk sales merger proposals were not adopted
marketing areas and orders advanced a and procurement area overlap between during Federal order reform. These
set of criteria that was essentially the the pre-reform orders using 1997 data. findings continue to apply to the current
same criteria as the criteria the Specifically, the Federal order reform proposed merged order.
Department used during Federal milk final decision issued March 1999 stated Record evidence indicates that the
order reform. The criteria included that the primary factors for the Appalachian and Southeast order
overlapping Class I route sales and consolidation of the (1) Tennessee marketing areas share minor and
overlapping milk procurement areas. As Valley, (2) Louisville-Lexington- unchanged commonality in sources of
noted in the partial recommended Evansville, and the (3) Carolina milk supply, fluid milk route sales, and
decision, the criteria considered when marketing areas into the current market participants (cooperative
the current Appalachian and Southeast Appalachian milk order marketing area associations and handlers). However, as
marketing areas and orders were were commonality of overlapping route discussed later in this decision, such
established as part of Federal milk order disposition and milk procurement measures of association between the
reform are considered in this decision. between the two marketing areas. The Appalachian and Southeast order
The Department considered and decision found that there was ‘‘a marketing areas can only support a
weighed this set of criteria and the stronger relationship between the three finding to maintain two separate Federal
supporting justification offered by marketing areas involved than between order marketing areas with some minor
proponents of the proposed order any one of them and any other modifications.
merger. marketing area on the basis of both Overlapping Route Sales and Milk
In determining whether Federal milk criteria’’ (64 FR 16059). Supply. Current proponents of merging
order marketing areas should be merged, For the Southeast order, the Federal the Appalachian and Southeast
the Department generally has order reform final decision stated that marketing areas contend that there is
considered the extent to which Federal the basis for the adopted Southeast substantial overlap in route sales and
order markets share common marketing area which consolidated the milk supply areas. The movements of
characteristics such as overlapping sales former Southeast marketing area with packaged fluid milk between Federal
and procurement areas, and other additional counties in Arkansas, milk order marketing areas provide
commonly shared structural Kentucky, and Missouri was evidence that plants from more than one
relationships. The most important of ‘‘overlapping route dispositions within Federal milk order are in competition
these factors are evidence of the marketing area to a greater extent with each other for fluid milk sales.
overlapping sales patterns among than with other marketing areas. Overlapping sales patterns that result in
handlers of Class I milk and overlapping Procurement of producer milk also the regulatory shifting of handlers
milk procurement area. In support of the overlaps between the states within the between orders tend to cause disorderly
proposed merger, proponents assert that market’’ (64 FR 16064). marketing conditions by changing the
there is substantial overlap in Class I Proposals to merge the Appalachian price relationships between competing
route sales and milk procurement areas and Southeast order marketing areas handlers and neighboring dairy farmers.
between the Appalachian and Southeast into a single marketing area were As discussed later in this decision, there
markets. However, record evidence of considered during the Federal order is no evidence of disorder occurring
this proceeding clearly demonstrates reform process. Dairy Farmers of within the Appalachian and Southeast
that the measure of association between America, Inc., and Carolina-Virginia order marketing areas as a result of
these two marketing areas in terms of Milk Producers Association submitted plants shifting regulation to other
overlapping Class I route sales and comments requesting that the proposed orders.

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Overlapping milk supply principally areas do not warrant consolidation. An association between the Appalachian
applies when the major proportions of area that supplies a minor proportion of and Southeast order marketing areas in
a market’s milk is supplied by the same an adjoining area’s milk needs from terms of overlapping Class I route sales
area. The cost of a handler’s milk is minor proportions of its own total milk and milk procurement areas from 2000
influenced by the location of the milk supply and has minimal competition through 2003.
supply which affects other competitive among handlers in the adjacent Based on record evidence of Federal
factors. The common pooling of milk marketing area for fluid sales, supports milk order data, Table 1 illustrates that
produced within the same procurement concluding that the two marketing areas the Appalachian and Southeast order
area under the same order facilitates the are clearly separate and distinct. marketing areas have experienced no
uniform pricing of producer milk among As contained in the partial significant change in overlapping Class
dairy farmers. However, all marketing recommended decision, this decision I route sales or milk procurement since
areas having overlapping procurement provides detailed analysis of the the orders were consolidated.

TABLE 1:—OVERLAPPING ROUTE SALES AND MILK SUPPLY APPALACHIAN (ORDER 5) AND SOUTHEAST (ORDER 7) MILK
ORDERS
From order 5 From order 7
Date to order 7 to order 5
(percent) (percent)

Route Disposition
(Share of Class I Sales)

Annual Average—2000 ................................................................................................................................................ 11.4 1.9


Annual Average—2001 ................................................................................................................................................ 12.2 2.4
Annual Average—2002 ................................................................................................................................................ 12.2 1.9
Annual Average—2003 ................................................................................................................................................ 12.4 2.0

Overlapping Milk Supply


(Share of Total Producer Milk)

Annual Average—2000 ................................................................................................................................................ 3.1 8.5


Annual Average—2001 ................................................................................................................................................ 3.2 6.9
Annual Average—2002 ................................................................................................................................................ 3.2 6.8
Annual Average—2003 ................................................................................................................................................ 3.2 4.3
Source: Appalachian and Southeast Market Administrator Data.

For the 2000 through 2003 period, order accounted for about 85 percent of to 2003, while route sales from the
route sales by distributing plants the order’s total Class I sales. Southeast order regulated plants into
regulated by the Appalachian order into Of the total producer milk pooled on the Appalachian marketing area
the Southeast marketing area averaged the Appalachian order, the amount of remained relatively unchanged for the
about 12 percent, while the route sales producer milk produced in the 4-year period. Likewise, the data in
from plants regulated by the Southeast Southeast marketing area decreased Table 1 shows that producer milk
order into the Appalachian marketing from 8.5 percent in 2000 to 4.3 percent pooled on the Appalachian order that
area averaged about 2 percent. Record in 2003. The milk produced in the originated from the Southeast marketing
Appalachian marketing area that was area declined each year since 2000,
data also indicates that the majority of
pooled on the Southeast order while the producer milk pooled on the
the Class I sales by distributing plants
accounted for about 3.2 percent of the
regulated by the Appalachian and Southeast order that originated from the
total producer milk pooled on the
Southeast orders is within each of the Appalachian marketing area has
Appalachian order for the same 4-year
respective orders. For the 4-year period, remained unchanged since the orders
period.
Appalachian order handlers accounted In summary, the Table 1 data were consolidated in January 2000.
for about 75 percent of the total Class I illustrates that route sales from Table 2, which is based on Federal
sales within the order’s marketing area Appalachian order handlers into the milk order record data, further details
and plants regulated by the Southeast Southeast marketing area increased the source of producer milk pooled on
slightly (1 percentage point) from 2000 the Appalachian and Southeast orders.

TABLE 2.—SOURCE OF PRODUCER MILK FOR THE APPALACHIAN AND SOUTHEAST ORDERS BY ORDER AND UNREGULATED
AREAS
Percent from Percent from Percent from Percent from Percent from all
Year inside order northeast order mideast order southeast order other orders and
area area area area unregulated areas

Appalachian Order Producer Milk

2000 ....................................................... 51.9 6.7 9.1 8.5 23.9


2001 ....................................................... 47.9 6.9 11.4 6.9 26.8
2002 ....................................................... 46.7 7.3 14.6 6.8 24.6
2003 ....................................................... 45.1 5.8 19.2 4.3 25.6

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Percent from Percent from Percent from Percent from Percent from all
Year inside order central order southwest order Appalachian other orders and
area area area order area unregulated areas

Southeast Order Producer Milk

2000 ....................................................... 66.5 8.9 17.1 3.1 4.4


2001 ....................................................... 59.8 9.8 20.1 3.2 7.1
2002 ....................................................... 57.0 10.5 21.8 3.2 7.5
2003 ....................................................... 58.1 14.2 17.5 3.2 7.1
Source: Appalachian and Southeast Market Administrator Data.

The Table 2 data illustrates that the that was pooled on the Southeast order Based on the record data, this
share of total producer milk pooled on increased from 8.9 percent in 2000 to decision finds that the overlap in route
the Appalachian order produced within 14.2 percent in 2003. In addition, sales and milk procurement areas
the marketing area during 2000 through producer milk produced in the between the Appalachian and Southeast
2003 has declined from about 51 Southwest marketing area that was milk order marketing areas does not
percent to about 45 percent. The amount pooled on the Southeast order was support merging the two orders.
of producer milk produced in the about 17 percent in 2000, increased to Milk Utilization. During 2000 through
Southeast marketing area as a share of about 22 percent in 2002, and declined 2003, the 4-year weighted average Class
the total amount of producer milk to about 17 percent in 2003. I utilizations for the Appalachian and
pooled on the Appalachian order also The record data clearly reveals the Southeast orders were 66.9 percent and
has declined from 8.5 percent in 2000 degree of overlap in milk supply 63.1 percent, respectively. The level of
to 4.3 percent in 2003. At the same time, between the Appalachian and Southeast Class I utilization is a factor considered
the amount of producer milk produced milk order marketing areas has in determining whether orders should
in the Mideast marketing area that was be merged but does not form the basis
decreased over the 4-year period since
pooled on the Appalachian order for adopting a merger because it is a
Federal order reform while the degree of
increased from 9.1 percent in 2000 to function of how much milk is pooled on
overlap between the Appalachian and
19.2 percent in 2003. an order.
Mideast orders has increased each year.
During 2000 through 2003, the From 2000 through 2004, the non-
The data further reveals that the primary
Northeast, Southeast, and Mideast Class I use of milk (Class II, Class III,
out-of-area sources of supplemental
marketing areas accounted for about 27 and Class IV) of the Appalachian and
milk for the Appalachian order
percent of the total producer milk Southeast marketing areas has been
marketing area are the Northeast and
pooled on the Appalachian order. Of the different. During this 5-year period,
Mideast regions. In contrast, the primary
total producer milk pooled on the Appalachian order Class II, Class III and
out-of-area sources of milk supply for
Appalachian order that was produced Class IV utilization rates averaged 14.5
the Southeast order marketing area are percent, 7.3 percent, and 10.1 percent,
outside the Appalachian marketing area
during this period, 12.7 percent was the Southwest and Central marketing respectively. For the same period, the
produced in the Southeast marketing areas. Class II, Class III, and Class IV
area, 12.8 percent in the Northeast Record data reveals that the minimal utilization rates for the Southeast order
marketing area, and 26 percent in the overlap in milk supply areas that exists averaged 10.8 percent, 17.3 percent, and
Mideast marketing area. In addition, between the Appalachian and Southeast 8.5 percent, respectively. This data
record data indicates that approximately milk order marketing areas is primarily illustrates that the Appalachian
half of the pooled milk on the concentrated along the Tennessee and marketing area is balanced primarily by
Appalachian order is produced in Kentucky borders. Such overlap is Class II and Class IV while in the
counties within the marketing area and typical for adjoining marketing areas. Southeast marketing area is balanced by
20 percent to 25 percent of the total The Federal order reform final decision Class II and Class III.
pooled milk is supplied by Federally addressed the issue of overlapping milk Blend Prices. Proponent cooperatives
unregulated areas, mainly from counties supply areas among adjacent orders by contend that the differences in blend
in the State of Virginia, Pennsylvania, stating that ‘‘an area that supplies a prices between the Appalachian and
and New York. minor proportion of an adjoining area’s Southeast milk orders result in
For the 4-year period of 2000 through milk supply with a minor proportion of disruptive marketing conditions. The
2003, record data reveals the share of its own total milk production while blend price of an order is a function of
the total Southeast order producer milk handlers located in the area are engaged the utilization of milk in the respective
produced within the marketing area in minimal competition with handlers classes (Class I, Class II, Class III, and
declined from about 67 percent in 2000 located in the adjoining area likely does Class IV) at the corresponding class
to about 58 percent in 2003. However, not have a strong enough association prices. The blend prices for the
this decline was not supplied by with the adjoining area to require Appalachian and Southeast order have
producer milk that was produced in the consolidation. For a number of the differed due to the orders’ different class
Appalachian marketing area which consolidated areas it would be very utilization of milk. The magnitude of
remained relatively unchanged at about difficult, if not impossible, to find a the blend price differences is primarily
3 percent from 2000 through 2003. boundary across which significant attributed to the differences between the
Record data reveals that the quantities of milk are not procured for class prices since the Appalachian
supplemental milk for the Southeast other marketing areas.’’ (64 FR 16045) marketing area is mainly balanced by
order is produced primarily in the Accordingly, the overlap existing Class II and Class IV and the Southeast
Central and Southwest marketing areas. between the Appalachian and Southeast marketing area by Class II and Class III.
Specifically, the share of producer milk milk order marketing areas does not The blend price difference further
produced in the Central marketing area warrant an order merger. illustrates that the Appalachian and

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Southeast milk orders have separate and even if the majority of its sales occur in orders provisions, which would support
distinct market characteristics. another marketing area. Also, the unit a merger on this basis.
For the 5-year period of 2000 to 2004, pooling provisions allow two or more The record provides no specific
the annual average blend price of the plants located in the marketing area and evidence of inefficient milk movements
Appalachian order has been higher than operated by the same handler to qualify resulting from the orders’ provisions.
that of the Southeast order blend price. for pool status as a unit by meeting the Also, record evidence reveals no
This is in part due to the Appalachian order’s total and in-area route inequitable sharing of the Class I
order having a greater percentage of disposition standards as if they were a proceeds within each of the marketing
milk utilized in Class I compared to the single distributing plant. areas.
Southeast order over the past five years. A plant shifting regulation to an order Both the Appalachian and Southeast
The range of the blend price differences with a lower blend price could orders provide discretionary authority
for the Appalachian and Southeast jeopardize the plant’s ability to maintain to the Market Administrator to adjust
orders is mainly due to differences in a milk supply. Current Appalachian and certain performance standards, if upon
the Class III and Class IV prices (i.e., the Southeast order provisions allow a plant completion of an investigation, the
‘‘balancing’’ classes of milk). When the that meets the performance standards of Market Administrator finds that the
Class III prices goes up relative to the the order and is physically located standards are resulting in inefficient
Class IV price, the blend price within the order marketing area to be movements of milk, and that a
difference between the two orders regulated by the order even if the modification of such standards will
narrows due to the predominance of majority of its sales are in another ensure that the Class I needs of the
milk utilized in Class III among the non- marketing area. The provisions were market are met.
Class I uses in the Southeast marketing adopted into the southeastern orders An analysis of the record data reveals
area. and retained in the consolidated that the proposed merger would likely
Blend price differences between the Appalachian and Southeast orders to lower the blend price paid to dairy
Appalachian and Southeast orders have allow plants that are associated with the farmers whose milk is pooled on the
narrowed since the orders were market and are servicing the market’s Appalachian milk order and increase
consolidated in 2000. The differences in fluid needs to be regulated under the the blend price paid to dairy farmers
the weighted average blend prices for order in which they are physically whose milk is pooled on the Southeast
the two orders was $0.36 per cwt in located. milk order. The gains to Southeast order
2000, $0.24 per cwt in 2001, $0.21 per If these provisions were not present in dairy farmers would be offset by losses
cwt in 2002, $0.09 per cwt in 2003, and the Appalachian and Southeast orders, to Appalachian order dairy farmers by a
$0.08 per cwt in 2004. Over the 2000 to plants could shift regulation between similar magnitude.
2004 period, the Appalachian order orders which could cause disorderly If the two order marketing areas are
blend price exceeded the Southeast marketing conditions to occur. Since merged and assuming no significant
order blend price by an average of $0.20 record data indicates that the depooling in the Federal order system,
per cwt. Appalachian and Southeast orders’ it is projected that for the period of 2005
A 1995 final decision that blend price differences are continuing to through 2009 the blend price paid to
consolidated five former Southeastern decrease and there are provisions that dairy farmers whose milk is pooled on
orders (Georgia, Alabama-West Florida, prevent plants from shifting regulation the current Appalachian order would be
New Orleans-Mississippi, Greater among orders, this decision finds that reduced by about $0.07 per cwt on
Louisiana, and Central Arkansas) with the blend price differences between the average, while the blend price paid to
unregulated counties of four states to two orders do not form a contributing dairy farmers whose milk is pooled on
form the Southeast order addressed the basis for merging the two marketing the current Southeast order would be
issue of blend price differences among areas. increased by $0.07 per cwt on average.
orders (60 FR 25014). The decision Proponents of the proposed order The $0.07 per cwt decline in the current
stated that blend price differences merger filed comments to the partial Appalachian order blend price would
between orders may be caused by a recommended decision stating that the cause average order pool receipts to
number of factors including order decision placed great weight on the fact decline by about 11 million pounds and
provisions, institutional factors, the that no plants have switched regulation average order pool revenues to fall by
location of surplus milk and differences between the two orders and implied that $6.6 million. For the current Southeast
in class prices. The decision concluded such action is a preeminent form of order, the $0.07 per cwt blend price
that the five separate orders were disorderly marketing. Proponents increase would increase average order
encouraging plants to shift regulation asserted that such an implication misses pool receipts by an average of 11 million
among the orders which resulted in the complexities of the marketplace. pounds, resulting in an average gross
disorderly marketing conditions as Proponents asserted the two separate pool revenue increase of $6.5 million
producers and handler inequity greatly Appalachian and Southeast orders per year.
increased. result in the improperly sharing of Class Record testimony by proponent
The current Southeast and I revenues under each of the orders and cooperatives indicates that SMA has,
Appalachian orders do not experience inefficient milk movements. through its pooling of costs and returns,
disorderly marketing conditions as a The partial recommended decision reduced their pay price differences to
result of plants shifting regulation noted a 1995 decision that concluded their member producers. Thus, a merger
between orders. This may be attributed that the existence of five separate orders of the Appalachian and Southeast
to the current lock-in and unit pooling were encouraging plants to shift orders would merely increase the blend
provisions contained in the regulation among the orders which price for Southeast order nonmember
Appalachian and Southeast orders’ resulted in disorderly marketing producers while reducing the blend
pooling provisions. The lock-in conditions. The partial recommended price received by Appalachian order
provisions provide that a plant located decision indicated that no record nonmember producers.
within a marketing area that meets the evidence revealed marketing disorder in Proponents of the proposed merger
minimum performance standards of the the Appalachian and Southeast filed comments contending that the
order will be regulated by that order marketing areas resulting from the consolidation of the Appalachian and

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Southeast marketing areas and orders the implementation of the consolidated Proponent cooperatives offered order
would result in additional money to orders in January 2000. These changes provisions for inclusion in the proposed
dairy farmers in terms of efficiencies in include fewer and larger producers and merged milk order. These
milk movements. The proponents’ producer organizations, handler recommendations included adopting for
assertions of market efficiencies arising consolidations, and other plant the proposed merged milk order
for the proposed merger are out weighed ownership changes. provisions that currently are included in
by the projected negative impact of the From January 2000 through December the Appalachian order and/or the
order merger on the revenues of 2003, the number of dairy farmers Southeast order. The proponent
Appalachian order nonmember pooled on the Appalachian and cooperatives recommended that the
producers, particularly, when the record Southeast milk orders decreased. For proposed merged milk order include
does not contain any specific evidence the Southeast, the decline was 13.2 pool plant provisions currently in the
of disorder resulting from the provisions percent from 4,213 to 3,658, and the Appalachian order, and proposed the
of the two orders. In effect, while number of dairy farmers pooled on the ‘‘touch-base’’ requirement of the
benefiting certain producers, the Appalachian order decreased by 15.6 producer milk provisions include a
proposed merged milk marketing area percent from 4,974 to 4,200. Milk ‘‘percentage’’ production standard
and order would negatively affect production in the Appalachian and instead of a ‘‘days’’ production
certain other dairy farmers. Southeast marketing areas has decreased standard. Since this decision does not
Based on this analysis, the absence of since the Federal orders were adopt the proposal to merge the
disorderly marketing conditions, consolidated. This decrease in milk Appalachian and Southeast marketing
together with the minimal and production has caused additional areas, the recommendations concerning
unchanged overlap between the supplemental milk to be imported into order provisions for the proposed
Appalachian and Southeast orders in these deficit milk production markets. merged milk order are moot.
Class I sales and milk procurement area, The record reveals that producer The proponent cooperatives requested
the two marketing areas and orders organizations associated with the that the proposed merged milk order
should not be merged. Appalachian and Southeast order contain transportation credit provisions
Cooperative Associations. Record currently applicable to the Appalachian
marketing areas changed since the
evidence clearly demonstrates that there and Southeast milk orders, with certain
Federal order reform process. In 1996,
is a strong cooperative association modifications. The proponent
there were 14 cooperative associations
commonality between the Appalachian cooperatives requested the
marketing the milk of their members on
and Southeast order marketing areas. transportation credit provisions be
the current Appalachian order and nine
During December 2003, there were a modified to increase the maximum rate
Southeast order cooperatives. During
total of 14 cooperatives marketing the of assessment to $0.10 per cwt, change
December 2003, the number of
milk of members on the Appalachian the months a producer’s milk is not
cooperative associations marketing
and Southeast orders and 9 of these allowed to be associated with the
cooperatives marketed milk on both members’ milk on the Appalachian and
market for such producer to be eligible
orders. A number of these cooperatives Southeast orders was 12 and 11,
for transportation credits, and provide
are members of SMA and others respectively. In 2002, five cooperative
the Market Administrator the authority
cooperatives have the milk of their associations formed SMA, which
to adjust the 50-percent production
members that is pooled on the markets the majority of the raw milk
eligibility standard. They also supported
Appalachian and Southeast orders supplied to plants regulated by the
the proposed changes for the individual
marketed by SMA. Appalachian and Southeast orders. orders if their order merger proposal
The evidence indicates that The number of pool distributing was not adopted.
proponent cooperatives market the plants on the Appalachian and Proponent cooperatives contended
majority of the milk pooled on the Southeast orders for 1996 was 29 and that by adopting transportation credits
Appalachian and Southeast orders. For 36, respectively. For December 2003, the provisions of the Appalachian and
example, for December 2003, proponent number of pool distributing plants for Southeast orders the Department
cooperatives marketed 62.23 percent of the orders was 24 and 27, respectively. established the inextricable and
the total producer milk pooled on the The plant changes that have occurred common supply relationship between
Appalachian order and 69.68 percent of include ownership changes, new plant the orders. The proponents state that the
the total producer milk pooled on the openings, as well as plant closings. proposed order merger simply extends
Southeast order. While commonality of Taken singularly or as a whole, the that recognition to provide common
cooperative associations can be structural changes that have occurred uniform prices and terms of trade for all
significant, it is not a primary criteria from 1996 to present have had no dairy farmers delivering milk to the
used to determine whether orders significant impact on overlapping route market, and a common set of producer
should be merged. disposition and overlapping qualification requirements.
The record indicates that the procurement patterns of the This decision finds that the inclusion
proposed merger could likely provide Appalachian and Southeast orders. of transportation credit provisions of the
some administrative relief to SMA in Other order provisions. Proponent Appalachian and Southeast orders is not
marketing the milk of their cooperative cooperatives’ proposal to combine the a basis for merging the two orders. Such
members. However, this outcome is at balances of the Producer Settlement provisions were incorporated and
the expense of independent dairy Funds, the Transportation Credit established in the orders based on the
farmers who are currently associated Balancing Funds, the Administrative prevailing marketing conditions in each
with the Appalachian order. Assessment Funds, and the Marketing individual order marketing area.
Market and Structural Changes. Service Funds of the Appalachian and Record indicates that the orders’
Record evidence indicates that there Southeast milk orders for the proposed transportation credit balancing funds
have been several market and structural merged milk order is not adopted in this have functioned differently since 2000
changes in the Southeast and decision. The proposal is moot since with respect to the assessment rates at
Appalachian markets since the Federal this decision does not propose merging which handlers made payments and the
Order Reform process began in 1996 and the two orders. payments from the orders’

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transportation credit balancing funds. Virginia. Proposal 3, which also was supporting the expansion of the
The Appalachian order waived the supported by proponents of Proposal 4, proposed merged milk order area to
collection of assessments at least two is adopted. include the additional 25 counties and
months of each year from 2001 through Proponent cooperatives of Proposal 3 15 cities in Virginia.
2003. The Southeast order, while offered that the merger of the A witness representing the Kroger
collecting assessments at the maximum Appalachian and Southeast marketing Company (Kroger) testified in support of
rate of $0.07 per cwt, has prorated areas be expanded to include the Proposal 4 to expand the proposed
payments from the transportation credit Virginia counties of Allegheny, merged milk order to include two
balancing fund each year since 2001. Amherst, Augusta, Bathe, Bedford, currently unregulated counties
In exceptions to the partial Bland, Botetourt, Campbell, Carroll, (Campbell and Pittsylvania), and two
recommended, SMA contends that the Craig, Floyd, Franklin, Giles, Grayson, currently unregulated cities (Lynchburg
record is replete of evidence of disorder Henry, Highland, Montgomery, Patrick, and Danville) in the State of Virginia.
with respect to the payouts under the Pittsylvania, Pulaski, Roanoke, The witness stated that Kroger owns and
Appalachian and Southeast orders’ Rockbridge, Rockingham, Smyth, and operates four pool distributing plants
transportation credit provisions. This Wythe) and Virginia cities of Bedford, associated with the Southeast and
decision finds that the different levels of Buena Vista, Clinton Forge, Covington, Appalachian milk orders, including
payouts of transportation credits under Danville, Galax, Harrisonburg, Westover Dairy located in Lynchburg,
the orders do not substantiate the need Lexington, Lynchburg, Martinsville, Virginia. The witness also testified in
to merge the two orders. The payments Radford, Roanoke, Salem, Staunton, and support of adopting the current
from the orders’ transportation credit Waynesboro. Appalachian order pool plant
balancing funds and the assessment The proponent cooperatives’ witness definition.
rates at which handlers made payments testified that the addition of the 25 According to the Kroger witness, the
are reflective of the prevailing marketing counties and the 15 cities would Appalachian order pool distributing
conditions in the individual markets. properly change the regulatory status of plant provisions require that at least 25
As discussed later, proposed a Dean Foods’ Morningstar Foods plant percent of a plant’s total route
amendments to the transportation credit located at Mount Crawford, Virginia, disposition must be to outlets within the
provisions of the Appalachian and from the Northeast order to the marketing area. This requirement,
Southeast orders are adopted in this Appalachian order. Also, the witness explained the witness, has restricted
decision. The proposed amendments are stated the proposed expansion would Kroger’s ability to expand its Class I
warranted due to the declining milk have the effect of fully and continuously sales into areas outside the Appalachian
production within the Appalachian and regulating under the Appalachian order marketing area, including the area
Southeast marketing areas and the two fluid milk distributing plants (the directly associated with the plant’s
anticipated growing need of importing Kroger Company’s Westover Dairy physical location (Lynchburg, Virginia).
milk produced outside the marketing plant, located in Lynchburg, Virginia, The Kroger witness noted that
areas to supply the fluid needs of the and the National Dairy Holdings’ Valley Westover Dairy has been a fully
markets. Rich Dairy plant, located in Roanoke, regulated plant on the Appalachian
Virginia) under the proposed merger. order since January 2000, and prior to
1b. Expansion of the Appalachian The witness said the Dean Foods reform, the plant was regulated on the
Marketing Area Company’s Mount Crawford plant Carolina order—one of the former orders
While the proposal for merging the alternates between partially regulated combined to form the Appalachian
Appalachian and Southeast milk and fully regulated status under the order. According to the Kroger witness,
marketing areas is not adopted, this Northeast milk order. According to the the total in-area route disposition
decision would expand the current witness, in order for the plant to procure standard increased from 15 percent to
boundaries of the Appalachian milk an adequate supply of milk, producers 25 percent when the consolidated and
marketing area to include certain delivering to it must receive a blend reformed Appalachian order became
unregulated counties and cities in the price comparable with the blend price effective in January 2000. This change,
State of Virginia. (The partial generated under the proposed merged the witness contended, has created an
recommended decision inadvertently milk order, if adopted. undue hardship on Westover Dairy and
noted ‘‘14’’ unregulated cities verses The proponent cooperatives’ witness has forced it to relinquish sales in areas
‘‘15’’ and excluded the city of stated that the milk supply located near outside of the Appalachian market to
Waynesboro, which is located in Dean Foods’ Mount Crawford, Virginia, maintain its pool status under the order.
Augusta County, Virginia, from the list plant is an attractive source of supply The witness concluded by stating that
of proposed cities.) for plants that are fully regulated by the Kroger prefers Proposal 3—the larger
Expansion of the marketing area Appalachian order that are located in expansion—which would not only
adjoining the Appalachian marketing southern Virginia, North Carolina, expand the order area to include their
area was contained in the proposal South Carolina, and eastern Tennessee. plant located at Lynchburg, Virginia, but
published in the hearing notice as The witness indicated that the impact of would allow a further expansion of
Proposal 3. The proposal would have this proposal on the Virginia State Milk Class I sales into other surrounding
expanded the proposed merged milk Commission and Virginia base-holder areas.
order marketing area to include 25 producers would be insignificant. The The witnesses for MD&VA, ADCA,
currently unregulated counties and 15 witness was of the opinion that, if there Lone Star, and DMC testified in support
currently unregulated cities in the State were any impact on Virginia base- of Proposal 3 to expand the proposed
of Virginia. Similarly, a proposal holders producers, it would be Southeast milk order area to include
published in the notice of hearing as positive—reflecting the higher blend certain unregulated counties and cities
Proposal 4 sought the expansion of the price at Mount Crawford, Virginia, for in the State of Virginia as proposed by
marketing area by adding an area the plants under the proposed merged the proponent cooperatives. The
adjoining the Appalachian marketing milk order versus the Northeast order. witnesses stated that the cooperatives
area that includes two unregulated cities The proponent cooperatives were not opposed to the expansion of
and two unregulated counties in State of submitted a post-hearing brief the proposed Southeast milk marketing

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area into the smaller territory in the regulatory status. MD&VA and ADCA is not the intent of Federal milk orders
State of Virginia as proposed by Kroger asserted that the proposed expansion to inhibit the growth of handlers.
but stated the larger expanded area in should correct actual and perceived Federal orders are designed to provide
Proposal 3 was preferable. handler inequities between partially for the orderly exchange of milk from
The MD&VA witness explained that regulated and fully regulated handlers the dairy farmer to the first buyer
some of its member producers are that result from different blend prices, (handler). The orders also provide
located in the proposed expanded area and bring forth order and stability in the minimum performance standards to
and that the cooperative delivers the marketing area. The cooperatives ensure that the fluid needs of the market
milk of producers holding Virginia Milk explained that the continual shifting of are satisfied. Accordingly, the adoption
Commission base to plants fully regulatory status between, or in and out of the expansion proposal would allow
regulated under the Appalachian milk of a Federal milk order is disorderly. the Kroger Westover Dairy plant to
order. According to the witness, the They stated the proposed expansion maintain a milk supply in competition
milk of MD&VA member producers is will remove the disorder associated with nearby Appalachian order plants,
marketed to Dean Foods’ Morningstar with the plant’s continuous change in and eliminate any disorder that is
Foods plant located in Mount Crawford, regulatory status. resulting from current Appalachian
Virginia, which would become a pool This decision adopts proposed order provisions.
distributing plant if the proposed amendments to the Appalachian order In the case of Dean Foods’
merged milk order and the expansion to that would expand the marketing area to Morningstar Foods plant in Mount
Virginia counties and cities are adopted. include 25 currently unregulated Crawford, Virginia, the proposed
Witness appearing on behalf of Dean counties and 15 cities in the State of amendments would eliminate the
Foods and Prairie Farms stated they Virginia. The proposed amendments current disruption and disorder caused
were not opposed to Proposals 3 and 4. would cause the full and regular by the plant shifting its regulatory status
Thus, there was no opposition regulation under the Appalachian order from fully to partially regulated status
expressed at the hearing or in post- of three fluid milk distributing plants— under the Northeast order. Such shifting
hearing briefs to the adoption of these one of which has been shifting from fully to partially regulated status
proposals. regulatory status under the Northeast under an order may cause financial
In response to the partial order—provided the plants meet the harm to producers supplying. The
recommended decision, Kroger, Dairy order’s minimum performance standard. proposed expansion should result in
Farmers of America, Inc. (DFA), The plants are located in Lynchburg, more order and stability in the
MD&VA, and ADCA filed comments in Virginia, Roanoke, Virginia, and Mount marketing area.
support of expanding the Appalachian Crawford, Virginia. Because of The record indicates that the Kroger’s
marketing area to include certain Appalachian order’s lock-in provision, Westover Dairy plant and Dean Foods’
unregulated counties and cities in the these plants, which would be physically Morningstar plant are supplied by
State of Virginia. Kroger stated the located within the Appalachian producers located near the plants and
proposed expansion is supported by the marketing area, would continue to be that the plants compete with other
hearing record. According to DFA, the regulated under the Appalachian order Appalachian order plants in milk
current Appalachian order configuration even if the majority of their sales are in procurement. This decision finds that
makes it difficult for plants to establish another Federal order marketing area. orderly market conditions would be
supply patterns and pricing terms since The proposed expansion would preserved by the adoption of the
the potential exists for plants to shift continue the regulation of two fluid proposed expansion amendments. The
their regulatory status from month to milk distributing plants (Kroger’s regulation of no other plants should be
month. Thus, DFA asserted the Westover Dairy plant, Lynchburg, affected by the adoption of these
proposed expansion is beneficial Virginia, and National Dairy Holdings’ proposed amendments. In addition, the
because it will assure full and regular Valley Rich Dairy plant, Roanoke, proposed expansion of the Appalachian
pool plant status for the affected bottling Virginia) under the Appalachian order. marketing area is not expected to have
plants. The proposed expansion also would a negative impact on the blend price
MD&VA and ADCA asserted that the shift the regulation of the Dean Foods’ paid to producers.
proposed expansion of the Appalachian Morningstar Foods plant, Mount If the proposed marketing area
marketing area will enhance producer Crawford, Virginia, from the Northeast expansion for the Appalachian order
and handler equity, provide for orderly order to the Appalachian order. becomes effective, milk originating from
marketing, and improve marketing The Kroger’s Westover Dairy plant has any of the 25 counties or 15 cities in the
efficiencies. Under the current been regulated by the Appalachian State of Virginia would not be eligible
Appalachian order, MD&VA and ADCA order since the order was consolidated to receive transportation credits under
noted that the Kroger’s Westover Dairy in January 2000. Current Appalachian the Appalachian and Southeast orders.
plant, located in Lynchburg, Virginia, order pool plant provisions require that
has limited expansion of sales area to at least 25 percent of a distributing 1c. Transportation Credits Provisions
preserve its regulatory status as a pool plant’s total Class I sales be to outlets As proposed in the partial
distribution plant on the order. The within the marketing area. Prior to the recommended decision, this decision
cooperatives stated the proposed reform of Federal milk orders, the finds that the maximum rates of the
marketing area expansion will allow the former order marketing areas that were transportation credit assessment for the
plant to operate more efficiently, combined into the Appalachian order Appalachian and Southeast orders
perpetuate the plant’s regulatory status marketing area contained a 15 percent should each be increased by 3 cents per
as a pool plant, and eliminate the in-area route disposition standard for hundredweight. Increasing the
disorder that could occur if the plant’s pool distributing plants. transportation assessment rates will
regulatory status changes. Record evidence indicates that the tend to minimize the exhaustion of the
According to MD&VA and ADCA, the current in-area Class I route sales transportation credit balancing fund
Dean Foods’ Morningstar Foods plant, standard likely is limiting the growth when the need for importing
located in Mount Crawford, Virginia, potential of Kroger’s Westover Dairy supplemental bulk milk from outside of
has been plagued with issues of plant, located in Lynchburg, Virginia. It the marketing areas to meet Class I

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needs occurs. Additionally, this increase in the transportation credit assessment, they contended, would
decision provides the Market assessment rate was warranted and effectively change the system of pricing
Administrators of the orders the supported for the current orders. without considering the impact on other
discretionary authority to increase or With regard to the transportation marketing orders.
decrease the 50 percent production credit issue, the proponent cooperatives’ In opposition to any change in the
standard for determining the milk of a witness testified that the maximum rate of transportation credits, a witness
dairy farmer that is eligible for transportation credit assessment rate for Georgia Milk Producers, Inc. (GMP),
transportation credits. Such dairy should be increased to $0.10 per cwt. testified that increasing the assessment
farmer should not have been a producer According to the witness, the increase is rate would generate more revenue to be
under the order during more than two necessary to eliminate insufficient paid to truck drivers instead of paying
of the immediately preceding months of funding for transportation credit claims higher prices to local dairy farmers.
February through May for the milk of that would likely have been paid had According to the witness, the price of
the dairy farmer to be eligible for receipt sufficient funds been available. milk paid to local dairy farmers should
of a transportation credit. According to the witness, the be increased rather than subsidizing
The Appalachian and Southeast transportation credit rate of $0.07 per additional outlays for transportation
orders each contain a transportation cwt for the current Southeast order has costs.
credit balancing fund from which a been at the maximum rate since the The GMP witness suggested that
payment is made to partially offset the inception of the order, but that instead of increasing the transportation
cost of moving milk into each marketing payments from the transportation credit credit assessment rate, a financial
area to meet fluid milk demands. The balancing fund were exhausted in 2001, incentive should be initiated for dairy
fund is the mechanism by which 2002, and 2003 resulting in prorating farmers to encourage milk production
handlers deposit, on a monthly basis, dollars from the transportation credit during the fall months when fluid milk
payments at specified rates for eventual balancing fund to the amount of demands are highest. According to the
payout as defined by a specified transportation claims submitted for witness, if the incentive plan still does
formula. The orders’ transportation receipt of the credit. In contrast, the not cover the local milk production
credit provisions provide payments witness noted, the transportation credit deficits, only then should the
typically during the short production fund for the Appalachian order has been assessment rate for transportation
months of July through December to sufficiently funded since 2000 thus credits be increased. The witness was of
handlers who incur hauling costs enabling the payment of all claims. the opinion that an incentive plan
importing supplemental milk to meet The proponent cooperatives’ witness encouraging local milk production
the fluid demands of the market. was of the opinion that the exhaustion would reduce hauling costs because less
Transportation credit payments are of transportation credit funding in the milk would be imported into the
restricted to bulk milk received from Southeast order resulted in inequitable Southeast market. The witness also was
plants regulated by other Federal orders supplemental milk costs to handlers of the opinion that a financial incentive
or shipped directly from farms of dairy between the two orders. The witness plan would lower balancing costs by
farmers located outside the marketing testified that handlers procuring encouraging the movement of milk
areas and who are not regularly supplemental milk supplies for the supplies located near processing plants.
associated with the market. The handler Appalachian order were reimbursed at Three comments were filed in support
payments into the funds are applicable 100 percent of their claimed credits of the proposed amendments to the
to the Class I milk of producers who while handlers procuring supplemental transportation credit provisions as
supply the market throughout the year. milk supplies for the Southeast order contained in the partial recommended
The Market Administrators of the orders were reimbursed at approximately 50 decision.
are authorized to adjust payments to percent of their claimed credits. Dairy Farmers of America, Inc. (DFA),
and from the relevant transportation According to the witness, the unequal supported the decision to increase by 3
credit balancing fund. payout between the two orders results cents per cwt the maximum
The transportation credit provisions in disorderly marketing conditions transportation credit assessment rates to
of the Appalachian and Southeast exhibited by inequitable costs for fund the existing transportation credit
orders differ by the assessment rate at producer milk among handlers. funds of the Appalachian and Southeast
which handlers make payments to the Dean Foods and Prairie Farms voiced orders. According to DFA, costs are
transportation credit balancing fund. opposition to the proponents’ proposed exceeding the reimbursement as
The maximum rate of assessment for the amendments to increase the maximum provided by the transportation credits
Appalachian order is $0.065 per cwt rate of assessments and increase the due to declining milk production in the
while the maximum rate of assessment amount of milk that would be eligible of southeastern region and increasing costs
for the Southeast order is $0.07 per cwt. for transportation credits. Dean Foods of procuring and transporting
A feature of the proposal for merging and Prairie Farms pointed out that the supplemental milk supplies. DFA
the Appalachian and Southeast proposals to incorporate transportation asserted that the increase in the orders’
marketing areas and orders was credit provisions into the southeastern maximum assessment rates will provide
providing for a maximum transportation orders were strongly opposed by some additional money to offset costs and
assessment rate of 10 cents for the fluid milk processors and some dairy allow processors and consumers to bear
proposed Southeast order. This would farmers. They noted that the intent and an increased share of the market supply
essentially represent a 3-cent per cwt purpose of transportation credit cost.
increase from the current Southeast provisions were to only pay a portion of MD&VA and ADCA expressed
order, and a 3.5-cent increase from the the cost associated with hauling support for the proposed amendments
Appalachian order. While there was no supplemental milk to the markets to to the transportation credit provision of
separate proposal for increasing the meet fluid needs. the Appalachian and Southeast orders.
assessment rate for the transportation In their post-hearing brief, Dean Specifically, the cooperative
credit fund, it was made clear by the Foods and Prairie Farms stated there is associations support increasing the
proponents that in the absence of no reason to increase the rate of maximum assessment rates under both
adopting the proposed merger an assessment. Changing the rate of orders by 3 cents per cwt, and proposed

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amendments that provide the Market marketing areas during certain months implementation of Federal order reform
Administrator of each of the orders the of the year when milk production in the in January 2000, record evidence reveals
discretionary authority to set the milk areas is not sufficient to meet Class I that only 50 percent of the Appalachian
production standard for determining demands. The transportation credit milk supply is produced within the
which producer milk meets the provisions provide payments to marketing area. The trend of lower in-
performance standard. handlers and cooperative associations in area milk production strongly suggests
MD&VA and ADCA stated the current their capacity as handlers to cover some that the anticipated future needs of
maximum rates provided in the of the costs of importing supplemental relying on milk supplies from outside
individual orders are insufficient to milk supplies into the Appalachian and the marketing area will only grow and
cover transportation credit claims. The Southeast marketing areas during the that steps should be taken to assure a
cooperatives noted that the Market short production months of July through continuing adequate supply of milk for
Administrators for the Appalachian and December. The provisions also are handlers servicing the marketing area.
Southeast orders prorated payments designed to limit the ability of An increase in the Appalachian order
during several months of the 2004 producers who are not normally pooled maximum transportation credit
payout period. MD&VA and ADCA on these orders from pooling their milk assessment rate is a means of assuring
stated the record indicates that milk on the Appalachian and Southeast and adequate milk supply for fluid use
production continues the declining orders during the flush production for the area. The Southeast marketing
trend while Class I sales is projected to months when such milk is not needed area exhibits the same trend.
increase. The increase in the maximum to supply fluid needs. To the extent that assessments are not
assessment rate for the Appalachian and While Federal milk order reform needed to meet expected transportation
Southeast orders is necessary to correct made modifications to certain features credit claims, this decision adopts
shortages and lessen handler inequities, of the transportation credit fund provisions that provide discretionary
the cooperatives asserted. They provisions of the Appalachian and authority to the Market Administrator to
maintained that insufficiency in the Southeast orders, the maximum set the assessment rate at a level deemed
funds has worsened and created an assessment rate at which payments are sufficient or to waive assessments.
increased burden on the marketers of collected was not modified. The current Additionally, the transportation credit
raw milk to find other ways to help maximum rate of $0.065 per cwt for the provisions of the Appalachian and
cover the costs associated with the Appalachian order has been sufficient to Southeast orders prevent the
transport of milk. meet most of the claims made by accumulation of funds beyond actual
MD&VA and ADCA expressed handlers applying for transportation handler claims. In this regard,
support for greater Market credit. The record reveals that since increasing the transportation credit rate
Administrator discretion in setting implementation of milk order reform in will not result in an unwarranted
limits and minimum performance January 2000, the Market Administrator accumulation of funds beyond what is
standards in Federal Orders. The for the Appalachian order waived needed to pay handler claims.
cooperative indicated that defining assessing handlers in at least two As part of the proposed merged
under the order what milk is months of each year from 2001 through marketing areas and orders, the
‘‘supplemental milk’’ by limiting the 2003. proponent cooperatives’ witness
portion of milk pooled from a dairy For the current Southeast order, the proposed that any producer that is
farmer in the spring months is a prime current maximum transportation credit located outside of the marketing area
example of an Order provision which rate of $0.07 per cwt has not been would be eligible for transportation
needs flexibility. They asserted that sufficient to cover hauling cost claims credits if that producer did not pool
overly rigid provisions in the by handlers. As a result, the Market more than 50 percent of the producer’s
Appalachian and Southeast areas can Administrator of the Southeast order own milk production during the months
cause inefficiencies in the marketing of has prorated payments from the of March and April. The witness
milk, disorderly marketing, or transportation credit balancing fund testified that the Market Administrator
uneconomic movements of milk. since 2001. should also be given the discretionary
MD&VA explained that unexpected Even though this decision does not authority to adjust the 50 percent limit
declines in milk production in the adopt the merger of the current based on the prevailing supply and
spring months may signal the need for Southeast and Appalachian marketing demand conditions for milk in the area.
additional shipments of milk into the areas, the fundamental purpose of the The current transportation credit
order areas over historic levels. In such transportation credit fund provisions of provisions of the Appalachian and
a case, the cooperatives indicated that it the orders are strongly supported by the Southeast orders specify that
is highly desirable for the Market proponent cooperatives. This support is transportation credits will apply to the
Administrator to have discretionary independent of providing for a new and milk of a dairy farmer who was not a
authority to adjust the delivery larger Southeast milk marketing order. ‘‘producer’’ under the order during more
standard. The order requirement that An increase in the maximum than 2 of the immediately preceding
prior to making any change in the transportation credit assessment rate for months of February through May, and
provision a Market Administrator must the Appalachian and Southeast orders is not more than 50 percent of the
seek views, data and argument from the warranted on the basis of declining milk production of the dairy farmer during
industry assures openness in decision- production within the Appalachian and those two months, in aggregate, was
making, inclusiveness, and fairness, the Southeast marketing areas. For example, received as producer milk under the
cooperatives asserted. the final decision of Federal milk order orders during those two months. These
Current Appalachian and Southeast reform anticipated that about two-thirds provisions provide the basis for
order transportation credit provisions of the milk supply for the Appalachian determining the milk of a dairy farmer
have been a feature of the orders, or order would be produced within the that is truly supplemental to the
predecessor orders, since 1996. The marketing area, with supplemental milk market’s fluid needs. The provision
need for transportation credits arose supplies from unregulated areas to the specifies the months of February
from the consistent need to import milk north in Virginia and Pennsylvania through May—the period when milk
from many areas outside of these (based on 1997 data). Since production is greatest—as the months

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used to determine the eligibility of a Mississippi Valley order, would include marketing area borders are changed,
producer whose milk is needed on the the area of the existing Southeast such change affects all marketing areas
market. marketing area west of the Alabama- in the Federal order milk order system.
The Market Administrators of the Mississippi borderline including the The witness was of the opinion that
orders should be given discretionary States of Mississippi, Louisiana, considering border issues would
authority to adjust the 50 percent Arkansas. According to the witness, this necessarily require a broad rethinking of
eligibility standard for producer milk new marketing area would extend the marketing areas of the entire Federal
receiving transportation credits based northward through the relevant portions order program and that a national
on the prevailing marketing conditions of Tennessee and Kentucky, and would hearing may be the most appropriate
within the marketing area. The Market include southern Missouri. The second venue to consider these affects.
Administrator should have the authority order, according to the witness, would A witness for GMP testified that the
to increase or decrease this requirement consist of the remainder of the current expansions of the Southeast marketing
because it is consistent with authorities Southeast marketing area, i.e., Georgia, area prior to Federal milk order reform,
already provided for supply plant a portion of the western panhandle of and as a result of Federal order reform,
performance standards and diversion Florida, and Alabama. have successively reduced income to
limit standards. Accordingly, the The Dean Foods-Prairie Farms Georgia producers. The witness
proposed change to the transportation witness, and others supporting the explained that the expansions of the
credit provisions of the Appalachian adoption of Proposal 5, asserted that marketing area have discouraged local
and Southeast orders is recommended increasing the number of Federal milk milk production and encouraged
for adoption. marketing areas and orders would movements of milk from outside the
This decision does not recommend provide the economic incentives for marketing area. According to the
changing the period the milk of a dairy more efficient movement of milk and witness, the declining ability of local
farmer is not allowed to be associated increase the blend price received by production to meet the Class I needs of
with the market for such dairy farmer’s producers who supply the needs of the the market, and the increased balancing
milk to be eligible for transportation Class I market. According to the requirements of an expanded marketing
credits. If the months were modified witnesses, splitting the Southeast order area, have increased costs while
from February through May to March into two orders would reduce reducing revenues to Georgia dairy
and April, the definition of transportation costs and improve the farmers.
supplemental milk under the efficient operation of the transportation In the opinion of the GMP witness,
transportation credit provisions would credit balancing fund in each proposed the establishment of a separate
effectively change. Supplemental milk new marketing area by more efficiently Mississippi Valley marketing area and
for purposes of determining the attracting milk to the Class I market and order and a smaller Southeast marketing
eligibility of transportation credits is decreasing the need for hauling milk area would have positive benefits for
that milk that is not regularly associated from longer distances. Georgia milk producers. The witness
with the market. The proposed change The Dean Foods-Prairie Farms explained that as a smaller Southeast
would allow supplemental milk to be witness testified that there are two marketing area, the Georgia market
delivered to a pool plant all twelve major incentives to ship milk to would likely experience lower
months, potentially lowering the distributing plants—the blend price balancing costs and expanded local
uniform price during those high paid by pool distributing plants and the production to meet the growing Class I
production months by pooling blend price paid for diverted milk. needs of the market.
additional milk when is not needed for According to the witness, there are two A witness for proponents of Proposal
fluid use. disincentives to ship milk to a pool 1 testified in opposition to adopting a
By retaining the months of February distributing plant under any order—the new Mississippi Valley marketing area
through May and allowing the Market net transportation cost of shipping milk by splitting it from the current
Administrators of the Appalachian and and the alternative blend prices in other Southeast marketing area. According to
Southeast orders to adjust the 50 markets that may attract milk to plants the witness, the proposed new
percent production standard, the in those other markets. The witnesses marketing area would not lead to lower
current definition of supplemental milk cited milk deficit areas in southern transportation costs but instead may
remains intact. The orders’ Market Illinois and St. Louis, Missouri, as lead to increased administrative
Administrator would be allowed to examples of areas where, in the opinion difficulties with transportation credit
increase or decrease the 50 percent of the witnesses, blend price differences balancing funds. The witness was of the
production standard, if warranted, result in a failure to attract enough milk opinion that blend price enhancement
based on current marketing conditions. to adequately serve the Class I market. for the proposed smaller Southeast
The witness asserted that the marketing area would be achieved at the
2. Promulgation of a New ‘‘Mississippi establishment of a Mississippi Valley expense of producers pooled on the
Valley’’ Milk Order order would likely result in blend price proposed new Mississippi Valley order.
A proposal, published in the hearing differences between the new areas The opposition witness was of the
notice as Proposal 5, seeking to split which would provide producers the opinion that blend prices for the
from the current Southeast marketing economic incentives of receiving higher proposed smaller Southeast marketing
area and forming a new Mississippi blend prices while incurring lower area may increase to levels that would
Valley milk marketing area and order transportation costs. exacerbate differences between the
was not proposed for adoption in the The Dean Foods-Prairie Farms blend prices of the new smaller
partial recommended decision and is witness testified that a national hearing Southeast and the Appalachian order
not adopted in this final decision. may be justified to more fully consider and may give rise to unintended market
A witness appearing on behalf of the border, pricing, and milk deficit disruptions. The witness was of the
Dean Foods and Prairie Farms testified issues and alternatives to proposals (like opinion that a smaller Southeast
in support of Proposal 5. In splitting the Proposals 1 and 5) advanced to merge or marketing area and order also may
current Southeast marketing area, a new to split the Southeast marketing area. result in administrative difficulties in
marketing area, to be named the According to the witness, when the operation of transportation credit

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balancing funds among the three orders Opponents of Proposal 5 argued that an impact on Federal milk order pools.
and may lead to the inefficient blend price increases from splitting the No opposition testimony was presented.
movements of milk. The witness Southeast marketing area may not occur Dairy Farmers of America, Inc.,
expressed the opinion that splitting the and that lower transportation cost may Maryland and Virginia Milk Producers
Southeast marketing area would not not be realized. Cooperative Association, Inc. (MD&VA),
address the concerns that proponents of This decision does not adopt Proposal and Arkansas Dairy Cooperative
Proposal 1 have raised regarding 5. The record is insufficient in Association, Inc. (ADCA), filed
overlapping sales and inefficient milk demonstrating the marketing comments to the partial recommended
movement issues between the efficiencies advanced by the decision supporting findings to
Appalachian and Southeast marketing proponents. eliminate the simultaneous pooling of
areas. The witness indicated that these the same milk on the Appalachian and
3. Eliminating the Simultaneous Pooling
issues would remain unresolved if the Southeast milk order and a State-
of the Same Milk on a Federal Milk
Southeast marketing area was split and operated order that provides
Order and a State-Operated Milk Order
if the Southeast and Appalachian marketwide pooling.
That Provides for Marketwide Pooling MD&VA and ADCA noted that the
marketing areas were not merged.
A post hearing brief by the A proposal, published in the hearing hearing record indicates that the
proponents of Proposal 5 reiterated their notice as Proposal 6, seeking to prohibit Virginia State Milk Commission does
position that creating more, rather than the simultaneous pooling of the same not operate a producer revenue pool.
fewer, blend price differences will milk on the Appalachian or Southeast Accordingly, the cooperatives asserted,
provide incentives to ship milk to milk marketing orders and on a State- the proposed amendments that would
markets where the milk is demanded. In operated order that provides for the eliminate the pooling of milk under the
addition, the brief reiterated that marketwide pooling of milk is adopted Appalachian or Southeast orders of a
splitting the Southeast marketing area in this partial final decision. Currently, dairy farmer that shares simultaneously
will reduce transportation costs and neither the Appalachian or Southeast in the revenues of a State-operated
result in more efficient movement of orders have a provision that would marketwide pool must not pertain to
milk in a smaller Southeast marketing prevent the simultaneous pooling of the Virginia Milk Commission Base-holder
area and a Mississippi Valley marketing same milk on the order and on a State- dairy farmers.
area. The brief also called for the operated order that provides for According to MD&VA and ADCA, the
including the Kentucky counties of marketwide pooling. ability for milk to be simultaneously
Ballard, Calloway, Carlisle, Fulton, The proponents of Proposal 6, Deans pooled on a State-operated marketwide
Graves, Hickman, Marshall, and Foods and Prairie Farms testified that pool and a Federal order pool violates
McCracken into the smaller Southeast the simultaneous pooling of milk on the premises established for the pooling
order if Proposal 5 is adopted. more than one marketing order was of milk. The cooperatives stated milk
Southern Marketing Agency, Inc., and prohibited between all Federal milk may serve one market only at a time,
Dairy Farmers of America, Inc. (DFA), orders. According to the Dean Food- and thus, must not be allowed to be
filed comments to the partial Prairie Farms’ witnesses, a loophole was pooled on multiple pools at one time.
recommended decision supporting the inadvertently created during the They noted that recommended and final
denial of the proposed split of the consolidation of Federal orders decisions for other orders rightfully
Southeast order marketing area. DFA permitting double pooling of the same implemented amendments to prohibit
stated that for proponents of the milk on a Federal milk marketing order the simultaneously pooling of milk on
proposed order merger adoption of and on a State-operated order that, like multiple orders, and assert that the
Proposal 5 would have exacerbated their a Federal order, provides for the Appalachian and Southeast orders
milk supply issues—made it more marketwide pooling of producer milk. should be amended likewise.
expensive to service the markets—and (The double pooling of milk has become Since the 1960s the Federal milk
would have been of no corresponding known as ‘‘double dipping.’’) order program has recognized the harm
benefit to milk suppliers. According to the Dean Foods/Prairie and disorder that resulted to both
The proposal to split the current Farms’’ witnesses, this loophole has producers and handlers when the same
Southeast marketing area hinges on the been exploited for financial gain by milk of a producer was simultaneously
assertions that geographically smaller some parties at the expense of pooled pooled on more than one Federal order.
marketing areas tend to reduce producers in other Federal orders until When this occurs, producers do not
transportation and balancing costs and prohibited by subsequent milk order receive uniform minimum prices, and
increase blend prices for pooled amendments. The proponents testified some handlers receive unfair
producers in each of the newly defined that proposals similar to Proposal 6 competitive advantages. The need to
marketing areas. The record does not have been adopted in the Upper prevent ‘‘double pooling’’ became
contain specific evidence to support Midwest, Pacific Northwest, and Central critically important as distribution areas
these conclusions. The record lacks Federal milk orders. expanded, orders merged, and a
evidence to support concluding that the Proponents testified that prohibition national pricing system was adopted.
adoption of Proposal 5 would lower of double dipping in the Southeast and Milk already pooled under a State-
transportation costs, increase local milk Appalachian orders would close a operated program and able to
production, and reduce balancing costs. potential loophole in these orders or in simultaneously be pooled under a
The same is true for concluding that a successor order if these orders were Federal order creates the same
local milk production would be merged. The witnesses testified that the undesirable outcomes that allowing
encouraged and increased to the extent pooling of milk regulated by Virginia milk to be pooled on two Federal orders
that transportation expenses, and the and Pennsylvania milk programs would used to cause and subsequently
need for continued transportation credit not be affected by the prohibition of corrected.
fund payments, would be significantly double pooling. According to the There are other State-operated milk
reduced while bringing forth a sufficient witnesses, milk that is pooled on these order programs that provide for
supply of milk to meet the Class I needs State milk programs does not receive marketwide pooling. For example, New
of the proposed marketing areas. extraordinary benefits that would have York operates a milk order program for

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55476 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Proposed Rules

the western region of that State. A key handler provisions of the Appalachian minimum prices specified in the
feature explaining why this State- and Southeast orders will be addressed tentative marketing agreements and the
operated program has operated for years separately in a forthcoming decision. orders, as hereby proposed to be
alongside the Federal milk order amended, are such prices as will reflect
Requests for Expedited Issuance of
program is the provision in the State the aforesaid factors, insure a sufficient
Final Decision
pool that excludes milk from the State quantity of pure and wholesome milk,
pool when the same milk is already Comments submitted by Dairy and be in the public interest;
pooled under a Federal order. Other Farmers of America, Inc., Maryland and (c) The tentative marketing
States with marketwide pooling Virginia Milk Producers Cooperative agreements and the orders, as hereby
similarly do not allow double-pooling of Association, Inc. (MD&VA), Arkansas proposed to be amended, will regulate
Federal order milk. Dairy Cooperative Association, Inc. the handling of milk in the same
The record supports that the (ADCA), and Southern Marketing manner as, and will be applicable only
Appalachian, Southeast, and possible Agency, Inc. (SMA), in response to the to persons in the respective classes of
successor orders should be amended to partial recommended decision industrial and commercial activity
preclude the ability to simultaneously requested the expedited issuance of a specified in, the marketing agreements
pool the same milk on the order if the final decision on proposed amendments upon which a hearing has been held;
milk is already pooled on a State- contained in the partial recommended and
operated order that provides for decision. (d) All milk and milk products
marketwide pooling. Although no handled by handlers, as defined in the
record evidence was presented Conforming Change
tentative marketing agreement and the
illustrating or documenting current This decision amends the order for Appalachian marketing area,
double pooling of milk in the Appalachian and Southeast orders to and hereby proposed to be amended, are
Appalachian and Southeast orders, the appropriately reference the Deputy in the current of interstate commerce or
adoption of Proposal 6 offers a Administrator of Dairy Programs to directly burden, obstruct, or affect
reasonable solution for prohibiting the reflect changes in a position and interstate commerce in milk or its
same milk to draw pool funds from program name within the Agricultural products.
Federal and State marketwide pools Marketing Service.
simultaneously. It is consistent with the Rulings on Exceptions
Rulings on Proposed Findings and
current prohibition against allowing the In arriving at the findings and
Conclusions
same milk to participate simultaneously conclusions, and the regulatory
in more than one Federal order pool. Briefs and proposed findings and provisions of this decision, each of the
Evidence presented at the hearing conclusions were filed on behalf of exceptions received was carefully and
establishes that milk that can be pooled certain interested parties. These briefs, fully considered in conjunction with the
simultaneously on a State-operated proposed findings and conclusions, and record evidence. To the extent that the
order and a Federal order would render the evidence in the record were findings and conclusions and the
the Appalachian and Southeast milk considered in making the findings and regulatory provisions of this decision
orders unable to establish prices that are conclusions set forth above. To the are at variance with any of the
uniform to producers and to handlers. extent that the suggested findings and exceptions, such exceptions are hereby
This shortcoming of the pooling conclusions filed by interested parties overruled for the reasons previously
provisions allows milk which was are inconsistent with the findings and stated in this decision.
pooled on a State order to be pooled conclusions set forth herein, the
requests to make such findings or reach Marketing Agreement and Order
milk on a Federal order. Such milk
therefore could not provide a reasonable such conclusions are denied for the Annexed hereto and made a part
or consistent service to meet the needs reasons previously stated in this hereof are two documents, a Marketing
of the Class I market because it was decision. Agreement regulating the handling of
committed to the State order. milk, and an Order amending the order
General Findings
Adoption of Proposal 6 will not regulating the handling of milk in the
establish any barrier to the pooling of The findings and determinations Appalachian and Southeast marketing
milk from any source that actually hereinafter set forth supplement those areas, which have been decided upon as
demonstrates performance in supplying that were made when the Appalachian the detailed and appropriate means of
the Appalachian and Southeast markets’ and Southeast orders were first issued effectuating the foregoing conclusions.
Class I needs. Accordingly, Proposal 6 is and when they were amended. The It is hereby ordered that this entire
included as part of this partial final previous findings and determinations decision and the two documents
decision. are hereby ratified and confirmed, annexed hereto be published in the
except where they may conflict with Federal Register.
4. Producer-Handler Provisions those set forth herein.
(a) The tentative marketing Determination of Producer Approval
Proposals considered at the hearing
agreements and the orders, as hereby and Representative Period
regarding the regulatory status of
producer-handlers will be addressed in proposed to be amended, and all of the June 2005 is hereby determined to be
a separate decision. terms and conditions thereof, will tend the representative period for the
Dairy Farmers of America, Inc. (DFA), to effectuate the declared policy of the purpose of ascertaining whether the
filed a comment response to the partial Act; issuance of the orders, as amended and
recommended decision expressing (b) The parity prices of milk as as hereby proposed to be amended,
disappointment in the lack of decision determined pursuant to section 2 of the regulating the handling of milk in the
regarding the producer-handler issue Act are not reasonable in view of the Appalachian, and Southeast marketing
and expects a decision on these price of feeds, available supplies of areas is approved or favored by
provisions to be issued soon. feeds, and other economic conditions producers, as defined under the terms of
As stated previously in this decision, which affect market supply and demand the orders (as amended and as hereby
Issue No. 4 regarding the producer- for milk in the marketing areas, and the proposed to be amended), who during

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such representative period were of industrial or commercial activity the skim milk (or the skim equivalent of
engaged in the production of milk for specified in, marketing agreements upon components of skim milk) and butterfat
sale within the aforesaid marketing which a hearing has been held; and contained in milk of a producer that is:
areas. (4) All milk and milk products * * * * *
handled by handlers, as defined in the
List of Subjects in 7 CFR Parts 1005 and (e) Producer milk shall not include
order as hereby amended, are in the
1007 milk of a producer that is subject to
current of interstate commerce or
Milk marketing orders. directly burden, obstruct, or affect inclusion and participation in a
interstate commerce in milk or its marketwide equalization pool under a
Dated: September 15, 2005.
products. milk classification and pricing program
Lloyd C. Day, imposed under the authority of a State
Administrator, Agricultural Marketing Order Relative to Handling government maintaining marketwide
Service. pooling of returns.
It is therefore ordered, that on and
Order Amending the Order Regulating after the effective date hereof, the * * * * *
the Handling of Milk in the handling of milk in the Appalachian
Appalachian and Southeast Marketing § 1005.81 [Amended]
and Southeast marketing areas shall be
Areas in conformity to and in compliance with 4. In § 1005.81(a), remove ‘‘$0.065’’
(This order shall not become effective the terms and conditions of the orders, and add, in its place, ‘‘$0.095’’.
unless and until the requirements of as amended, and as hereby amended, as
follows: § 1005.82 [Amended]
§ 900.14 of the rules of practice and
procedure governing proceedings to The provisions of the proposed 5. In § 1005.82, paragraph (b) is
formulate marketing agreements and marketing agreements and orders amended by removing the words
marketing orders have been met.) amending each of the specified orders ‘‘Director of the Dairy Division’’ and
contained in the Recommended adding, in their place, the words
Findings and Determinations Decision issued by the Administrator, ‘‘Deputy Administrator of Dairy
The findings and determinations Agricultural Marketing Service, on May Programs’’ and adding a new paragraph
hereinafter set forth supplement those 13, 2005, and published in the Federal (c)(2)(iv) to read as follows:
that were made when the orders were Register on May 20, 2005 (70 FR 29410),
first issued and when they were shall be and are the terms and § 1005.82 Payments from the
amended. The previous findings and provisions of this order, amending the transportation credit balancing fund.
determinations are hereby ratified and orders, and are set forth in full herein. * * * * *
confirmed, except where they may (c) * * *
conflict with those set forth herein. PART 1005—MILK IN THE
(a) Findings. A public hearing was APPALACHIAN MARKETING AREA (2) * * *
held upon certain proposed (iv) The market administrator may
1. The authority citation for 7 CFR increase or decrease the milk
amendments to the tentative marketing
part 1005 continues to read as follows: production standard specified in
agreements and to the orders regulating
the handling of milk in the Appalachian Authority: 7 U.S.C. 601–674. paragraph (c)(2)(ii) of this section if the
and Southeast marketing areas. The 2. Section 1005.2 is amended by market administrator finds that such
hearing was held pursuant to the revising the Virginia counties and cities revision is necessary to assure orderly
provisions of the Agricultural Marketing to read as follows: marketing and efficient handling of milk
Agreement Act of 1937, as amended (7 in the marketing area. Before making
U.S.C. 601–674), and the applicable § 1005.2 Appalachian marketing area. such a finding, the market administrator
rules of practice and procedure (7 CFR * * * * * shall investigate the need for the
part 900). revision either on the market
Virginia Counties and Cities administrator’s own initiative or at the
Upon the basis of the evidence
introduced at such hearing and the Alleghany, Amherst, Augusta, Bath, request of interested persons. If the
record thereof, it is found that: Bedford, Bland, Botetourt, Buchanan, investigation shows that a revision
(1) The said orders as hereby Campbell, Carroll, Craig, Dickenson, might be appropriate, the market
amended, and all of the terms and Floyd, Franklin, Giles, Grayson, Henry, administrator shall issue a notice stating
conditions thereof, will tend to Highland, Lee, Montgomery, Patrick, that the revision is being considered and
effectuate the declared policy of the Act; Pittsylvania, Pulaski, Roanoke, inviting written data, views, and
(2) The parity prices of milk, as Rockbridge, Rockingham, Russell, Scott, arguments. Any decision to revise an
determined pursuant to Section 2 of the Smyth, Tazewell, Washington, Wise, applicable percentage must be issued in
Act, are not reasonable in view of the and Wythe; and the cities of Bedford, writing at least one day before the
price of feeds, available supplies of Bristol, Buena Vista, Clifton Forge, effective date.
feeds, and other economic conditions Covington, Danville, Galax, * * * * *
which affect market supply and demand Harrisonburg, Lexington, Lynchburg,
for milk in the aforesaid marketing Martinsville, Norton, Radford, Roanoke, PART 1007—MILK IN THE SOUTHEAST
areas. The minimum prices specified in Salem, Staunton, and Waynesboro. MARKETING AREA
the order as hereby amended are such * * * * *
prices as will reflect the aforesaid 3. Section 1005.13 is amended by 6. The authority citation for part 1007
factors, insure a sufficient quantity of revising the introductory text and continues to read as follows:
pure and wholesome milk, and be in the adding a new paragraph (e) to read as Authority: 7 U.S.C. 601–674, and 7253.
public interest; and follows:
(3) The said orders as hereby 7. Section 1007.13 is amended by
amended regulate the handling of milk § 1005.13 Producer milk. revising the introductory text and
in the same manner as, and is applicable Except as provided for in paragraph adding a new paragraph (e) to read as
only to persons in the respective classes (e) of this section, Producer milk means follows:

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§ 1007.13 Producer milk. revision either on the market and authorization to correct
Except as provided for in paragraph administrator’s own initiative or at the typographical errors.
(e) of this section, Producer milk means request of interested persons. If the (a) Record of milk handled. The
the skim milk (or the skim equivalent of investigation shows that a revision undersigned certifies that he/she
components of skim milk) and butterfat might be appropriate, the market handled during the month of
contained in milk of a producer that is: administrator shall issue a notice stating lllll4, hundredweight of milk
* * * * * that the revision is being considered and covered by this marketing agreement.
(e) Producer milk shall not include inviting written data, views, and
(b) Authorization to correct
milk of a producer that is subject to arguments. Any decision to revise an
typographical errors. The undersigned
inclusion and participation in a applicable percentage must be issued in
hereby authorizes the Deputy
marketwide equalization pool under a writing at least one day before the
effective date. Administrator, or Acting Deputy
milk classification and pricing program Administrator, Dairy Programs,
imposed under the authority of a State * * * * * Agricultural Marketing Service, to
government maintaining marketwide [This marketing agreement will not appear in
correct any typographical errors which
pooling of returns. the Code of Federal Regulations]
may have been made in this marketing
* * * * * Marketing Agreement Regulating the agreement.
Handling of Milk in Certain Marketing § lllll3 Effective date. This
§ 1007.81 [Amended]
Areas marketing agreement shall become
8. In § 1007.81(a), remove ‘‘$0.07’’ and
add, in its place, ‘‘$0.10’’. The parties hereto, in order to effective upon the execution of a
effectuate the declared policy of the Act, counterpart hereof by the Secretary in
§ 1007.82 [Amended] and in accordance with the rules of accordance with Section 900.14(a) of the
9. In § 1007.82, paragraph (b) is practice and procedure effective aforesaid rules of practice and
amended by removing the words thereunder (7 CFR part 900), desire to procedure.
‘‘Director of the Dairy Division’’ and enter into this marketing agreement and In Witness Whereof, The contracting
adding, in their place, the words do hereby agree that the provisions handlers, acting under the provisions of
‘‘Deputy Administrator of Dairy referred to in paragraph I hereof as the Act, for the purposes and subject to
Programs’’ and adding a new paragraph augmented by the provisions specified the limitations herein contained and not
(c)(2)(iv) to read as follows: in paragraph II hereof, shall be and are otherwise, have hereunto set their
the provisions of this marketing respective hands and seals.
§ 1007.82 Payments from the
agreement as if set out in full herein.
transportation credit balancing fund. Signature
I. The findings and determinations,
* * * * * order relative to handling, and the
(c) * * * provisions of §§ lllll1 to, all By (Name) llllllllll
(2) * * * inclusive, of the order regulating the
(iv) The market administrator may (Title) llllllllll
handling of milk in the (lllName of
increase or decrease the milk orderlll) marketing area (7 CFR (Address) llllllllll
production standard specified in PART lll2) which is annexed hereto;
paragraph (c)(2)(ii) of this section if the and (Seal)
market administrator finds that such II. The following provisions: Attest
revision is necessary to assure orderly § lllll3 Record of milk handled
marketing and efficient handling of milk [FR Doc. 05–18758 Filed 9–20–05; 8:45 am]
in the marketing area. Before making 1 Firstand last sections of order. BILLING CODE 3410–02–P
such a finding, the market administrator 2 Appropriate Part number.

shall investigate the need for the 3 Next consecutive section number. 4 Appropriate representative period for the order.

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