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Thursday,

November 7, 2002

Part II

Department of
Agriculture
Agriculture Marketing Service

7 CFR Parts 1000, et al.


Milk in the Northeast and Other
Marketing Areas; Decision on Proposed
Amendments to Tentative Marketing
Agreement and to Order; Proposed Rule

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67906 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

DEPARTMENT OF AGRICULTURE ACTION: Proposed rule; Final Decision.

Agricultural Marketing Service

7 CFR Parts 1000, 1001, 1005, 1006,


1007, 1030, 1032, 1033, 1124,
1126,1131, and 1135
[Docket No. AO–14–A69, et al.: DA–00–03]

Milk in the Northeast and Other


Marketing Areas; Decision on
Proposed Amendments to Tentative
Marketing Agreement and To Order
AGENCY: Agricultural Marketing Service,
USDA.

7 CFR part Marketing area AO Nos.

1001 ................... Northeast .......................................................................................................................................................... AO–14–A69.


1005 ................... Appalachian ...................................................................................................................................................... AO–388–A11.
1006 ................... Florida .............................................................................................................................................................. AO–356–A34.
1007 ................... Southeast ......................................................................................................................................................... AO–366–A40.
1030 ................... Upper Midwest ................................................................................................................................................. AO–361–A34.
1032 ................... Central .............................................................................................................................................................. AO–313–A43.
1033 ................... Mideast ............................................................................................................................................................. AO–166–A67.
1124 ................... Pacific Northwest ............................................................................................................................................. AO–368–A27.
1126 ................... Southwest ......................................................................................................................................................... AO–231–A65.
1131 ................... Arizona-Las Vegas ........................................................................................................................................... AO–271–A35.
1135 ................... Western ............................................................................................................................................................ AO–380–A17.

SUMMARY: This decision adopts revised Title 5 of the United States Code and later than 20 days after the date of the
product-price formulas for establishing therefore is excluded from the entry of the ruling.
Class III and Class IV milk prices. The requirements of Executive Order 12866. Regulatory Flexibility Analysis
formulas are applicable to all Federal These proposed amendments have
milk marketing orders. The orders This final decision responds to a
been reviewed under Executive Order Congressional mandate to reconsider the
amended by this decision require 12988, Civil Justice Reform. This rule is
producer approval. Referenda will be Class III and Class IV pricing formulas
not intended to have a retroactive effect. included in the final rule for the
conducted in two markets, and dairy
If adopted, this proposed rule will not consolidation and reform of Federal
farmer cooperatives will be polled in the
preempt any state or local laws, milk orders. The mandate was included
other nine markets to determine
whether dairy farmers approve the regulations, or policies, unless they in the Consolidated Appropriations Act,
issuance of the orders as amended. present an irreconcilable conflict with 2000 (Pub. L. 106–113, 115 Stat. 1501).
This final decision differs from the this rule. In accordance with the Regulatory
recommended decision by modifying The Agricultural Marketing Flexibility Act (RFA) (5 U.S.C. 601 et
the Class III and IV formulas to include Agreement Act of 1937, as amended (7 seq.), the Agricultural Marketing Service
farm-to-plant component losses. U.S.C. 601–674), provides that (AMS) has considered the economic
Modifications are adopted to the administrative proceedings must be impact of this action on small entities
butterfat price formula, the protein price exhausted before parties may file suit in and has prepared this regulatory
formula, the other solids price formula, court. Under section 608c(15)(A) of the flexibility analysis. When preparing
and the nonfat milk solids price such analysis an agency shall address:
Act, any handler subject to an order may
formula. Additionally, this decision The reasons, objectives, and legal basis
request modification or exemption from
converts the Class III and IV formula for the anticipated proposed rule; the
such order by filing with the
kind and number of small entities
divisors to multipliers in order to Department a petition stating that the which would be affected; the projected
simplify and promote consistency with order, any provision of the order, or any recordkeeping, reporting, and other
all end-product pricing formulas. obligation imposed in connection with requirements; and federal rules which
FOR FURTHER INFORMATION CONTACT: the order is not in accordance with the may duplicate, overlap, or conflict with
Clifford M. Carman, Associate Deputy law. A handler is afforded the the proposed rule. Finally, any
Administrator, USDA/AMS/Dairy opportunity for a hearing on the significant alternatives to the proposal
Programs, Order Formulation and petition. After a hearing, the Department should be addressed. This regulatory
Enforcement Branch, Stop 0231, Room will rule on the petition. The Act flexibility analysis considers these
2968, South Building, 1400 provides that the district court of the points and the impact of this proposed
Independence Avenue, Washington, DC United States in any district in which regulation on small entities. The legal
20250–0231, (202) 720–6274, e-mail the handler is an inhabitant, or has its basis for this action is discussed in the
address clifford.carman@usda.gov. principal place of business, has preceding section.
SUPPLEMENTARY INFORMATION: This jurisdiction in equity to review the The RFA seeks to ensure that, within
administrative action is governed by the Department’s ruling on the petition, the statutory authority of a program, the
provisions of Sections 556 and 557 of provided a bill in equity is filed not regulatory and informational

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67907

requirements are tailored to the size and current reporting requirements was is available (pounds of production per
nature of small businesses. For the completed pursuant to the Paperwork farm) with the criteria specified by the
purpose of the RFA, a dairy farm is Reduction Act of 1995 (44 U.S.C. Small Business Administration (revenue
considered a ‘‘small business’’ if it has Chapter 35). In light of this review, it from sales), for which data is not readily
an annual gross revenue of less than was determined that these proposed available to USDA on an individual
$750,000, and a dairy products amendments would have no impact on farm basis. The Regulatory Flexibility
manufacturer is a ‘‘small business’’ if it reporting, recordkeeping, or other Analysis does not represent an attempt
has fewer than 500 employees. For the compliance requirements because these to create special privileges for farms
purposes of determining which dairy would remain identical to the current defined as small, but to examine the
farms are ‘‘small businesses,’’ the Federal order program. No new forms regulations to assure that they do not
$750,000 per year criterion was used to have been proposed, and no additional create a disproportionate burden or
establish a production guideline of reporting would be necessary. competitive disadvantage for such
500,000 pounds per month. Although This proposed rule does not require farms.
this guideline does not factor in additional information collection that As was stated in the RFA in the
additional monies that may be received requires clearance by the OMB beyond recommended decision, one of the
by dairy producers, it should be an the currently approved information principal issues considered at the
inclusive standard for most ‘‘small’’ collection. The primary sources of data hearing was the source of price data that
dairy farmers. For purposes of used to complete the forms are routinely should be used to generate prices for
determining a handler’s size, if the plant used in most business transactions. The milk components and, thereby, prices to
is part of a larger company operating forms require only a minimal amount of be paid to producers. The options
multiple plants that collectively exceed information which can be supplied considered were the National
the 500-employee limit, the plant will without data processing equipment or a Agricultural Statistics Service (NASS)
be considered a large business even if trained statistical staff. Thus, the surveys of selling prices of
the local plant has fewer than 500 information collection and reporting manufactured dairy products, Chicago
employees. burden is relatively small. Requiring the Mercantile Exchange (CME) prices, and
USDA has identified as small same reports for all handlers does not producer costs of production. The
businesses approximately 62,240 of the significantly disadvantage any handler recommended decision selected the
65,464 dairy producers (farmers) that that is smaller than the industry NASS-reported prices as the most
have their milk pooled under a Federal average. appropriate for use in determining
order. Thus, small businesses constitute No other burdens are expected to fall product prices because of the
approximately 95 percent of the dairy upon the dairy industry as a result of considerably larger volume of product
farmers in the United States. On the overlapping Federal rules. This represented in those price series than in
processing side, there are approximately proposed rulemaking does not the CME price data. Producer cost of
1,621 plants associated with Federal duplicate, overlap or conflict with any production was not included in the
orders, and of these plants, existing Federal rules. calculation of prices because assuring
approximately 928 qualify as ‘‘small dairy farmers that their costs of
Consideration of Impacts on Small
businesses,’’ constituting about 57 production will be covered addresses
percent of the total. Businesses only the milk supply side of the market
During January 2002, there were To ensure that small businesses are and ignores factors underlying demand
approximately 410 fully regulated not unduly or disproportionately or changes in demand for milk and milk
handlers (of which 148 were small burdened based on these proposed products.
businesses), 75 partially regulated amendments, consideration was given Various proposals to reduce or
handlers (of which 39 were small to mitigating negative impacts. increase the levels of the manufacturing
businesses), and 46 producer-handlers A comment filed in regard to the (make) allowances of butter, nonfat dry
(of which 24 were considered small tentative final decision by the managing milk, cheddar cheese and dry whey
businesses) for the purpose of this partner of a large dairy farm argued that were considered. The present method
regulatory flexibility analysis. In dairy producers selling less than adjusted these make allowances from
addition, there were ninety-three 326,000 pounds of milk per month may the levels adopted under Federal order
exempt handlers with Class I sales of comprise the majority of dairy farms, reform on the basis of data and
less than 150,000 pounds during the but not the majority of milk sold. The testimony contained in the hearing
month. comment further stated that it is not record. Most of the adjustments are
Producer deliveries of milk used in appropriate to identify one sector and minimal. Primarily, manufacturing cost
Class I products (mainly fluid milk imply that they are most in need of surveys performed by USDA’s Rural
products) totaled 4.085 billion pounds protection and preservation. Cooperative Business Service (RBCS)
in January 2002, representing 37.7 Under the Regulatory Flexibility Act, and the California Department of Food
percent of total Federal order producer the definition of a ‘‘small’’ dairy farm and Agriculture (CDFA) were used to
deliveries. The volume of milk pooled has been redefined from a business determine the most appropriate levels of
under Federal orders represents 76 having an annual gross revenue of less make allowance for the products used in
percent of all milk marketed in the U.S. than $500,000 to a business having an calculating Federal order class prices.
and is estimated at 78 percent of the annual gross revenue of less than The only other actual collection of
milk of bottling quality (Grade A) sold $750,000. Therefore, the production manufacturing cost data for cheddar
in the country. More than 200 million guideline of 326,000 pounds per month cheese and dry whey that was cited in
Americans reside in Federal order has been increased to 500,000 pounds the hearing record was a survey of
marketing areas, representing per month in identifying ‘‘small’’ dairy cheddar cheese and dry whey
approximately 81 percent of the total farms. manufacturing costs arranged for by the
U.S. population (2001). The production guideline of 500,000 National Cheese Institute (NCI). This
In order to accomplish the goal of pounds per month in identifying survey was conducted by persons
imposing no additional regulatory ‘‘small’’ dairy farms is an attempt to unfamiliar with the dairy industry
burdens on the industry, a review of the relate a measure of size for which data among cheese processors who did not

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67908 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

testify about the data that they that indicates that the customary price regulated milk classified as Class I and
submitted for the survey and was difference is not at least 3 cents. Class II.
entered into the hearing record by a Proposals to reconsider the class price The modifications in this decision are
witness who had no firsthand relationships in the orders were analyzed simultaneously as a change
knowledge of the data included. As a considered, although a proposal to use from the set of Court-ordered formulas
result, the NCI survey should be relied a weighted average of the Class III and as implemented in January 2001. This
upon to a lesser degree than the two Class IV prices as a Class I price mover analysis focuses on impacts on milk
studies used to determine the cheddar was not noticed for hearing in this marketed under Federal milk marketing
cheese make allowance. In the case of proceeding. The hearing record supports orders. Milk marketed in California,
the RBCS study, the person who the continued relationships between the milk marketed under other state
gathered the data testified about its Class IV and Class II prices and between regulations, and unregulated milk are
collection and what it represented. In the higher of the manufacturing class treated separately.
the case of the CDFA-collected data, a prices and the Class I price.
A proposal that the Class II Scope of Analysis
manual detailing the method by which
the data was collected and presented differential be changed to negate any Impacts are measured as changes from
was made available, and several changes in the Class IV price formula the model baseline as adapted from the
witnesses familiar with the survey that would affect the current price USDA baseline developed in June 2002
testified about it. relationship between nonfat dry milk for the mid-session budget review. The
In addition, one nonfat dry milk and Class II failed to consider that the baseline projections are a Departmental
manufacturer testified to costs of Class II–Class IV price difference consensus on a long-run scenario for the
manufacture that exceeded those of the adopted in Federal order reform is based agricultural sector. Included is a
two studies by a significant amount, on the difference in the value of milk national, annual projection of the
mostly in the areas of return on used to make dry milk and the value of supply-demand-price situation for milk.
investment and marketing costs. The milk used to make Class II products. The mid-term review reflects the
data did not include any information Proposals that any increases resulting provisions of the Farm Security and
about the pounds of product from changes to the Class III and Class Rural Investment Act of 2002. Baseline
manufactured and could not have been IV price formulas not be allowed to assumptions for dairy are: (1) The price
weighted with the data from the two result in increases in Class I prices did support program will extend through
other studies. not address the rationale for the current December 31, 2007, supporting the price
Several proposals to change the factor Class I price differentials above the of milk (3.67 percent butterfat) at $9.90;
reflecting the yield of nonfat dry milk manufacturing price levels for the (2) the Dairy Export Incentive Program
from nonfat solids in milk would have purpose of obtaining an adequate will continue to be utilized; (3) the
increased the nonfat solids price and the supply of milk for fluid (drinking) use. Federal Milk Marketing Order Program
Class IV skim price, but ignored the The changes to the Class III and Class will continue as reformed on January 1,
need to reflect the generally lower price IV price formulas included in the 2000, as modified by the Select, et al. vs.
and higher manufacturing cost of recommended decision would have had Veneman decision in January 2001, and
buttermilk powder that also must be no special impact on small handler (4) the National Dairy Market Loss
considered in calculating the Class IV entities. All handlers manufacturing Program will make payments to dairy
nonfat solids price. Testimony and data dairy products from milk classified as farmers when the Class I price in Boston
in the record were used to determine a Class III or Class IV would remain is less than $16.94 per cwt.
factor more representative of nonfat dry subject to the same minimum prices In the model the U.S. is divided into
milk yield and the effect of buttermilk regardless of the size of their operations. 14 milk marketing regions, 11 that
powder price and cost. The alternatives Such handlers would also be subject to generally correspond to the Federal
to the formula adopted either did not the same minimum prices to be paid to order areas, California, other West, and
include consideration of the price, cost, producers. These features of minimum Alaska-Hawaii. The 11 Federal orders
and volume of buttermilk powder pricing are required by the Agricultural share of the U.S. milk marketings is
relative to those of nonfat dry milk or Marketing Agreement Act and should about 70 percent. About 83 percent of
gave those factors too great an influence. not raise barriers to the ability of small all fluid milk and about 65 percent of all
Proposals were made to reduce the handlers to compete in the marketplace. manufactured milk is marketed under
butter and cheese product prices used in It is similarly expected that small Federal order regulations. Given the
calculating the butterfat price and the producers would not experience any prominence of Federal order
Class III component prices. The record particular disadvantage to larger marketings, prices paid for both fluid
of this proceeding continues to support producers as a result of any of the and manufactured milk outside of the
the use of the product prices adopted in proposed amendments. order system are generally aligned with
the final rule in the Federal milk order An analysis was performed on the prices paid in the Federal order system.
reform process as representing effects of the alternatives selected and is California stands out as the state with
accurately the values of these products. summarized below. the highest production and has its own
In the case of adjusting the Grade AA set of comprehensive market regulations
butter price to reflect the value of Grade Final Decision Analysis similar to the Federal order system.
A butter, the record fails to reveal any In order to assess the impact of California milk marketings are estimated
source of information for obtaining changes in Federal order milk pricing as a function of the California pool
current prices for Grade A butter. In the formulas, the Department conducted an price. Milk marketed through the
case of proposals to remove the 3-cent economic analysis. While the primary Federal order system is the predominant
adjustment between the barrel and 40- purpose of this decision is to amend the subset of milk marketings in the United
pound block cheese prices, there was no product pricing formulas used to price States. Fluid grade milk prices for the 11
testimony about the actual difference in milk regulated under Federal milk Federal order regions are estimated as
cost between the two types of packaging marketing orders and classified as either functions of Federal order minimum
that overcame testimony that 3 cents is Class III or Class IV milk, these product prices and dairy product prices. The
the actual cost difference, or any data price formulas also affect the prices of regional all-milk prices, which are used

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in the regional milk supply responses, marketings increase by an average 58 05. The Class I skim milk price
are in turn estimated from the regional million pounds annually due to the increases over baseline levels on average
fluid grade milk price and the national production increase in response to by nearly $0.04 cents per
dairy product prices. higher producer prices. Federal order hundredweight, ranging from increases
Demands for fluid milk and milk cash receipts increase by an of about 18 cents in 2004–05 to declines
manufactured dairy products are average $47.2 million annually (0.28 of about 7 cents in 2006–07. The Class
functions of per capita consumption and percent) from baseline receipts of I price at test (about 2 percent butterfat)
population. Per capita consumption for $16,729 million. declines by an average $0.01 per
the major milk and dairy products are The distribution of the 2003–2007 hundredweight from the baseline, and is
estimated as functions of own prices, annual average changes in the Federal similar to the skim milk price change
substitute prices, and income. Retail order minimum blend prices across the pattern, ranging from 13-cent increases
and wholesale margins are assumed 11 orders range from (–)$0.05 to to 12-cent declines.
unchanged from the baseline. The (+)$0.08 per hundredweight, reflecting Consumers. The expected $0.01 per
regional demands for fluid milk and soft declines in premiums associated with hundredweight decrease in the
manufactured products are satisfied first Class III milk. Estimates of annual minimum Class I price for 2003–2007
by the eligible supply of milk. The milk average price and quantity changes by results in an average $0.001 decrease in
supply for manufacturing hard products order are provided in the economic the price per gallon of fluid milk for
is the volume of milk marketings analysis for this decision. consumers. Annual consumer costs for
remaining after satisfying the volumes The five-year annual average U.S. all- fluid milk over 2003–2007 are estimated
demanded for fluid and soft milk price increases by $0.03 per to decrease on average by about $3.25
manufactured products. Milk is hundredweight over the baseline. U.S. million in the Federal order system and
manufactured into cheese or butter/ milk marketings increase by an average by $4.1 million in the U.S.
nonfat dry milk according to returns to 73 million pounds annually (0.04 The price for manufactured dairy
manufacturing in each class. Wholesale percent), yielding an average cash products are estimated to increase over
prices for cheese, butter, nonfat dry receipts increase of $67.2 million baseline by an average $0.004 per pound
milk, and dry whey reflect national annually (0.29 percent) from average for butter and $0.001 per pound of
supply and demand for these products. baseline receipts of $23,535 million. cheese. Average annual consumer
These prices underlie the Federal order Milk Manufacturers and Processors. expenditures over the five-year period
pricing system. Annual Class IV and Class II skim milk are estimated to increase over baseline
prices decline each year for an average levels by $5.6 million on butter, and by
Summary of Results of $0.07 per hundredweight (1.0 $4.1 million on American cheese.
The impacts of the changes to the percent) for the 2003–2007 period. This A complete Economic Analysis for the
Class III and Class IV formulas that are decline results from changing the Final Decision on Class III and Class IV
adopted in this decision are conversion factor for nonfat dry milk to Price Formulas is available upon request
summarized using annualized five-year, nonfat solids from 1.0 to 0.99. The from Howard McDowell, Senior
2003–2007, average changes from the minimum butterfat prices decline from Economist, USDA/AMS/Dairy
model baseline. The results presented baseline levels by an average of 2.1 Programs, Office of the Chief Economist,
for the Federal order system are in the cents per pound. This decline is the Room 2753, South Building, U.S.
context of the larger U.S. market. In result of recognizing farm-to-plant Department of Agriculture, Washington,
particular, the Federal order price losses of milk which reduce the yield DC 20250, (202) 720–7091, e-mail
formulas use national manufactured factor from the equivalent of 1.22 address howard.mcdowell@usda.gov.
dairy product prices. pounds of butter per pound of butterfat
The formula changes increase the to 1.20. The Class IV price at test (about Civil Rights Impact Statement
protein prices and reduce the prices for 8.45 percent butterfat) declines by an This final decision is based on the
butterfat and nonfat solids. The results average of $0.26 per hundredweight, record of a public hearing held May 8–
are higher Class III prices, lower Class and the Class II price at test (7.92 12, 2000, in Alexandria, Virginia, in
IV and Class II prices, and lower Class percent butterfat) declines by an average response to a mandate from Congress
I prices. The advanced Class I base price $0.23 per hundredweight over 2003– included in the Consolidated
is the higher of the Class III or Class IV 2007. Appropriations Act, 2000, that required
advance pricing factors. The Class I base The annual average Class III price the Secretary of Agriculture to conduct
price is the Class IV price in all years increase at test (3.52 percent butterfat) is a formal rulemaking proceeding to
of the analytical period for the baseline, about $0.23 over baseline (1.9 percent), reconsider the Class III and Class IV
while Class III becomes the Class I base increasing steadily from $0.15 in 2003 milk pricing formulas included in the
price in 2003 through 2005 under this to $0.34 in 2007. The increase is the final rule for the consolidation and
decision. The Class I price falls in 2003, result of the protein price increase of reform of Federal milk orders. The
2006 and 2007. The resulting increases $0.14 per pound, ranging from $0.10 to consolidated orders were implemented
in Class I and Class II demand for nonfat $0.18 per pound. The increase in the on January 1, 2000. A tentative final
and fat solids, sufficiently absorbs protein price is the result of reducing decision on the issues considered at the
production increases to very slightly the impact of the butterfat price on the hearing was issued November 29, 2000
increase cheese and butter prices and protein price. The butterfat price effect (65 FR 76832), and an interim final
only slightly decrease nonfat dry milk is reduced by multiplying the butterfat order (65 FR 82832) became effective
prices. price by 0.90, reflecting a 90 percent January 1, 2001. A preliminary
Producers. Over the five-year period, butterfat retention rate in the cheese, injunction enjoining portions of the
the Federal order minimum Class price and replacing the 1.28 factor with 1.17 interim final order was granted in the
for milk at test increases about $0.06 per reflecting the butterfat to protein ratio of U.S. District Court for the District of
hundredweight. The average fluid grade milk standardized at 3.5 percent Columbia on January 31, 2001.
price for Federal order regions, which butterfat and 2.99 percent protein. Pursuant to Departmental Regulation
includes premiums, increases by about The Class I base price shifts from the (DR) 4300–4, a comprehensive Civil
$0.03 per hundredweight. Federal order Class IV to the Class III price in 2003– Rights Impact Analysis (CRIA) was

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67910 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

conducted and published with the final Notice of Hearing: Issued April 6, received on the recommended decision
decision on Federal milk order 2000; published April 14, 2000 (65 FR (issued October 19, 2001; 66 FR 54064).
consolidation and reform. That CRIA 20094).
Material Issues to Class III and IV
included descriptions of (1) the purpose Tentative Final Decision: Issued
Formulas
of performing a CRIA; (2) the civil rights November 29, 2000; published
policy of the U.S. Department of December 7, 2000 (65 FR 76832). As instructed by the legislation
Agriculture; and (3) basics of the Interim Final Rule: Issued December requiring this proceeding, the Class III
Federal milk marketing order program 21, 2000; published December 28, 2000 and IV pricing formulas and all of the
to provide background information. (65 FR 82832). elements of the formulas were re-
Also included in that CRIA was a Recommended Decision: Issued considered in developing the tentative
detailed presentation of the October 19, 2001; published October 25, final decision, the recommended
characteristics of the dairy producer and 2001 (66 FR 54064). decision, and this final decision.
general populations located within the Extension of Time: Issued November The material issues on the record of
former and current marketing areas. 26, 2001; published November 29, 2001 the hearing relate to:
The conclusion of that analysis (66 FR 59546). 1. Role of producer costs of
disclosed no potential for affecting dairy production.
farmers in protected groups differently Preliminary Statement 2. Commodity prices (CME vs. NASS).
than the general population of dairy Notice is hereby given of the filing 3. Commodity and component price
farmers. All producers, regardless of with the Hearing Clerk of this final issues.
race, national origin, or disability, who decision with respect to proposed a. General approaches on make
choose to deliver milk to handlers amendments to the tentative marketing allowances.
regulated under a Federal order will agreements and orders regulating the b. Class IV butterfat and nonfat solids
receive the minimum blend price. handling of milk in the Northeast and prices.
Federal orders provide the same other marketing areas. This notice is c. Class III butterfat, protein, and
assurance for all producers, without issued pursuant to the provisions of the other nonfat solids prices.
regard to sex, race, origin, or disability. d. Effects of changes to Class III and
Agricultural Marketing Agreement Act
The value of all milk delivered to Class IV price formulas.
of 1937, as amended (7 U.S.C. 601 et
handlers competing for sales within a 4. Class price relationships.
seq.), and the applicable rules of
defined marketing area is divided 5. Class I price mover.
practice and procedure governing the 6. Miscellaneous and conforming
equally among all producers delivering
formulation of marketing agreements changes.
milk to those handlers.
and marketing orders (7 CFR part 900). a. Advance Class I butterfat price.
The issues addressed at the May 2000
hearing are issues that were addressed The Hearing Notice specifically b. Classification.
as part of Federal milk order invited interested persons to present c. Distribution of butterfat value to
consolidation and reform. Establishing evidence concerning the probable producers.
representative make allowances in the regulatory and informational impact of d. Inclusion of Class I other source
formulas that price milk used in Class the proposals on small businesses. To butterfat in producer butterfat price
III and Class IV dairy products is an the extent that this issue was raised, it computation.
issue that affects the obligations of is considered in the following findings 7. Reopening of hearing or issuance of
handlers of those products to the and conclusions. a final decision.
Federal milk order pool, and similarly This final decision responds to a
Congressional mandate to reconsider the Summary of Changes to the Interim
the pool obligations of Class I and Class Amendments
II handlers. The decision should result Class III and Class IV pricing formulas
in no differential benefits in dividing included in the final rule for the The recommended decision differed
the pool among all producers delivering consolidation and reform of Federal from the tentative final decision in
milk to those regulated handlers. milk orders. The mandate was included several respects and included
Therefore, USDA sees no potential for in the Consolidated Appropriations Act, summaries of comments submitted on
affecting dairy farmers in protected 2000 (Pub. L. 106–113, 115 Stat. 1501). each of the issues within the discussion
groups differently than the general The findings and conclusions set forth of the issue. The key changes that were
population of dairy farmers. below are based on the record of a made to the interim order amendments
Decisions on proposals to amend public hearing to consider proposals in the recommended decision were as
Federal milk marketing orders must be submitted by the industry to change the follows:
based on testimony and evidence pricing formulas in the marketing 1. In Issue 3c, changes were made to
presented on the record of the agreements and the orders regulating the the formulas for calculating the protein
proceeding. The hearing notice in this handling of milk in the Northeast and and other solids prices, and the Class III
proceeding invited interested persons to ten other marketing areas held in butterfat price would be the same as that
address any possible civil rights impact Alexandria, Virginia, on May 8–12, calculated for Class IV on the basis of
of the proposals being considered in 2000. Notice of such hearing was issued butter.
testimony at the hearing. No such on April 6, 2000, and published on 2. In Issue 3d, the changes made in
testimony was received. April 14, 2000 (65 FR 20094). the Class III component price formulas
Copies of the Civil Rights Impact The recommended decision would result in different effects on Class
Analysis done for the final decision on responded to comments received on the III component, skim, and
Federal milk order consolidation and tentative final decision (issued hundredweight prices.
reform can be obtained from AMS Dairy November 29, 2000; 65 FR 76832) on the 3. In Issue 6b, the classification of
Programs at (202) 720–4392; any Milk above hearing and was consistent with frozen cream, plastic cream and
Market Administrator office; or via the the injunction issued by the U.S. anhydrous milkfat would be changed
Internet at: http://www.ams.usda.gov/ District Court for the District of back to Class III.
dairy/. Columbia on January 31, 2001. This 4. In Issue 6c, butterfat values would
Prior documents in this proceeding: final decision responds to comments be pooled for the purpose of calculating

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producer butterfat prices in the orders continue to operate their dairy farms indexes reflecting dairy farmers’
in which producers are not paid on a without losing money. Under the production costs are discussed under
component basis. In orders under which current system, according to the Issue 3a, General Approaches on Make
producers are paid on a multiple National Farmers Union (NFU) witness, Allowances.
component basis, however, the producer incorporating a make allowance for In this final decision, consideration
butterfat price would be the same as that processors but not for producers leaves has again been given to cost of
for butterfat used in Classes III and IV. dairy farmers to bear the entire burden production proposals. As noted by the
5. In Issue 6d, the butterfat in other of changes in supply and demand. NFO witness, the current pricing system
source milk used in Class I is included Support for using cost of production uses the interaction of supply and
in calculating the producer butterfat in the Class III and IV pricing formulas demand for milk products as an indirect
price in marketwide pools that do not was reiterated in the comments received method of meeting the pricing
use multiple component pricing, but in response to the tentative final requirements of the Agricultural
would continue to be included in the decision issued November 29, 2000, and Marketing Agreement Act of 1937 (the
producer price differential calculation the recommended decision of October Act) for milk. According to the
in multiple component pricing pools. 25, 2001. The NFU comments expressed recommended decision, the record
6. Issue 7 was changed to explain the disappointment that no portions of the contained no new dairy farmer cost of
reasons for issuing a recommended milk pricing formulas were based on production data that could be used to
decision at this point in this proceeding, producer cost of production. The reflect both the supply and demand
instead of a final decision. American Raw Milk Producers Pricing sides of the market for dairy products.
Association suggested that the USDA The recommended decision continued
Summary of Changes to the ignored existing law as written in the to state that there was no evidence in
Recommended Decision by This Final 1937 Agricultural Agreement Act, the record that either USDA’s Economic
Decision section 608c(18). Two dairy farmers also Research Service or the CDFA costs of
The changes to the recommended mentioned their concern about the need production had ever been used to price
decision formulas by this final decision to follow 608c(18). Another dairy farmer milk.
are primarily the result of incorporating advocated a producer-influenced supply The Act stipulates that the price of
a farm-to-plant product loss: control/price control system. feeds, the availability of feeds, and other
1. In issue 3a, an adjustment to the Comments filed by the Maine Dairy economic conditions which affect
component price formula yield factors Industry Association (MDIA) in market supply and demand for milk and
to account for farm-to-plant component response to the recommended decision its products be taken into account in the
losses is added. joined in supporting cost of production determination of milk prices. This
2. In issue 3b, changes are made to the as a part of the pricing formulas. They requirement currently is fulfilled by the
yield factor used for computing both the expressed the opinion that cost of Class III and Class IV component price
nonfat solids price and the Class III and production should be included because calculations. If conditions increase
Class IV butterfat price to reflect farm- their producers’ costs are higher than supply costs, the quantity of milk
to-plant component losses. In addition, the price received. The MDIA also produced would be reduced due to
the yield factor used for computing the voiced the unfairness of processors’ lower profit margins. As the milk
nonfat solids price and the butterfat being assured some ability to offset their supply declines, plants buying
price is converted from a divisor to a costs through product make allowances manufacturing milk would pay a higher
multiplier. while producers are not able to receive price to maintain an adequate supply of
3. In issue 3c, the yield factors used such adjustment. Comments received milk to meet their needs. As the
to compute the protein price are from Schreiber Foods indicated resulting farm profit margins increase,
adjusted to account for farm-to-plant agreement with the recommended so should the supply of milk. Likewise,
component losses and to reflect a decision to not use the cost of the reverse would occur if economic
reevaluation of the quantity of casein production in setting Class prices. conditions reduce supply costs. The
retained in the cheese making process. As explained in both the proposed price of feed is not directly included in
The other solids yield factor is adjusted rule and final decision under Federal the determination of the price for milk,
to account for farm-to-plant component order reform and in the tentative final but rather is one economic condition
losses. In addition, the yield factor used decision and the recommended decision which may cause a situation in which
for computing the other solids price is in this proceeding, assuring producers the price of milk may increase or
converted from a divisor to a multiplier. that their costs of production will be decrease. A change in feed prices may
covered addresses only the milk supply not necessarily result in a change in
Findings and Conclusions side of the market and ignores factors milk prices. For instance, if the price of
The following findings and underlying demand or changes in feed increases but the demand for
conclusions on the material issues are demand for milk and milk products. As cheese declines, the milk price may not
based on evidence presented at the noted by the Dairy Farmers of America increase since milk plants would need
hearing and the record thereof: (DFA) witness, although pricing less milk and therefore would not bid
proposals incorporating cost of the price up in response to lower milk
1. Role of Producer Cost of Production production have been noticed and supplies. Also, other economic
Proposal 29 in the hearing notice reviewed several times in the last conditions could more than offset a
proposed that producers’ costs of decade without success, if a sound change in feed prices and thus not
production be incorporated into the mechanical concept could be advanced necessitate a change in milk prices.
Class III and Class IV pricing formulas. that overcomes the objections relative to The pricing system, according to the
A number of dairy farmer witnesses supply and demand, it should be recommended decision, accounted for
testified that, just as manufacturing considered. changes in feed costs, feed supplies, and
processors are assured that their costs of The proposals by NFU and National other economic conditions, as explained
processing milk products will be Farmers Organization (NFO) that above. The product price formulas
covered, dairy farmers should also have advocated adoption of make allowances adopted in the recommended decision
some assurance that they will be able to that would be adjusted for changes in would reflect accurately the market

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67912 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

values of the products made from from a number of manufacturers of these establishing what they will pay, or what
producer milk used in manufacturing. products nationwide. At the time the they will be paid, for cheese.
As supply costs increase with a proposed rule on Federal order reform A witness from WSDPTA went on to
resulting decline in production, was published (January 30, 1998), the explain that buyers, sellers, and
commodity prices would increase as NASS survey included prices for speculators trade the CME, trying to
manufacturers secure additional milk to cheddar cheese only. This survey began obtain a price in their favor, while the
meet their needs. Such increases in in March 1997. In September 1998, price actually is determined by supply
commodity prices would mean higher before the final decision was published and demand forces. He described the
prices for milk. The opposite would be in April 1999, NASS began surveys of rules as fair and the results as
true if supply costs were declining. Grade AA butter prices, dry whey transparent, with participants having a
Additionally, since Federal order prices prices, and nonfat dry milk prices. In number of interests. The witness
are minimum prices, handlers may developing these commodity surveys, continued by noting that the CME price
increase their pay prices in response to input was obtained from the dairy result is instant and results cannot be
changing supply/demand conditions industry on appropriate types of altered. In contrast, he stated, NASS
even when Federal order prices do not products, packaging, and package sizes prices are reported by sellers only, who
increase. to be included for the purpose of are not disinterested parties. He argued
Additionally, the pricing formulas obtaining unbiased representative that NASS respondents can modify their
contained in the recommended decision prices. A sale is considered to occur numbers or file an initial report after
and this final decision are applicable to when a transaction is completed, the calculating the price impact of the latest
handlers, since handlers are the product is shipped out, or title transfer reports.
regulated parties under Federal milk occurs. In addition, all prices are f.o.b. The proponents also concluded that
order regulation. The formulas are used the processing plant/storage center, with the urging by many hearing participants
to establish minimum prices for milk the processor reporting total volume that the NASS price series include
used in making particular dairy sold and total dollars received or price mandatory participation and be audited
products, not for determining payments per pound. NASS Dairy Product Prices proves that the NASS series is not
to dairy farmers. reports wholesale cheddar cheese prices reliable enough to be used as a price–
2. Commodity Prices (CME vs. NASS) for both 500-pound barrels and 40- discovery method.
pound blocks, USDA Grade AA butter, Finally, the witness from WSDPTA
As adopted in the interim final rule in
USDA Extra Grade or USPH Grade A expressed the view that the NASS price
this proceeding (published on December
non-fortified dry milk, and USDA Extra series would feed on itself and result in
28, 2000 (65 FR 82832)), commodity
Grade edible non-hygroscopic dry whey. price setting, not price discovery. He
prices determined by surveys conducted
by USDA’s National Agricultural A more detailed description of the continued by noting that plants and
Statistics Service (NASS) continue to be surveys can be found in the final their buyers will obtain prices one week
used in the component price formulas decision of April 2, 1999 (64 FR 16093). and sell the commodity in the following
that replaced the BFP. The The proponents of proposal 1, week at a price derived in large part
recommended decision proposed no Western States Dairy Producers Trade from the price obtained in the prior
changes in the source of product price Association, et al. (WSDPTA), a group week. The witness compared the NASS
data. Likewise, this final decision of several trade associations and survey to the CDFA survey of powder
adopts no changes in the source of cooperatives, proposed that the NASS prices which, he claimed, results in a
product price data. commodity prices for butter, cheese, circular pricing system that is
Several proposals (1, 5, 10 and 19) and nonfat dry milk that currently are mathematically incapable of fully
were considered during the current used for computing the Federal order reflecting the top of the market price for
proceeding that recommended using component prices be replaced with powder because so little of the survey
prices reported by the Chicago prices determined by trading on the volume is priced off of the spot market.
Mercantile Exchange (CME) instead of CME. Dry whey was not included in the Proponents expressed the belief that this
the NASS surveys to determine proposal because there is no dry whey circularity causes prices to remain lower
commodity prices. Both the CME and cash contract traded on the CME. A than they would without it and that
the NASS surveys were supported by witness from WSDPTA did not oppose prices would increase more slowly and
testimony at the hearing and in briefs. the collection and reporting of NASS decrease more rapidly than would
Several comments to the recommended data, but expressed the opinion that prices on the CME, causing overall
decision supported continuing to use while it serves an important function as lower prices for dairy farmers.
the NASS surveys. information, it should not be used to In the comments filed on the tentative
The CME is a cash market where establish prices. The proponents final decision, the proponents of
speculators, producers, and processors presented several benefits of using the changing from NASS to CME prices
can buy and sell products. It is a CME over the NASS survey for commented only that USDA should
mechanism for establishing prices on commodity prices. reconsider the use of NASS prices. A
which the dairy industry relies. Thus, Proponents explained that by using partner/manager of a dairy farm stated
many contracts to buy and sell dairy CME prices in the formulas, prices that there is little correlation between
products are based on CME prices. A would be known immediately rather the NASS and wholesale prices, and
USDA witness testified that he is than a week later when the NASS prices questioned the accuracy of NASS survey
unaware of any other indices used to are published, reflecting more quickly numbers. He also stated that block and
price cheese in the U.S. According to the supply-demand conditions for dairy barrel cheese is traded only between
several witnesses, cheese and butter products. The one-week delay is caused manufacturers and that they therefore
processors generally base their contract by the time necessary to collect data. A have an influence on setting the price,
sales on CME prices. witness for NFO noted that interested especially if the percentage of the
The NASS price survey gathers selling persons are able to check the CME value product traded is very low. He argued
prices of cheddar cheese, Grade AA of products on a daily basis and use the that a fair price would reflect retail
butter, nonfat dry milk, and dry whey reported prices as a factor in prices or at least true wholesale price,

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not the value of the last pound of NASS prices. The Michigan Milk were calculated using a weighted
product produced. Producers Association (MMPA) average of the most recent California
Opponents of changing from NASS to comment noted that NASS ‘‘provides Department of Food and Agriculture
CME prices to compute component the broadest range of price information (CDFA) study and the Rural Business
prices included International Dairy and is representative of the product Cooperative Service (RBCS) study. A
Foods Association (IDFA), DFA, and prices realized by the dairy industry.’’ marketing cost of $0.0015 per pound is
National Milk Producers Federation In response to the recommended added to both the CDFA costs and the
(NMPF). Witnesses for these parties decision, DFA indicated that legislation RBCS costs, and the CDFA value for
argued that the NASS survey includes enacted subsequent to the return on investment is used to adjust
pricing based on a significantly larger recommended decision improved the the RBCS cost. This is generally the
volume of product than does the CME. reliability, completeness, and integrity same approach used to determine the
In the case of the nonfat dry milk of the NASS price surveys. On appropriate make allowances under
market, the table of 1999 monthly CME November 22, 2000, the Dairy Market Federal order reform, and results in
Cash Markets data from the 1999 Enhancement Act of 2000 was enacted values that differ little from the
Annual Dairy Market Statistics showed thereby authorizing mandatory and formulas adopted at that time.
that there were no sales reported for verifiable price reporting. For the calculation of the Class III
either extra grade or Grade A in the year According to the testimony in the ‘‘other nonfat solids’’ price, neither the
1999. record and a number of the briefs, CDFA nor RBCS studies included
According to a witness from IDFA, the cheese and butter sellers and buyers information on the cost of making dry
volume of cheddar cheese in the NASS look to the CME to identify the most whey. The tentative final decision
survey is equal to 26.4 percent of all current price levels. As a result, prices determined that the make allowance for
cheddar cheese production in the U.S. move in response to supply and demand dry whey should remain the same as
for the period September 1998 through conditions in the marketplace as that for nonfat dry milk. However, the
February 2000. During the same period, reflected at the CME. Since the results of a survey conducted for this
the CME volume of cheddar cheese transaction prices of commodities are proceeding under the auspices of IDFA
traded represented only 1.7 percent of based off of the CME, it is difficult to see were included in the recommended
U.S. cheddar cheese production. The how the NASS survey can cause, or decision to determine the make
witness stated that for the same 18- result in, circularity. The NASS prices allowance for dry whey.
month period, the NASS survey reflect the CME prices with a short lag A number of the proposals considered
volumes represented 14.4 percent of all but are based on a much greater volume, in this proceeding would change the
U.S. butter production while CME enhancing the stability of the price manufacturing, or make, allowances
trading consisted of only 2.6 percent. He series. Continued use of the NASS price adopted for the pricing formulas under
also noted that switching from the survey appears to be the best method of Federal order reform. There was
NASS survey data to the CME data obtaining reliable data about commodity considerable testimony on the
would result in a change from a very prices. appropriate factors to be considered in
broad to an extremely thin As stated in the final decision on establishing make allowances, and
representation of actual product Federal order reform, NASS data several sources of data were cited as the
transactions. traditionally has been collected via a most accurate to use for such a purpose.
Opponents to the proposal to use survey with voluntary participation.
Two surveys of product
CME prices also pointed out that prices manufacturing costs that were averaged
The price information, like most NASS
at the CME are Chicago or Midwest for use in calculating make allowances
data, has not been audited. NASS,
prices based on the delivery location under Federal order reform were the
however, applies various statistical
specification of the contract. Therefore, CDFA study, which is done annually
techniques and cross-checking with
they argued, the scope of the reported and includes nearly 100 percent of dairy
other sources to provide the most
prices for cheese, butter, and nonfat dry products manufactured in California,
reliable information available. The issue
milk are not national. A witness for and the RBCS study, which is
of mandatory and audited NASS data
Kraft noted that reliance on the CME conducted annually by USDA as an in-
was not within the scope of the
alone would exclude the substantial and plant benchmark study for participating
rulemaking and could not be addressed
growing volume of cheese produced in cooperative associations. These two
the western United States (U.S.), on the basis of the hearing record. At the surveys had both been updated since
particularly California. A witness for time of the hearing NASS was not earlier versions had been used in
Northwest Dairy Association suggested authorized to conduct such activities. determining the manufacturing
that a transportation credit would need As noted above, however, the Dairy allowances used in the component
to be used with CME prices, at least in Market Enhancement Act of 2000 pricing formulas adopted under Federal
the West, to reduce the value of the authorized mandatory and verifiable order reform. In addition, the National
CME to a more representative level. price reporting. Cheese Institute (NCI), an affiliate of
Opponents went on to explain that since 3. Commodity and Component Price International Dairy Foods Association
the NASS survey contains data from Issues (IDFA), contracted with a third party to
plants located all over the United States, conduct a survey of the costs of
NASS prices represent a national scope a. General Approaches on Make manufacturing cheese and whey powder
of the prices of each of the particular Allowances for use in this proceeding.
commodities. Make Allowances. Changes to the A witness for National Milk Producers
Several of the comments filed in make allowances for each of the product Federation (NMPF) stated that make
response to the tentative final decision formulas used in calculating component allowances should reflect the costs
supported use of the NASS price series prices were proposed and discussed at incurred by average plants
to determine product prices. length during this proceeding. Except in manufacturing the particular dairy
Furthermore, there were several the case of dry whey, make allowances product used in the component/Class
comments filed on the recommended adopted in the component price price formulas: butter, nonfat dry milk,
decision and they all supported using formulas in the recommended decision cheese, and dry whey. The witness went

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on to explain that the procedure used by relative to cooperative-owned plants. changes in supply and demand by their
the Department for determining the The witness explained that since fixed make allowances.
make allowances under Federal order cooperatives do not have to pay their The NFU and NFO witnesses
reform, using an average of the CDFA producers the minimum order price, as explained that a fixed make allowance,
cost of production studies and the RBCS proprietary plants are required to do, as contained in the current pricing
study, was sound and that the same cooperative plants can reduce the prices system, does not vary with market
procedure should be used as a result of paid to member producers to make up conditions and creates a situation in
this hearing, using the updated data the difference in cost. which manufacturers will not respond
from both surveys. In calculating an The IDFA witness explained further to market signals since the
appropriate make allowance, the that the problem with a make allowance manufacturers will receive a profit no
witness supported the addition of a established below the amount needed to matter what the supply and demand is
marketing cost of $0.0015 per pound to cover plant costs occurs because the for the finished products. The witnesses
both the CDFA costs and the RBCS plant sells the finished product at the testified that as long as the make
costs, as under Federal order reform, same price that is used in the formula allowance allows manufacturers a
and the CDFA value for return on for establishing the minimum price the sufficient return, the manufacturers will
investment used to adjust the RBCS plant must pay for the raw material continue to produce the finished
costs under Federal order reform. The (milk). The manufacturing allowances product even if there is limited demand
witness explained that both of these are the only place the plant has the for the product, thus resulting in a
factors should be included as they are opportunity to cover its costs, and those continued low price paid to producers
legitimate and necessary costs incurred allowances are fixed in the formula that for their milk. As a result, they argued,
in operating manufacturing plants. The determines the raw material price. producers are left to bear the burden of
witness for IDFA supported inclusion of The witness for IDFA asserted that changes in supply and demand. The
the CDFA cost studies in the there is very little risk in setting a make NFO witness characterized a variable
computation of the make allowance; allowance too high. He explained that if make allowance tied to the cost of
however, the witness stated that the the make allowance is established at a producing milk as a market-oriented
appropriate procedure for computing level above plant costs, the additional system.
the make allowance for cheese was to The NFU witness described the
revenue stream will be corrected
compute a weighted average of the California milk pricing system, in which
through market forces by requiring the
CDFA cost studies and the NCI survey. manufacturers’ production costs are
plant operators to pay competitive over-
The witness explained that the RBCS covered through the make allowance, as
order premiums to milk suppliers to
study does not include all the necessary an example of the problems
obtain an adequate supply of milk. encountered by producers with the use
costs that must be recovered in the make
A witness for WSDPTA explained that of product price formulas incorporating
allowance and that the NCI survey is
the most important part of determining make allowances. He testified that
needed to determine what the
a manufacturing allowance is to pick a California continues to produce a large
additional cost values should be. The
method and stick with that method. The quantity of lower-valued products
costs that the IDFA witness pointed
witness testified that the appropriate because the pricing system makes the
out—those which are not included in
method is to use the results of the RBCS manufacturer immune to the supply of
the RBCS survey but which are included
study with adjustments to include and demand for the products. The
in the NCI survey—are general plant
factors for marketing costs and for witness blamed the California make
administrative costs, such as the plant
capital costs. The witness pointed out allowance system for the traditionally
manager’s salary and corporate
overhead, return on investment or that use of the RBCS study is low milk prices in California that, he
capital costs, and marketing costs. appropriate because the study is claimed, result in expansion of dairy
The IDFA representative testified that voluntary and represents the costs of herds to make up for reduced cash flow.
the danger inherent in regulated prices making the particular commodities, and The witness predicted that if the Federal
is setting the manufacturing allowance the plants are geographically widely order system follows the same pricing
at a level too low to assure that dispersed. The WSDPTA witness stated path, the same production patterns as
manufacturers will be able to recover that including the results of the CDFA witnessed in California would follow in
their costs of manufacturing finished study in the computation of the make the rest of the United States.
products and to have the money needed allowance for pricing Federal order milk In comments filed in response to the
to invest in new plants. The witness is inappropriate since there is no logical tentative final decision, NFU stated that
pointed out that an inadequate make reason for considering the producers, as well as processors, will
allowance would force manufacturers manufacturing costs of plants that do fail if they don’t attain their costs of
either to move to areas that do not have not procure any of the milk that would production. NFU also argued in its
regulated pricing or go out of business. be priced using those costs. comments that under a variable make
At the very least, the witness explained, Witnesses testifying on behalf of NFU allowance, processors can avoid
the manufacturers would not invest in and NFO both supported the concept of reduced make allowances by increasing
new plants and equipment, which in the variable make allowances, in which product prices.
long run would cause a decline in the changes in dairy farmer production cost The NFU comment overlooks the fact
productivity of the dairy industry. A indexes would be used to adjust handler that the make allowances included in
number of briefs filed on the basis of the make allowances. The NFU proposal the component price formulas do not
hearing transcript emphasized the would use an average national cost of cover all of the costs of all processors,
importance of covering all handlers’ production, presumably as published by and probably allow for greater costs
costs of manufacturing and not just USDA’s Economic Research Service, than are experienced by some
average costs. and the NFO proposal would use the processors. In this sense, the margins
The IDFA witness explained that if CDFA milk production cost index. The experienced by processors under
make allowances are established at too witnesses supported such an approach product price formulas are variable
low a level, proprietary plants are as a means of addressing the problem of between plants. Also, it is likely that
placed at a competitive disadvantage manufacturers being insulated from processors share some of their margin

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with producers in the form of over order adjustment period if make allowances forced out of business.’’ Comments
prices. The degree to which this sharing were set too high, even if theoretically received from Northwest Dairy
occurs certainly may vary with greater premiums might be returned to Association and Westfarm Foods, Inc.,
producers’ cost/price situations, as producers. stated that USDA’s use of ‘‘a simple
perceived by processors. Although Several witnesses opposed the idea of average risks half the industry.’’
increased product prices would have setting make allowances at levels that This final decision finds that
the effect of increasing manufacturing guarantee plants a profit, or at least a continuing to use an average make
margins, the ability of processors to return on investment, when the dairy allowance of dairy manufacturing
increase prices while maintaining sales farmers supplying milk to the plants’ costs is appropriate. Reliance on
is limited by the fact that the manufacturing plants have no similar product-price formulas necessitates the
marketplace in which they sell their assurances for covering the costs of need to reflect and to offset the
products is competitive. producing milk. These witnesses manufacturing costs incurred and is
There appears to be no logical or pointed to the Agricultural Marketing supported by the record even though
economic reason for changing make Agreement Act of 1937, sec. 608c(18), as there is disagreement on exactly how to
allowances for processing plants justification for setting a lower make accomplish this. Using an average make
because of a change in the cost of allowance for plants, resulting in higher allowance provides a reasonable
producing milk. If milk is to clear the milk prices that would come closer to measure to reflect and offset
market, plants must be willing to accept covering dairy farmers’ costs of manufacturing costs and is the only
it. Make allowances that decline as a producing milk. reasonable measure that can be
result of increasing milk production As supported by most of the hearing supported by the record evidence.
costs would squeeze plant margins, and participants, the make allowances Although the RBCS survey does not
manufacturers will have to choose incorporated in the component price include such costs as general plant
between not receiving milk, refusing to formulas under the Federal milk orders administrative costs, return on
receive pooled milk, or paying less than should cover the costs of most of the investment or capital costs, and
order prices to cooperative associations processing plants that receive milk marketing costs, it is a survey that has
for milk used in manufactured products. pooled under the orders. In part, this been done for sixteen years with the
None of these outcomes would be in the approach is necessary because pooled same fundamental methodology and
best long-term interests of dairy farmers, handlers must be able to compete with with some continuity of participants.
processors, or consumers. Many dairy processors whose milk receipts are not Because the survey is done for the
farmers, facing increased costs of priced in regulated markets. The benefit of the participating organizations
production, would have to find principal reason for this approach, (cooperatives) to help them identify
alternative outlets for their milk. however, is to assure that the market is their costs and compare them with those
Decisions on the part of many cleared of reserve milk supplies. of their peer group, there is every reason
processors to cease operating, use only In comments on the tentative final to believe that the costs provided are as
nonpool milk, or buy milk below order decision, IDFA continued to argue that accurate as possible. In addition, the
prices likely would result in very some legitimate manufacturing costs are years of experience with the survey
disorderly conditions among dairy excluded from the RBCS survey and have enabled USDA to shape the
farmers looking for outlets for their attacked the data gathered as questions to obtain more accurate
milk. ‘‘inherently suspicious and unreliable.’’ results.
Most hearing participants agreed that IDFA also stated that the survey is not When the RBCS survey results are
the make allowance should cover the taken seriously by some of its adjusted to include the factors that were
cost of converting milk to a finished participants. Both IDFA and Leprino mentioned above as not included by
manufactured dairy product. However, Foods Company argued in comments on using the values for those factors from
several participants disagreed with the the tentative final decision that adding the CDFA survey, the two surveys’ costs
IDFA contention that there is very little factors for costs excluded in the RBCS are comparable, especially considering
risk in setting the make allowance too study constitutes a less accurate result that the RBCS survey represents
high. They argued that if the make than if those costs were included in a manufacturing plants with a wide
allowance is set in excess of the cost to comprehensive study. IDFA also distribution around the U.S., while the
manufacture finished products, the commented that the need to allow for CDFA survey includes only California
additional revenue would be kept by the changes in cost factors that might occur plants. The CDFA survey is also done
manufacturing plants as higher profits over time (such as recent increases in every year and is done according to a
and not distributed to the producers energy costs) also supports the need for published procedure manual, with the
supplying milk to the plant. They a make allowance that is too high rather costs being audited by personnel
explained that in many parts of the than one that is too low. employed by the State for that purpose.
country there is little if any competition Several comments filed on the Although no CDFA employee was
for the dairy farmers’ milk and therefore recommended decision indicated available to respond to questions about
no incentive for a plant to pay above the opposition to establishing make the conduct of the survey, official notice
minimum Federal order price. These allowances based on an average of plant was taken of the procedure manual and
plants, according to the witnesses, could manufacturing costs. Agri-Mark Dairy of California publications associated
be expected to keep the extra make Cooperative argued that using an with manufacturing cost data. In
allowance for themselves. Comments average manufacturing cost in the addition, several witnesses who are
filed by Michigan Milk Producers pricing formulas would result in half of deeply involved with the California
Association (MMPA) on the tentative all handlers having higher dairy industry testified regarding the
final decision and the recommended manufacturing costs. IDFA noted in perceived reliability of the survey
decision continued to urge caution their comments that mechanically results.
against logic that suggests a low risk of adopting a make allowance survey The use of manufacturing plant data
setting make allowances too high. The ‘‘would by definition mean that the one- from California plants that do not
cooperative stated that not all of its half of cheese produced in plants with procure any of the milk that would be
2,700 members might survive a market greater than average costs would be priced using those costs should not

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67916 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

cause concern. The costs of intended to raise concerns that A witness for Northwest Dairy
manufacturing dairy products may vary cooperative associations generally favor Association (NDA), a cooperative
slightly by region, but adoption of lower make allowances, it should be association in the Pacific Northwest,
representative make allowances in noted that only manufacturing stated that NDA’s marketing costs are
product price formulas should not fail cooperatives were surveyed. The record $0.0026 but identified costs associated
to use a well-documented study that contains ample evidence that many with the aging of cheese as included in
includes a large amount of audited data, manufacturing cooperatives desire make that number. Since the NASS survey
such as the CDFA survey. allowances just as generous as those price does not include cheese intended
In contrast to the RBCS and CDFA favored by proprietary manufacturers. for aging, the marketing allowance
surveys, the survey of cheese and whey A comment filed on behalf of the certainly should not include costs of
powder manufacturing costs arranged Association of Dairy Cooperatives in the aging cheese. The Associated Milk
for by NCI was developed solely for the Northeast (ADCNE), some of which are Producers, Inc. (AMPI), witness used a
purpose of establishing costs to be used national in scope, argued that use of the $0.0024 marketing allowance in the
in determining make allowances for this NCI data would demean the importance calculation of AMPI’s proposed make
proceeding. The survey was conducted of sworn first-hand testimony that is allowance for nonfat dry milk. The
by persons unfamiliar with the dairy subject to cross-examination. witness for Agri-Mark, Inc., a large
industry among cheese processors who As a result of the differences in Northeast cooperative association with
would benefit from the adoption of conduct of the three surveys, several processing plants, stated that
overgenerous make allowances. No one manufacturing costs used to determine Agri-Mark’s estimates of marketing costs
who actually conducted the survey was appropriate make allowances for ranged from $0.0025 to $0.005 per
made available to testify, and although cheddar cheese, butter, and nonfat dry pound.
the IDFA witness stated that survey milk in this proceeding are calculated The costs identified as those included
participants would testify regarding primarily from a weighted average of the in a marketing allowance are necessarily
their responses to the survey later in the RBCS and CDFA surveys, with a check incurred in getting a product to market
hearing, none of the participating firms’ against the NCI survey cost of and are not related to the consumer
witnesses would respond to questions manufacturing cheddar cheese. Since education and advertising activities
about their firms’ results. the record lacks any other data covered by the National Dairy Board
Although less weight must be given regarding the cost of making whey assessment. The recommended decision
the NCI survey than either the RBCS or powder, the NCI survey results are used stated that since the marketing cost
the CDFA surveys for the reasons stated for the make allowance in the other determined by NCI was the only
above, the NCI survey’s resulting solids formula. estimate included in the hearing record
manufacturing costs for cheese are not One proposal included in the hearing that was supported by a survey. It varies
considerably different from a weighted notice would have eliminated any from the $0.0015 rate included in
average of the RBCS and the CDFA marketing allowance from the make Federal order reform by only 4 one-
surveys. In fact, although the IDFA allowances, and a number of witnesses’ hundredths of a cent and applies only
hearing participants went to great testimony objected to the inclusion of to cheese and dry whey. The
lengths to discredit the RBCS study for return on investment. The American recommended decision concluded that
use in identifying an appropriate level Farm Bureau witness questioned the there was no basis for making any
of manufacturing costs, the hearing need for a marketing allowance since change to the marketing allowance.
record reflects that the NCI survey of producers already pay a 15-cent Some producer witnesses objected to
cheese and dry whey manufacturing assessment for promotion and research. the inclusion of any allowance for
costs used the RBCS 1996 survey results A brief filed by the proponent of return on investment in manufacturing
to identify outliers (plus or minus 10 eliminating the marketing allowance allowances on the basis that dairy
percent) in the study commissioned by stated that the allowance appears to be farmers are assured of no such return.
NCI. an ‘‘adjustment’’ or a ‘‘hedge,’’ since it The CDFA manufacturing cost surveys
In comments filed regarding the is not defined in the final decision in include allowances for depreciation,
tentative final decision, IDFA urged that the Federal order reform process. which is included in the non-labor
USDA use the NCI and CDFA studies for There was general agreement among processing costs; and for return on
use in determining make allowances for those testifying that a marketing investment, which represents the
cheese and whey powder rather than allowance should be included in opportunity cost of the processors’
using the RBCS and CDFA studies. manufacturing costs, but no consensus resources invested in the business.
IDFA stated that the RBCS study was about the appropriate number. Some of These costs are supported by audited
neutral and was not developed or the costs covered by the marketing data.
commissioned for use in this allowance include maintaining and Both the marketing allowance and
proceeding. Cooperative associations staffing warehouses, supporting a return on investment factors should be
attending the National Milk Producers marketing and sales staff, and included in the manufacturing
Federation annual meeting were transporting product to market, as well allowances provided in the component
encouraged to participate in the survey as accounting costs associated with the price formulas at the rates supported by
so the results could be used in this sale of products. The NCI survey the CDFA data. If processors are not
proceeding. Since the RBCS study was identified a marketing cost of $0.0011 provided enough of a manufacturing
developed and has continued for sixteen per pound of product, while the DFA allowance to market the product they
years for purposes other than witness stated that DFA’s costs were process, or to earn any return on
establishing make allowances, and the approximately $0.0018. The DFA investment, they will not continue to
methodology did not change from past witness testified that because the costs provide processing capacity for
years for the study used in the hearing, included in the activities designated as producers’ milk. At the same time, the
it is unlikely that it was designed for marketing generally fall within a manufacturing allowances incorporated
any purpose other than the one for common department under common in the formulas will not provide enough
which it was developed and has been management, it is appropriate to apply of an allowance to assure that every
used for that period. If the comment is the same allowance to each product. processor, no matter how inefficient or

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67917

high-cost, will earn a profit. Allowances Davisco Foods International, Glanbia recognition that some milk loss is
set at such a level certainly could result Foods, Inc., Winger Cheese, Inc., and inevitable in farm-to-plant movement.
in the situation warned of by producer Northwest Dairy Association and If, however, the loss exceeds the
groups in which processors manufacture WestFarm Foods (NDA) expressed allowable level, the excess shrinkage is
greater volumes of product than the concern that the Class III and IV milk priced at Class I. This ‘‘shrinkage,’’ as
market demands because they are pricing formulas offered in the discussed above, refers to milk losses
guaranteed a profit on all their recommended decision do not associated with how the order classifies
production. As a result, the only way to sufficiently address the costs incurred and pools milk. Current shrinkage
market all of the product would be to in the assembly, transportation, and provisions are associated with pool
reduce prices, with a profit to delivery of milk and its components. distributing plants that produce fluid
processors still locked in through the Kraft, Leprino, Hershey, Dairy Farmers milk products. In this context, shrinkage
make allowance, which would result in of America (DFA), and Dr. David provisions also provide fluid milk
decreasing prices paid to producers. In Barbano of Cornell University testified handlers the ability to assign milk losses
addition, manufacturers who are at the hearing as to the need to to a lower class use value within certain
assured a profit on all of their output specifically account for the losses in parameters.
would have a lesser incentive to make milk solid components that occur The loss allowances in the Class III
a sufficient quantity of milk available between moving milk from the farm or and IV formulas are intended to reflect
for fluid use—a basic goal of the Federal diverting plants and the receiving actual losses that are beyond the
milk order program. manufacturing plant. The witnesses and processing handler’s ability to control.
Farm-to-plant losses. One area comments provided testimony that In addition, farm-to-plant losses cannot
addressed by several hearing these losses are inherent in the handling be assigned to a lower class value since
participants in testimony and in briefs of milk and that this issue was the milk solids unavailable for
as appropriate to consider in inadequately addressed in the processing effectively have no value in
establishing make allowances or yields recommended decision. This final the Class III and IV formulas.
was the loss of milk components during decision finds the arguments for specific The price formulas in the
manufacturing processes. consideration of the impact of shrinkage recommended decision included typical
Two cheese manufacturers, IDFA and in the product price formula persuasive. plant losses associated with the
Land O’Lakes (LOL), continued to argue The hearing testimony as well as conversion of raw milk to the final dairy
in their comments on the tentative final comments to the recommended decision product and relied on Federal order
decision that make allowances should provide sufficient evidence to conclude reform findings that the value of Class
be increased, or yields reduced, to that the recommended decision III and IV milk would be determined
reflect shrinkage between farms and formulas do not properly consider farm- from the NASS survey prices collected
warehouses. to-plant losses that occur. Testimony on butter, cheese, dry whey, and nonfat
The tentative final decision and the indicates that these losses are 0.25 dry milk. Pricing formulas generally
recommended decision stated that percent on all milk solids, and that include both yield factors and make
orders have always provided an butterfat solid losses are an additional allowances which together account for
allowance for shrinkage and that 0.015 pounds per hundredweight of the entire conversion of raw milk to a
inflating costs of production or reducing milk. These losses need to be final dairy product. Comments received
yield factors to reflect shrinkage would represented in the pricing formula, on the recommended decision indicated
not properly reflect the value of according to these claimants, to account that milk solid losses between the farm
producers’ milk used in manufactured for the out-of-plant losses that occur and the receiving plant are real,
products. The recommended decision prior to processing raw milk into unavoidable, and common.
also stated that processing costs finished products such as cheese or Prior to Federal order reform, milk
determined by surveys underlie the butter/powder. pricing for all Federal milk marketing
manufacturing costs incorporated in the Witnesses for Kraft, Leprino, DFA, orders relied on the Grade B Minnesota-
pricing formulas and were expressed in and Hershey, among others, testified Wisconsin (M–W) price series and later
cents per pound of end product that the difference between the quantity the Basic Formula Price (BFP). These
manufactured, not in the cost per of milk, including components, received prices were determined by manufacture
hundredweight of converting milk to at the plant should be accounted for in milk plant survey reports of Grade B
manufactured products. The the price formulas, since the formulas milk purchases free of government price
recommended decision went on to state are based on yields attributable to regulation and represented a
that the component pricing formulas components received at the plant. Milk competitive pay price for milk. The
were based on the content of those unrecoverable in the movement from competitive pay price factored the entire
components in the finished products for farm-to-plant cannot yield finished cost of processing milk purchased from
which a manufacturing cost per pound product. farms into finished dairy products. In
had been established. The Comments received from Select Milk contrast to the competitive pay prices,
recommended decision concluded that Producers, Inc., and Continental Dairy Federal order reform could no longer
both the CDFA and RBCS cost surveys Products, Inc., supported the Class III rely on a competitive pay price and
allocated all plant costs to actual end and IV pricing formulas as offered in the purposefully chose NASS surveys of
products and that the yield factors in recommended decision, offering that end-product prices and sales to
the formulas referred to the amount of including an adjustment for farm-to- establish Class III and IV prices with
finished product resulting from the plant loss would cause confusion. product price formulas. Many of the
processing of a given volume of input or As indicated earlier, Federal orders plants reporting to NASS purchase large
to the amount of component present in have always contained provisions for quantities of milk from individual
the finished product. ‘‘shrinkage.’’ Since handlers have to producer cooperatives. The end-product
Comments on the recommended account for all receipts and utilization, pricing formulas developed under
decision from Kraft Foods, Inc., Leprino the shrinkage provision allows assigning reform were based in part upon the cost
Foods Company, IDFA, Hilmar Cheese a value to milk losses at the lowest to process raw milk into finished dairy
Company, Agri-Mark Dairy Cooperative, priced class, providing explicit products.

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67918 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

After reevaluation of the hearing that the cost of converting 100 pounds using differentials from the base prices.
testimony and comments, this final of milk into a finished product is not No further comments on this issue were
decision reverses the recommended significantly affected by the quantity of received.
decision by including an adjustment for finished product produced. For
b. Class IV Butterfat and Nonfat Solids
farm-to-plant losses of butterfat and example, if it costs $20 to convert 100
Prices
nonfat solids. It is necessary to include pounds of milk into 10 pounds of
such an adjustment in using end- cheese assuming absolutely no losses, Butterfat Price. This final decision
product pricing formulas for the make allowance would be $2 per continues to use the NASS price for
determining component prices. Since pound. However, if there is a loss of a Grade AA butter in calculating the
the handlers receiving milk from half pound of cheese prior to the final butterfat price to be used in Class IV,
producers pay the producers on the packaging of the cheese, only 9.5 and uses the current and the
basis of farm weights and tests, handlers pounds of cheese is ‘‘produced.’’ In this recommended decision’s make
do not receive all of the milk example, the make allowance would be allowance of $0.115. However, this final
components due to farm-to-plant losses. $2.11 per pound of finished product. decision changes the use of a 0.82
An adjustment to the price formulas to Thus the make allowance based on divisor in the price formula to a
account for the difference in milk pounds of product produced does multiplier of 1.20 in order to provide
components paid for versus components account for at least a portion of in-plant consistency to price formulas and to
actually received is appropriate. Based losses. account for farm-to-plant milk losses.
on the hearing record and comments Ratemaking. In comments received to The recommended decision
filed by numerous parties, the farm-to- the recommended decision, Kraft, continued to use the NASS price for
plant adjustment will reflect a 0.25 joined by NDA, argued that including Grade AA butter for calculating the
percent loss of nonfat solids, including make allowances in the pricing formulas butterfat price to be used in Class IV,
protein and other solids, and a 0.25 was ‘‘ratemaking.’’ Kraft stated that the and it continued to change the
percent loss of butterfat plus a 0.015 make allowances formulated and used manufacturing allowance in the
pounds loss of butterfat. These in the Class III and Class IV formulas butterfat formula by 1⁄10 of a cent per
adjustments are reasonable and are have not followed the standards needed pound of butter from the allowance
reflected in the respective yield factors to comply with ratemaking. Kraft stated used under Federal order reform. The
used for computing the milk component that the make allowances are not recommended decision also
prices. constitutionally valid because they do recommended that the 0.82 divisor in
These loss allowances are adopted not ensure that manufacturing costs the price formula be unchanged. The
into the Class III and IV pricing provide for a reasonable rate of return make allowance change is the same as
formulas. The farm-to-plant losses are for manufacturers. that included in the tentative final
reflected on the end-products that result In seeking to characterize the decision, and neither it nor the other
from Class III and IV milk, namely, provisions of make allowances in Class factors were affected by the injunction.
cheese, dry whey, nonfat dry milk, and III and Class IV pricing formulas as However, the injunction resulted in the
butter. They are reflected in this way to ratemaking, the commentors are same butterfat price formula being used
ease the concerns raised by Select Milk ignoring the unique and longstanding to value both Class III butterfat and
and Continental Dairy who indicated treatment of the milk pricing provisions, Class IV butterfat.
that reflecting farm-to-plant losses on including make allowances, in Federal Several proposals were heard that
the front-end of the product formulas milk marketing order regulations. The would reduce butterfat prices, either by
(based on farm milk) may cause make allowances in the Class III and reducing the butter price used in the
confusion. Class IV pricing formulas do not computation of the butterfat prices for
A detailed description of the constitute ratemaking despite arguments all classes or by subtracting a fixed
amendments to each of the respective that they do. The make allowances amount from the butterfat price
pricing formulas is provided below. adopted are used in establishing computed for Class IV. Proposals also
This final decision incorporates an minimum prices for milk under the were made that would change the make
adjustment to the respective yield authority and requirements of the allowance used in calculation of the
coefficients of each milk component. Agricultural Marketing Agreement Act butterfat prices. There were no
The adjustment is based on an overall and are different in kind from the proposals to change the butterfat divisor
factor of 0.25 percent loss of each milk ratemaking referred to by the of 0.82, although one witness
component and an additional 0.015 commentors. representing a western cooperative
pounds of butterfat lost between the Other issues. A comment filed by association suggested that it be
farm and the receiving plant. Lamers Dairy to the tentative final reconsidered as he felt it did not include
In-plant losses. Several handlers decision argued that using make a shrinkage factor.
commented that in-plant losses should allowances to calculate Class III and Product Price (Butter). This final
be included in the formulas used for Class IV prices but not Class I and Class decision continues to use the NASS
computing the component prices. In this II prices constitutes unequal treatment. price for Grade AA butter in calculating
regard in-plant losses represent milk The comment disregarded that make the butterfat price to be used in Class IV.
that cannot be processed into dairy allowances in the Class III and Class IV Several witnesses for proprietary
products due to the handling of milk by price calculations are used to determine processor proponents of the proposal to
the plant. This final decision does not prices for milk used in those classes, deduct six cents from the butter price
include an adjustment for in-plant and that the prices for milk used in before computing the butterfat price
losses because a manufacturing plant Classes I and II are based on those milk stated that historically the value of
has control over the magnitude of in- prices. The Class I and II prices are butterfat in the Federal milk orders has
plant losses and therefore should not be determined for the purpose of valuing been based on the price of Grade A
compensated for such losses, unlike the milk in uses that are alternatives to butter. The witnesses explained that an
farm-to-plant loss which is outside the manufacturing uses. Once the Class III equivalent price determination had been
control of the plant operator. This and IV prices have been established, the issued in 1998 (when the CME
adjustment is reflected by recognizing Class I and II prices can be calculated discontinued trading Grade A butter)

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where nine cents would be subtracted the calculated butterfat price by six butterfat price plus the applicable Class
from the Grade AA butter price for use cents, with the reduction applied to I differential.
in calculating Federal order butterfat Class IV butterfat only. Under this Contrary to the belief stated by some
prices. This equivalent price, according proposal, the computation of the witnesses, the use of the Grade AA
to the witnesses, was found to be butterfat prices for other classes would butter price for computing the butterfat
‘‘essential’’ to the continued operation not contain the six-cent adjustment. price under Federal order reform was
of the Federal milk order program. Several witnesses representing not an ‘‘oversight.’’ Trading of Grade A
Further, they argued that its adoption cooperative associations that process butter on the CME ended June 26, 1998
continued the policy of basing butterfat butter explained that butter (not by USDA, as implied in one brief,
pricing under the Federal milk orders manufacturers incur additional costs but by the CME) because the volume of
on a value below that of Grade AA when procuring cream used for Grade A butter traded was not great
butter. manufacturing butter as opposed to the enough to warrant maintaining a trading
The witnesses complained that under cost of converting producer milk to venue. One brief argued that the Grade
Federal order reform the butterfat value butter. The witnesses explained that A butter price represents a minimum
is determined by using the NASS Grade these additional costs include price, and that there is no need for
AA price of butter, which effectively transportation, additional handling, and concern that there will not be an
increases the butterfat value under additional pasteurization. The witness available market for Grade A and Grade
Federal milk orders. According to for LOL testified that the additional B butter. However, with the end of
proponents’ calculations, the increase costs amounted to 4.57 cents per pound trading in Grade A butter on the CME,
does not amount to a full nine cents but of butterfat for transportation and 0.4 there is no published (or any other
is tempered by the use of the NASS cents per pound for receiving, storing, known) source for obtaining a price for
Grade AA price, which has averaged and repasteurization. A witness for Grade A butter.
approximately three cents below the Agri-Mark stated that Agri-Mark’s The use of the Grade AA butter price
CME Grade AA price, in the butterfat transportation costs are slightly less for establishing butterfat prices is
pricing formula. Therefore, they stated, than LOL’s, probably due to the appropriate since that is the only grade
the actual increase in the butter price proximity of the Agri-Mark plant to the of butter that has significant enough
used to calculate butterfat prices is sources of cream, but that the other trading volume to warrant a publicly-
approximately six cents. According to additional costs are slightly higher than reported price. Grade AA butter prices
the witnesses, subtraction of six cents the LOL costs, at 0.5 cents per pound of are the only butter prices regularly
from the NASS butter price would butterfat. available and represent the vast majority
return the relationship between the The proponents of reducing the Class (about 95 percent) of the butter sold.
butterfat value under the orders and the IV butterfat value also referred to the Although the ‘‘multiples’’ of the butter
selling price of butter to the relationship computation of the California Class 4a price apparently had not adjusted to the
that existed prior to Federal order butterfat price, which involves a use of the Grade AA price during the
reform. subtraction of 4.5 cents per pound from first 4 months of experience under the
Several witnesses explained that the CME Grade AA butter price to adjust revised orders and probably should not
when handlers must pay for butterfat on for the costs of moving butter from the be expected to adjust during the period
the basis of the Grade AA butter market west coast to the Midwest. in which this proceeding is under
they cannot then sell cream or finished Those parties who favored reducing consideration, the marketplace should,
products at a price that would allow the butter price before using the in time, make the needed adjustments.
them to recover their costs. They butterfat price formula to calculate any Various witnesses estimated that
testified that cream is sold at a price that of the butterfat prices disagreed Grade A and Grade B butter combined
is termed a ‘‘multiple’’ of the butter vehemently with the proposal to reduce make up 3–7 percent of the butter in the
price, and that the multiples used when only the Class IV butterfat price. They U.S. Although a witness noted that the
the butterfat price was calculated from argued that such a reduction would Minnesota-Wisconsin (M–W) price for
the Grade A butter price have not distort the relationship between the non-Grade A milk continued to be
adjusted to the new pricing formula Class II and Class IV prices, resulting in surveyed even after the percentage of
using Grade AA butter. a greatly-increased price for Class II milk eligible for the survey had fallen
The IDFA witness pointed out that the butterfat in relation to Class IV butterfat. below a 5 percent level, it was widely
IDFA proposal to subtract six cents from Specifically, the projected increase in recognized for some time that a pricing
the NASS Grade AA butter price would the Class II–Class IV butterfat price alternative to the M–W must be found
apply not only to the butterfat formula difference was cited as 6.7 cents per because the M–W eventually would no
for Class II, Class III, and Class IV but pound (from the current difference of longer provide a representative price for
would apply to the advance butterfat 0.7 cents). These parties argued that a large volume of unregulated milk.
formula used for computing the Class I butterfat values would most Similarly, with the decline of Grade A
butterfat price. The witness testified that appropriately be reduced by the same butter (and the unavailability of prices
by applying the same formula to all degree in all classes. for that product), the only alternative
classes of butterfat, the current The price to be used for butterfat in available for determining price is Grade
relationship between the class prices Class III and Class IV should be AA butter. A finding in the equivalent
would be maintained. The witness computed by subtracting a make price determination that a Grade A
contended that there is no justification allowance of 0.115 dollars per pound butter price was ‘‘essential’’ to
for changing the relationships between from the monthly average NASS Grade continued operation of the orders
the class prices, particularly if the AA butter price and dividing the result referred solely to the fact that the Grade
adjustment would widen the class price by 0.82 since 1.2213 pounds of butter A price was specified in all of the orders
spreads or, in effect, increase the Class can be made from 1 pound of butterfat. at that time, not that the butterfat value
I and Class II differentials. The Class II butterfat price should under Federal milk orders could never
Witnesses for NMPF and several large continue to be the Class IV butterfat be based on any other price.
cooperative associations testified in price plus 0.007 cents, while the Class Making an adjustment to a clearly
support of NMPF’s proposal to reduce I butterfat price will be the advance valid price series to approximate a price

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67920 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

series that has been discontinued for high cost group, and with a marketing incurring an additional loss of 0.015 per
several years due to insufficient volume allowance of $0.0015 added to both sets 100 pounds of milk. The butterfat price
for trading is inappropriate. Comments of data, the weighted average of the two formula is determined as follows:
to the tentative final decision from IDFA data sets is $0.115. This butter • For every pound of butterfat, 0.0025
and Schreiber Foods continued to manufacturing allowance was very close pounds is lost in the farm-to-plant
encourage the use of an estimate of the to the Federal order reform allowance of transfer (1.000¥0.0025 = 0.9975).
discontinued Grade A price series for $0.114. As adopted in the tentative final • In addition, for every pound of
the current formulas. Since it has been decision, the make allowance of $0.115 butterfat, there is an additional 0.0150
about four years since a publicly-traded continues to represent the costs of farm-to-plant loss on butterfat solids
price for Grade A butter has been making butter in plants that serve a (0.9975¥0.0150 = 0.9825 pounds of
available, it is impossible to determine balancing function. butterfat).
what the current difference between The increased costs of making butter, • Dividing 0.9825 by 0.82 results in a
these prices would be because there are not including transportation, cited by butterfat factor of 1.20 (0.9825/0.82 =
no reports of the Grade A price the proponents of reducing the butterfat 1.20).
available. The vast majority of butter price are expected to be included in this • Therefore, the Class III and IV
made and sold in the U.S. is Grade AA, manufacturing allowance, which butterfat value per pound is computed
and that is the appropriate product to exceeds the low cost group in the CDFA as follows:
which to base a value of butterfat used survey by 3 cents per pound. The only (NASS butter price ¥0.115) × 1.20
in producing butter. class of use for which adjustments for This final decision chooses to
The 3-cent average difference between transportation have regularly been multiply the NASS butter price by 1.20
the CME and NASS butter prices makes included under Federal order regulation instead of dividing the NASS butter
up 2⁄3 of the 4.5-cent adjustment made is Class I. Assuring that the order price by 0.82. This change in the
by CDFA in calculating the value of provides an allowance for moving milk formula from division to multiplication
butterfat used in butter. An additional 6 used in manufactured products would is made to simplify and provide
cents deducted from the butterfat price interfere with provisions designed to
calculated from the NASS price would consistency in the pricing formulas used
assure an adequate supply of milk for for all milk components and includes an
much more than make up the remaining fluid use.
1.5-cent difference. Also, the 4.5-cent allowance for farm-to-plant losses.
Comments to the recommended Although one witness suggested that
CDFA adjustment is made for the decision from IDFA again encouraged
purpose of reflecting the cost of moving the divisor in the butter price formula
lowering the Grade AA butter price by that reflects the butterfat content of
butter from California to Chicago. The subtracting six cents from the NASS
butterfat price calculated under the butter be reconsidered, he did not
Grade AA butter price before computing indicate any number more appropriate
Federal order program is not intended to the Class III and Class IV butterfat
apply to only one state. The NASS price than the 0.82 divisor used in the current
prices. IDFA added that if the Grade AA formula. There was no other testimony
is a nationwide survey and likely butter price was not reduced then the
includes a significant representation of in the record questioning the butter
make allowance should be increased by content factor. In fact, the only data in
California butter prices. If there are 4.5 cents.
additional costs involved in making the record applicable to the issue was a
For the same reasons as stated above CDFA report on butter and powder
butter, they would more appropriately in response to comments on the
be included in the make allowance for yields at California plants in 1996 that
tentative final decision and the was included in an exhibit. This report
butter. recommended decision, this final
Make Allowance (Butter). This final shows a 1.2213 weighted average butter
decision will continue to use the NASS yield (1 pound of butterfat results in
decision continues to use the current Grade AA butter price to compute the
and the recommended decision’s make 1.2213 pounds of butter), which
ClassIII and Class IV butterfat price. corresponds to the use of the 0.82
allowance of $0.115. The make Yield (Butter). As discussed above,
allowance factor in the butterfat price divisor.
this final decision provides an The record does not support adoption
formula should be derived from a
allowance for butterfat lost in moving of a Class IV butterfat price that is not
combination of the manufacturing costs
milk from the farm to the processing reflected directly in the Class II butterfat
determined by CDFA and by RBCS, as
plant. In response to the recommended price. There was testimony from several
they were in the tentative final and
decision, numerous Class III and IV witnesses that the current Class IV–
recommended decision. The CDFA cost
processors provided comments Class II price relationship is rational and
data is divided into two groups
expressing concern that the Class III and appropriate, and an adjustment to the
representing high cost and low cost
IV milk pricing formulas did not allow Class IV butterfat price that is not
butter plants, with the four plants in the
for general and common losses reflected in the Class II butterfat price
high cost group manufacturing, on
associated with the assembly, would disrupt the current relationship.
average, about the same average number
of pounds of butter as the seven plants transportation, and delivery of milk and In addition, it would seem reasonable
in the RBCS study. Use of the data for its components. The record supports that some of the extra costs claimed by
the CDFA high-cost group of butter concluding that the Class III and IV butter manufacturers, such as
plants is more appropriate than use of butterfat losses from the farm-to-the transportation costs for supplemental
the weighted average cost for all of the plant be computed as follows: cream supplies, butterfat
California plants because it is more Class III & IV Fat Loss = (Fat Pounds × standardization of outside cream
likely that the high-cost plants, like the 0.0025) + 0.015 sources, and additional pasteurization
plants in the RBCS survey, serve a The loss allowance for butterfat will would be as applicable for Class II
predominately balancing function. be reflected by adjusting the 0.82 divisor manufacturers of high-fat products
When the RBCS data is adjusted for in the butterfat price formula. using surplus cream as for butter
packaging cost, general and Testimony and comments indicate that makers. Accordingly, reduction of the
administrative costs, and return on farm-to-plant losses on all milk solids is Class IV butterfat price only is not
investment with the CDFA data for the 0.25 percent (0.0025) with butterfat considered appropriate.

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This final decision modifies the Class continued use of a weighted average of either of the other two California
III and IV butterfat price formula as the CDFA and the RBCS manufacturing groups.
follows: cost surveys, with inclusion of a The AMPI cost numbers cannot be
(NASS AA Butter Price ¥0.115) × 1.20 marketing allowance and the CDFA included in the weighted average since
Class IV Nonfat Solids Price. This factor for return on investment. NMPF the number of pounds of NFDM
final decision maintains the use of the proposed that the NFDM make associated with those costs is not
allowance be $0.140 per pound. available. When the AMPI marketing
NASS survey price reported for nonfat
Southeast Dairy Farmers Association allowance and return on investment
dry milk and maintains the make
also proposed that the RBCS survey be estimates are replaced with the more
allowance of 14 cents per pound of
used to determine a make allowance for moderate numbers used in the make
nonfat dry milk as indicated in the
NFDM, but did not propose that a allowance calculation, the AMPI
previous decisions issued in this
marketing allowance be included. The manufacturing costs do not differ much
proceeding. This final decision also
necessity of including a marketing from the other two sources. This is true
changes the divisor from 1 to 0.99 in
allowance was discussed in the despite the wide discrepancy in the
order to account for farm-to-plant losses
recommended decision. capacity utilization percentage estimates
of nonfat solids and to simplify and
Associated Milk Producers, Inc. for the two data sets (80 percent for the
provide consistency to price formulas. AMPI plants versus less than 50 percent
Nonfat milk solids in buttermilk are (AMPI), proposed that the NFDM
manufacturing allowance be increased for the plants in the RBCS survey).
removed from the computation of the Inclusion of the AMPI costs in the RBCS
Class IV nonfat solids price. from $0.137 to $0.1563 per pound, a rate
based on AMPI’s cost of making NFDM survey would have included a larger
The tentative final decision representation of NFDM manufactured
eliminated the 1.02 divisor in the nonfat at its own three plants in the Upper
Midwest over a 5-year period. The outside California. However, the record
solids price formula to reflect the indicates that a high percentage of the
incorporation of dry buttermilk (with a AMPI witness stated that in addition to
a processing and packaging cost of NFDM manufactured in the U.S. comes
lower product price and higher make from California and the proportion of
allowance). $0.1254, the make allowance should
include a marketing allowance of cost data representing California in the
Six proposals to change some part of manufacturing allowance is reasonable.
the nonfat solids price formula were $0.0024 and return on investment of
‘‘Yield’’ (Nonfat solids). This final
considered at the hearing. Three of the $0.026, for a total allowance of $0.1538
decision adopts changes to the Class IV
proposals dealt with the manufacturing per pound, modified from the level
nonfat solids formula in order to
allowance for nonfat dry milk (NFDM), proposed in the hearing notice. The
account for farm-to-plant losses, more
with two of the proposals advocating witness testified that the three AMPI accurately reflect the value of the nonfat
use of the RBCS survey results and one plants operate at approximately 80 milk solids in nonfat dry milk and
proposal supporting an increase in the percent of capacity. buttermilk powder, and provide
make allowance. The other three No comments were filed that simplification and consistency to the
proposals supported changes in the specifically addressed the adopted make milk price formulas.
yield factor of the nonfat solids price allowance for use in the nonfat solids The tentative and recommended
formula that would reflect greater price. decisions included buttermilk solids in
powder yield from a pound of nonfat On the basis of the data and testimony the value of nonfat milk solids.
solids. Two of the proposals to change included in the hearing record, the However, a reevaluation of the Class IV
yield factors included using CME NFDM manufacturing cost level that appears to nonfat solids pricing formula finds that
prices instead of the NASS survey. As be most appropriate for use in the recognizing a minimum value for
discussed in the recommended pricing formula for nonfat solids is buttermilk powder does not materially
decision, the product prices used in the $0.14 per pound. This value is affect the Class IV skim milk price.
component pricing formulas will calculated by using a weighted average Record evidence indicates that the price
continue to be obtained from the NASS of the RBCS survey and the two less- of buttermilk powder can be a low of 70
survey. cost California groups of plants, adding percent of the nonfat dry milk price for
Product Price (Nonfat dry milk). This the CDFA General and Administrative the same period. In addition, according
final decision maintains the use of the costs and Return on Investment to the record, the make allowance of
NASS survey price reported for nonfat expenses for those two groups to the buttermilk powder is an additional 2
dry milk. No proposals were considered RBCS numbers, and adding a $0.0015 cents per pound higher than the nonfat
that would have changed the product marketing allowance to both sets of dry milk make allowance. Official
price used in the nonfat solids price data. The basis for using the two lower- notice of weekly Dairy Product Prices
formula, and the record contains no cost groups of California plants is that published by the National Agricultural
basis for making any change in this the mid-cost group is of a similar Statistics Service for January 2000
formula factor. average size as the group included in through May 2002 is hereby taken.
Make Allowance (Nonfat dry milk). the RBCS survey, and that the lowest- Copies of Dairy Product Prices can be
This final decision maintains the make cost California group has a very similar located at the Web site: http://
allowance of $0.140 per pound of nonfat total cost to the mid-cost group. These www.usda.mannlib.cornell.edu/reports/
dry milk as indicated in the previous three groups of plants (the RBCS plants nassr/price/dairy/.
decisions issued in this proceeding. At and the two California groups) are Using the 2-cent higher make
the time the hearing notice was issued, similar enough in size and cost to allowance for buttermilk and prices for
the most recent RBCS data were not consider as fairly representative, and nonfat dry milk and buttermilk powder
available, and those costs were not should encompass those plants that for the period of January 2000 through
specified in the proposals. By the time perform a market balancing function. May 2002 it was determined that the
the hearing was held, however, the The highest-cost California group effect of including buttermilk powder in
RBCS data had been released and were should not be included since its average the nonfat solids price and the Class IV
included in the information introduced cost is more than ten cents per pound skim milk price was negligible.
at the hearing. NMPF supported of NFDM above the RBCS group or Therefore, this decision eliminates the

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67922 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

consideration of nonfat solids that end NFDM to compensate for the fact that witness for other products were
up in buttermilk powder from the Class some of the powdered product made somewhat higher than those supported
IV nonfat solids pricing formula. from Class IV milk is buttermilk powder by the bulk of the hearing record, it is
According to the Economic Research (BMP). Although 1.03 to 1.05 pounds of reasonable to consider the extra cost of
Services publication Weights, Measures, NFDM generally can be obtained per manufacturing BMP to be generally not
and Conversion Factors for Agricultural pound of nonfat solids, the formula also more than 2 cents in excess of the cost
Commodities and Their Products, recognizes a lower value and higher of manufacturing NFDM. In addition, it
nonfat milk solids in dry buttermilk are manufacturing cost for BMP. is difficult to justify increasing the
0.0479 pounds per pound of nonfat milk Several witnesses correctly assessed powder make allowance for all of the
solids and are calculated as follows: an alternate solution to the dilemma of powdered product represented in the
• For every pound of dry buttermilk calculating a component price from two make allowance since the RBCS witness
there are 0.919 pounds of nonfat milk commodities with different prices and testified that manufacturing costs of
solids. different make allowances as one BMP manufactured at the plants
• Assuming a dry buttermilk yield of requiring addition of dry buttermilk as included in the RBCS survey are
0.0521, the nonfat milk solids that end another component price in the Federal included in the powder costs reported
up in dry buttermilk are 0.0479 pounds milk order pricing system. As described by RBCS.
per pound of nonfat dry milk solids by at least one witness, such an Testimony regarding actual yields of
(0.919 × 0.0521 = 0.0479). undertaking would require adding dry NFDM and BMP were provided by only
The Class IV nonfat milk solids price buttermilk to the NASS price survey, one witness representing a
can therefore be calculated as follows: determining a separate make allowance, manufacturing plant operator. The
• For every pound of nonfat milk and calculating a yield factor. This numbers provided, while not complete
solids (nfms), 0.0025 pounds is lost in procedure would be a burdensome enough for an exact accounting of the
the farm-to-plant transfer. undertaking for very little benefit, since ultimate disposition of the plant’s
• One pound of nfms minus the farm- dry buttermilk represents only about 5 receipts of producer milk, indicate
to-plant loss of 0.0025 equals 0.9975 percent of the dry products resulting strongly that the approximate loss of
pounds of nfms at the plant. from the manufacture of butter and nonfat solids used in the manufacture of
• For every pound of nfms, 0.0479 nonfat dry milk. The issue that remains NFDM at the specific plant was 3
pounds of these solids end up in dry is how best to reflect the value of nonfat percent, with 16 percent lost in the
buttermilk powder. solids used in both NFDM and BMP in manufacture of BMP, for a combined
• 0.9975 pounds of nfms minus the the same component pricing formula. weighted average loss of more than 3.5
0.0479 pounds of solids in dry The IDFA witness testified that for the percent of nonfat solids. In comparison,
buttermilk equals 0.9496 pounds of 19-month period beginning with data published by the State of California
nfms in the form of nonfat dry milk. September 1998, the Central States’ dry showed a weighted average loss of
• Since each pound of nonfat dry buttermilk price had averaged $0.798 solids not fat of 2.13 percent in the
milk contains 96.2 percent nfms (3.8 per pound, while the Central States’ manufacture of butter and powdered
percent moisture) then, 0.9496/0.962 = ‘‘mostly’’ price for NFDM averaged products.
0.9871 (rounded to 0.99) $1.043. The LOL witness similarly The California data indicate a
Therefore, the Class IV nonfat milk testified that the 1999 Northeast weighted average powder yield of
solids price per pound is computed as ‘‘mostly’’ price for NFDM averaged 1.0252 pounds of NFDM and BMP from
follows: $1.0389, while the BMP price was 1 pound of nonfat solids. One witness
$0.7686 per pound. On the basis of discounted this data by observing that
(NASS nonfat dry milk price—0.14) × these numbers, it would appear that the the ‘‘high’’ California yield was reported
0.99 price of BMP is roughly 75 percent that as 1.0406, which would represent a
A considerable portion of the of NFDM. However, comparison of BMP higher-than-allowable moisture content.
testimony dealing with the nonfat solids and NFDM prices for the years of 1996 This number may be influenced by the
pricing formula pertained to the 1.02 through 1999 and into 2000 reflects a ‘‘high’’ reported BMP yield of 0.0749.
divisor. The divisor is not strictly a more complex relationship between As noted above, the general
yield factor but is intended to reflect the these prices than the hearing testimony impression conveyed by testimony in
amount of nonfat solids in NFDM, with would indicate. The BMP price as a the hearing record, that BMP is worth
an adjustment for the small amount of percentage of the nonfat dry milk price considerably less than NFDM and that
buttermilk powder that is made in (using Western prices) was 100.9 the cost of processing it is significantly
conjunction with the manufacture of percent in 1996, 94.5 percent in 1997, greater than that of processing NFDM, is
butter and NFDM. Testimony by a 88 percent in 1998, and 71 percent in misleading. The average BMP price over
number of witnesses asserted that the 1999. During the first third of 2000, the period 1996–July 2000 is
product price minus the make BMP prices generally averaged less than approximately 87 percent of the NFDM
allowance should be either multiplied 70 percent of NFDM prices. As the year price, and the cost of manufacturing
by a number greater than 1 (such as 2000 progressed, however, the BMP is, on the basis of the information
1.02) or divided by a number smaller percentage increased, being at levels up available, no more than 2 or 3 cents in
than 1 (such as 0.99 or 0.975) to reflect to 100 percent in late July and excess of the $0.14 recommended as the
the fact that more than 1 pound of remaining above 85 percent for the NFDM make allowance.
NFDM can be expected to be second half of the year in all areas. The following information from the
manufactured from 1 pound of nonfat The witness representing Agri-Mark hearing record was used to determine a
solids due to the moisture content of stated that Agri-Mark employees multiplier or divisor for the total nonfat
NFDM. engaged in manufacturing operations solids pricing formula that would result
Many of the hearing participants had estimated that the costs of in a minimum price for nonfat solids
supported the 1.02 divisor, adopted producing BMP range from 1 to 3 cents while incorporating the data and
under Federal order reform, and more per pound than those of producing testimony in the record about the
expressed understanding of the NFDM. Given that the manufacturing manufacture of NFDM and BMP. To
approach of adjusting the ‘‘yield’’ of costs estimated by the Agri-Mark assure that the result represents a

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67923

minimum price, the low or high areas of pricing, no more than 70 percent of the solids used in Class IV and resulted in
ranges of numbers related to the NFDM value should be assumed for the 3–4 cents less per pound of nonfat
manufacture of these two products were BMP price and that 3 cents should be solids (over a NFDM price range of
used. The CDFA report on butter and added to the BMP make allowance $0.86–$1.10) than the value that would
powder yield in California plants in instead of 2. IDFA also indicated that be calculated if the formula attributed
1996 was used in making some of the the formula should include shrinkage. all of the Class IV skim value to NFDM.
calculations regarding this factor. NDA and LOL criticized the use of the The Agri-Mark comment emphasized
a. The price of BMP represents California yield data in determining the that the ratio of BMP to NFDM milk
roughly 80 percent of the price of NFDM comparative yields of NFDM and BMP, considered in the nonfat solids price
(80 percent is less than the average both because some of the data reflected calculation should be calculated on the
historical relationship of these prices information that included powder with basis of the butterfat content in Class IV
over the past 5 years). higher-than-allowable moisture and because butterfat surplus to Class I use
b. The cost of manufacturing BMP is because no witnesses who had is used in butter. The Agri-Mark
not more than 2 cents greater than the participated in the survey were present comment observed that the butterfat
make allowance for manufacturing to testify about it. LOL criticized percentage of milk used in Class IV in
NFDM. USDA’s use of Western prices rather the Northeast over a 3-month period
c. Using a theoretical yield of 1.03 than the Northeast and Central prices averaged 5.67 percent.
pounds of powder containing 3 percent quoted by witnesses who discussed the Even if the national average of
moisture made from milk containing relative values of NFDM and BMP. butterfat in Class IV (6.4 percent) is used
8.62 percent nonfat solids would result Comments filed by Agri-Mark to determine the breakdown between
in 0.054 pounds of BMP and 0.976 protested elimination of the 1.02 nonfat solids used in BMP and nonfat
pounds of NFDM. divisor, arguing that USDA relied on a
d. Adjusting the theoretical yield of solids used in NFDM, less than 0.8
casual remark about the difference pounds of nonfat solids out of the 8.4
1.03 pounds to the minimal yield of between the cost of manufacturing BMP
1.01 pounds (the ‘‘low’’ yield in the contained in a hundredweight of Class
and NFDM rather than on detailed cost IV milk at 6.4 percent butterfat should
CDFA report) and prorating the BMP information as in the other make
and NFDM to 1.01 pounds instead of to be attributed to use in BMP. In effect,
allowances. Agri-Mark also stated that the price of each of the 8.4 pounds
1.03 pounds, the amount of BMP the role of Class IV in balancing surplus
manufactured from a pound of nonfat would be reduced by 3–4 cents. Such a
cream from Class I use increases the calculation results in 25.2–33.6 cents
solids used in butter/powder is ratio of BMP to NFDM over that
approximately 0.053 pounds. When the per hundredweight of milk containing
calculated from an assumption about
NFDM yield is prorated, the resulting 6.4 percent butterfat to cover the
uses of the nonfat solids in producer
minimum yield is 0.957 pounds. additional costs of making 0.8 pounds of
milk.
Using a NFDM price of $1.03 per Criticism of use of the Western BMP BMP and the lower value of 0.8 pounds
pound, a make allowance of $0.14 cents and NFDM price series to analyze the of BMP compared to the NFMP
per pound of NFDM, and a divisor of 1, relative values of BMP and NFDM in the manufacturing cost and price. A 3-cent
the resulting calculation is: $1.03 – tentative final decision did not consider additional cost per pound of
$0.14 = $0.89 per pound of nonfat the fact that the Western price (mostly) manufacturing 0.8 pounds of BMP
solids. The same result is achieved series is the only one with an would equal 2.4 cents, and a 25-percent
through a more complicated calculation uninterrupted data series for the five reduction of the BMP value from that of
using both product prices and make years considered. In addition, the NFDM would equal approximately 20
allowances, as follows: percentage of the NFDM price cents. These calculations would still
Buttermilk powder: represented by the BMP price for the leave 2.8–11.2 cents per hundredweight
to cover any additional costs of making
($1.03 × 0.80) – $0.16 = $0.664 Western region was lower during each
$0.664 × 0.053 = $0.03519 + Nonfat dry of the years 1996–2000 than for the and selling BMP over those of NFDM.
milk: Central region; and very similar, with The recommended decision noted
$1.03 – $0.014 = $0.89 some years averaging higher and some that the additional 3 cents per pound
$ 0.89 × 0.957 = $0.85173 lower, to the Northeast region. Criticism cost of making BMP is on the high end
$0.88692 (Rounded to $0.89) of the CDFA yield data ignores the fact of the information in the hearing record,
On the basis of this analysis, no that the yield factors used in the initial and that the 25 percent reduction in
multiplier or divisor would be necessary analysis for the tentative final decision value of BMP compared to NFDM is on
in this formula (same as a multiplier or adjusted the relative ‘‘weighted average’’ the low end. It was also noted that over
divisor of 1). yields of BMP and NFDM to the ‘‘low’’ the past 5 years, only during the period
A number of comments were filed in yield. cited by witnesses testifying about the
response to this aspect of the tentative The hearing record contains enough relative values of BMP and NFDM and
final decision, with some supporting the information on the issue of the relative during the first 4 months of 2000 had
use of a divisor of ‘‘1,’’ two comments weights, values, and costs of the BMP price as a percentage of the
suggesting that a divisor of 1.01 would manufacturing NFDM and BMP to NFDM price fallen below eighty
be more appropriate (but one support the conclusion reached in the percent. It was also mentioned in the
determining that such a change would tentative final decision about the recommended decision that calculations
not be possible on the record of this appropriate divisor in the nonfat solids assumed that all of the nonfat solids not
proceeding), and several insisting that price formula. The 0.96 divisor used in NFDM were used in BMP,
the above analysis is flawed by use of considered in the proposed rule on whereas some are used in whole milk
incorrect or inappropriate data and that Federal order reform represented the powder, which has a higher value than
the divisor should be returned to the pounds of nonfat solids in NFDM rather either NFDM or BMP.
1.02 level in effect before January 1, than the yield of nonfat dry milk from In considering all of the above
2001. nonfat solids. Use of the divisor of 1 discussion, the record supports the
The IDFA comments stated that, in recommended in the tentative final finding that this final decision’s
the interest of establishing minimum decision accounted for all of the nonfat incorporation of a Class IV nonfat dry

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67924 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

milk yield factor of 0.99 is appropriate. valued Class IV forms of butterfat for recommended at 38 percent moisture
The formula is as follows: use in cheese-making. Others stressed and a 3-cent addition to the barrel price.
((NASS nonfat milk solids price–0.14) × the difficulties created by the decision Several proposals included in the
0.99 in marketing cream. Several hearing notice would, if adopted, have
commenters argued that the shift in changed the NASS cheese price used in
c. Class III Butterfat, Protein, and Other value from protein to butterfat caused the Class III pricing formulas. One
Nonfat Solids Prices by the decision did not make sense in proposal would limit the cheese prices
In a change from the orders light of the importance of protein in included to 40-pound blocks reported
promulgated under the Federal order cheese-making, and that the reduced by the CME, while another would add
reform process, the tentative final protein price would send incorrect 640-pound blocks to the prices surveyed
decision calculated a Class III butterfat economic signals to dairy farmers. One by NASS for inclusion in the cheddar
price from the value of butterfat in particular concern was the potential cheese price. A third proposal would
cheese rather than using the butterfat significant reduction in the Class I skim replace the current 3-cent price
price calculated from the value of butter value if the Class III price at 3.5 percent adjustment between 500-pound barrel
for both Classes III and IV. The Class III butterfat became the mover for the Class prices and 40-pound block prices to a
butterfat price in the tentative final I price. value that reflects the actual differential
decision was calculated to represent the Based on comments received, this industry cost of making 40-pound
value of the component in the NASS final decision determines that the Class blocks over 500-pound barrels. Still
cheddar cheese price, as was a revised III butterfat price be the same as the another proposal would adjust 40-
protein price formula. Class IV butterfat price, calculated from pound block cheese prices for moisture,
Before the interim final rule became the value of butterfat in butter. In as 500-pound barrel prices are adjusted.
effective on January 1, 2001, several addition, the portion of the protein price As discussed above in Issue 2, CME
petitions were filed requesting the formula that adjusts the protein price to commodity prices should not be used as
Secretary to delay implementation accommodate the differential value of the basis for calculating component
because industry participants objected butterfat in cheese, as opposed to butter, prices. Eliminating 500-pound barrels,
to the effects of the separate Class III will continue to be incorporated into the which represent approximately two-
butterfat price. protein price formula. The technical thirds of the cheese represented in the
Implementation could not be stayed corrections to the protein price formula NASS survey, from calculation of the
because of the Congressional deadline made in the recommended decision to market value of cheddar cheese would
on the rulemaking procedure, and make the protein price correlate reduce greatly the degree to which the
partial implementation was not possible somewhat more closely with the cheese current product prices represent U.S.
because the interim final rule had been price are adopted in this final decision. cheddar cheese prices. The record of
approved by producers in its entirety. The tentative final decision made this hearing provides no support for
Before the separate Class III and Class IV only one modification to the relying solely on prices for 40-pound
butterfat prices could become effective, specifications of the cheese price, blocks to identify a market price of
implementation of the separate butterfat currently a weighted average of the cheddar cheese.
prices was enjoined in the Federal prices of cheese sold in 40-pound blocks Several parties testified that the NASS
District Court for the District of and 500-pound barrels (with a 3-cent weighted average cheese price should
Columbia at the urging of organizations addition to the barrel price). That include the value of 640-pound block
representing most of the interests in the change, to adjust the price of 500-pound cheese in the cheese price computation.
dairy industry. The Court’s order barrels to 38 percent moisture instead of They contended that such inclusion
returned the price formulas for the Class the 39 percent moisture price currently would improve the reliability of the
III components to their earlier forms, reported by NASS, is continued in this average cheese price by adding a
with the new make allowances and final decision. Also, as in the tentative substantial quantity of cheese to the
cheese moisture adjustment final and recommended decisions, this price survey. Witnesses’ estimates of the
incorporated. final decision reduces the make percentage of U.S. cheddar cheese
By the end of the comment period on allowance for cheese from $0.1702 to production represented by 640-pound
the tentative final decision, comments $0.165 per pound. blocks ranged from 20 to 27 percent.
representing nearly 100 interested As proposed in the recommended Witnesses testified that the increased
parties from most segments of the decision, the other nonfat solids price volume would better reflect the true
industry were received that objected to adopted in this final decision will value of cheese and additionally would
separating the Class III and Class IV continue to be calculated by subtracting reduce the potential for price distorting
butterfat prices and reducing the level of the make allowance from the NASS- manipulation by individual handlers.
the protein price. The comments urged reported price for dry whey. However, In comments filed on the tentative
USDA to continue to calculate the Class the result will now be multiplied by final decision, IDFA stated that USDA
III butterfat price on the basis of the 1.03 instead of dividing by 0.968. In had erred by excluding 640-pound
value of butterfat in butter, and return addition, the recommended make blocks. IDFA reiterated the argument
to the Class III price formula formats in allowance of 15.9 cents per pound of that 640-pound blocks represent as
use before effectuation of the interim dry whey is also adopted. much as 27 percent of total cheddar
final rule. Class III Product Price (Cheese). As cheese production. Furthermore, the
Several reasons were given for proposed in the recommended decision, comment noted that past data-collection
rejecting the change to Class III this final decision continues to utilize problems are irrelevant because ‘‘all
component prices based on the the NASS cheese price survey as a basis participation in NASS surveys regarding
contribution of butterfat and protein to for determining a value for protein in data used to calculate federal order
cheese yield. Numerous commenters computing a Class III milk price. The minimum prices is now mandatory.’’
cited the negative effects of a marked NASS 40-pound block price will IDFA concluded that the argument that
increase in the cost of milk for use in continue as presently used. In addition, 640-pound blocks should not be used
high-fat cheeses and the incentive the NASS 500-pound barrel price will due to their being made on a custom
created for handlers to substitute lower- continue to be used as previously basis to customers’ specifications is not

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67925

valid because adjustments can be made, they argued that there is no difference cheese prices from May 1995 through
as they are for moisture in barrel cheese. in packaging costs between block and December 1999 are not valid because of
Opponents to inclusion of the 640’s in barrel cheese. artificial market distortions. Leprino
the cheese price computation explained The witness for DFA, a cooperative stated that valid relative price data is
that the vast majority of 640’s are made that manufactures cheese packaged in available only for calendar year 2000,
on a custom basis to customers’ both 40-pound blocks and 500-pound during which the average spread is 1.54
specifications and therefore are not barrels, testified that three cents is an cents. Leprino continued, in its
sufficiently uniform to have a standard acceptable and reasonable spread comment, that the price spread between
identity. One witness noted that much between blocks and barrels and that blocks and barrels does not move in
of the commerce in 640’s is made on a there is no compelling reason to change lock-step because it is affected by many
long-term contractual basis and as such the three-cent addition to the barrel factors, and will continue to be driven
would rarely be reflective of changing price. The witness for LOL testified that by current market forces.
market conditions. the three cents is an appropriate In comments to the recommended
The Association of Dairy Cooperatives difference between blocks and barrels decision, Kraft reiterated their position
in the Northeast (ADCNE) comments on and that adding three cents to the barrel that at equal moisture tests of 38
the tentative final decision reiterated price when computing the weighted percent, the appropriate value to add to
USDA’s position, stating that ‘‘the cheese price is an appropriate the barrel price is 1-cent. In comments
market in 640-pound blocks of cheddar adjustment. DFA and ADCNE argued, in to the recommended decision, Glanbia
cheese does not involve sufficient a brief filed on behalf of both parties, stated that the difference in cost of
buyers and sellers in arms-length that the record supports a conclusion production between blocks and barrels
transactions to provide good data to that the 3-cent adjustment of the barrel is $0.008 per pound of cheese at their
establish the Class III price for producer price is attributable to volume utility plant. In comments received to the
milk in all federal milk orders.’’ As and cost differences in packaging and recommended decision, DFA and Select
stated in the tentative final decision, handling. indicated that the 3-cent adjustment is
standardized pricing cannot be The National Cheese Institute, which the correct adjustment to the barrel
developed without a standard identity proposed reducing or eliminating the 3- price.
for the product, which 640-pound cent adjustment, argued that the The record contains no basis for
blocks lack. In addition, there appears to adjustment should include only the concluding that the actual cost of
be an insufficient volume of 640-pound actual cost differences involved in manufacturing and packaging the two
block cheese transactions to warrant manufacturing and packaging the two sizes of cheese is not the historical 3-
inclusion. At the beginning of the NASS sizes of cheese. Although a number of cent price spread. In fact, during the
survey, price data for 640-pound blocks witnesses representing cheese period September 1998 through June
was collected but was discontinued due manufacturers testified in favor of 2000 the difference between the block
to lack of volume and too few reducing or eliminating the adjustment, and barrel prices has been 4.4 cents per
participants to allow disclosure of data. including one whose employer makes pound. The record supports maintaining
Even earlier (1995–96), the former both sizes of cheddar, none of them the 3-cent addition to the barrel cheese
National Cheese Exchange attempted to addressed the actual cost differences of price.
include trading in 640-pound blocks but packaging and manufacturing 40-pound An expert witness, and several other
discontinued doing so because of lack of blocks and 500-pound barrels. Instead, witnesses, testified that the moisture
interest. Testimony from witnesses the only testimony that was offered content of the cheese used for
representing organizations that involved attributing a 2-cent difference determining the NASS cheese prices
manufacture cheese in 640-pound to the moisture-adjusted value of the and the moisture content used in the
blocks, and who favored inclusion of two sizes of cheese packages. In Van Slyke cheese yield formula used for
such product in the NASS survey, stated comments responding to the tentative computing the ‘‘yield’’ coefficients in
that the 640-pound blocks manufactured final decision, ADCNE argued that the the protein formula should be the same.
by their organizations are used 3-cent adjustment is representative of The witnesses explained that failure to
internally, making that cheese ineligible the historical difference in market value align the formula and the moisture
for inclusion. Therefore, even though between barrel cheese and block cheese content represented by the cheese price
price reporting is now mandatory, 640- after adjustments for moisture. survey would result in overstating or
pound blocks of cheese do not meet the If the difference between the block understating the formula coefficients.
criteria necessary for the prices of these and barrel prices were due to the The expert witness explained that the
products to be eligible for inclusion in difference in moisture, the difference barrel cheese price is reported at 39
the NASS survey. between the prices should widen as the percent moisture after being adjusted
Elimination or reduction to one cent cheese price increases since the from the actual moisture, while the
of the three-cent adjustment that is moisture adjustment is based on the block cheese price is reported at an
added to the barrel price for computing price and moisture of the cheese. An unknown moisture level. The only
the weighted average cheese price was analysis of historical cheese prices testimony dealing with the actual
advocated in testimony at the hearing, indicates that the difference between the moisture level of block cheese indicates
comments contained in post-hearing block cheese and barrel cheese prices that it averages about 38 percent.
briefs, and comments responding to the does not change with changes in price The coefficients originally used for
tentative final decision. The witnesses level. In fact, three of the largest determining the Class III protein price
argued that since the barrel cheese price differences between the block and barrel and the Class III butterfat price and used
is adjusted to 39 percent moisture and prices occurred at approximately the 40- in the formulas in the recommended
block cheese is approximately 38 month NASS weighted average monthly decision were derived from using the
percent moisture, at least 2 cents of the prices. Van Slyke cheese yield formula at 38
observed difference in price between 40- In comments filed by Leprino Foods percent moisture. Therefore, it is
pound blocks and 500-pound barrels is Company (Leprino) on the tentative appropriate to use cheese prices that
due to moisture and has nothing to do final decision, Leprino argued that reflect cheese containing 38 percent
with actual differences in costs. In fact, comparisons of the block and barrel moisture. The current practice of using

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67926 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

the 40-pound block cheese price surveys conducted by RBCS and CDFA costs, return on investment, and general
unadjusted for moisture and the 500-lb and testimony from individual plant and administrative expenses. A
barrel price adjusted for moisture operators; that it should include discussion of these expenses is included
should be continued, but with the barrel California data, as California plants earlier. Neither the CDFA nor the RBCS
price adjusted to 38 percent moisture represent a large proportion of cheese survey included a marketing cost, so the
instead of 39. manufacture; and that it should be $0.0015 marketing allowance was added
In several comments on the tentative generous enough to assure adequate to both studies. In addition, the CDFA
final decision, commenters stated that plant capacity for continued return on investment cost of $0.0103
the 38-percent moisture adjustment to manufacture of cheese. and the general and administrative
the barrel price requires an adjustment The witness representing NCI testified expense of $0.0190, both of which were
to 1 cent and not 3 cents for the price that the cheese make allowance should included in the CDFA weighted average
spread between 500-pound barrels and be no less that $0.1687, the weighted cost, were added to the RBCS study,
40-pound blocks. Other interested average of the NCI-sponsored and CDFA which included neither factor. The
persons filed comments supporting both surveys with the addition of a marketing resulting adjusted costs for each survey
adjustments. DFA argued in its cost of $0.0011. He stated that such an are $0.1708 for CDFA and $0.15996 for
comment that eliminating either allowance would represent the RBCS. A weighted average of the two
adjustment should result in use of only production of 24 cheese plants and 53 studies was computed using the
40-pound block cheese prices. percent of U.S. cheese. Several cheese respective adjusted make allowances
The hearing record provides no basis manufacturer representatives supported and the pounds of cheese reported in
for altering the composition of cheese use of the NCI-supported make each study—466,396,548 for the CDFA
prices surveyed for use in the Class III allowance, stressing the importance of study and 633,142,812 for the RBCS
pricing formulas or for changing the adoption of an allowance that covers all study—to arrive at the Class III price
calculation of the NASS weighted of the costs of manufacturing cheese. make allowance of $0.165.
average cheese price, other than the A witness representing Farmers In a comment filed in response to the
moisture adjustment to 38 percent for Union and the American Farm Bureau tentative final decision, NFU stated that
500-pound barrels. witness both supported adoption of a the reduction in the cheese make
Several witnesses testified that types make allowance of $0.1521, as a allowance should have been greater
of cheeses other than cheddar should be weighted average of RBCS and CDFA than $0.0052, but that the cooperative
included in the NASS price survey as a data; and a witness for National Farmers could support an increased make
more comprehensive basis for Organization supported a make allowance if it were tied to producer
identifying a cheese price, although allowance of $0.141 composed of the cost of production and market price
such a proposal was not included in the RBCS cost with the addition of a through implementation of a variable
hearing notice. The cheddar cheese marketing allowance and return on make allowance. The $0.165 make
included in the NASS survey meets investment. allowance is based on actual costs
certain standard criteria that makes Although ADCNE, in its comments on discovered by two surveys, the conduct
prices for the reported cheese sales the tentative final decision, supported of which were open to review in the
comparable. If the survey included other the use of California data as compiled hearing record, and is very close to the
descriptions of cheddar and other types and audited by a state agency, ADCNE results of another that was conducted in
of cheese, such as mozzarella, it would disagreed with inclusion in the cheese a somewhat less accessible manner.
not be possible to consider the reported make allowance of the CDFA ‘‘general There is no basis in the record for
price as representative of the value of and administrative expense’’ item, adopting a lower make allowance and,
any particular product. Further, the which added 1.9 cents per pound to the as discussed earlier, no acceptable
manufacturing costs surveyed are, to a make allowance. ADCNE described this rationale for implementing variable
great extent, limited to the costs of allowance as ‘‘generous, to say the make allowances.
processing cheddar cheese. least,’’ as it represents $2–$3.5 million Class III Butterfat Price. As discussed
Class III Make Allowance (Cheese). As for the newest, largest, and most in the introductory portion of the Class
in the tentative final and recommended efficient cheese plants, and stated a III price section of the recommended
decisions, this final decision reduces preference for having some basis in decision, the Class III butterfat price
the make allowance for cheese from testimony before building that sort of adopted in the tentative final decision
$0.1702 to $0.165 per pound. Several expense level into plant costs at the was changed by a court injunction to be
proposals to adjust the manufacturing expense of minimum producer prices. the same as the Class IV butterfat price.
allowance for cheese were included in The general and administrative This final decision continues to
the hearing notice and considered at the expense was one of the cost factors calculate butterfat prices for all classes
hearing. The NMPF witness testified included in the CDFA weighted average based on the value of butterfat in butter.
that the organization had determined cost study, but not in the RBCS study. The order will refer to both the Class III
that the most appropriate cheese make Therefore, it must be added to the RBCS and Class IV butterfat prices as ‘‘the
allowance would be a weighted average data to make the two cost studies butterfat price,’’ as it did previously.
of the updated RBCS and CDFA surveys, comparable. The tentative final decision was based
with addition of a marketing allowance. The make allowance used for on the observation that market
Thus, the NMPF supported adoption of computing the Class III protein and distortions occur due to using the Class
a cheese make allowance of $0.1536 per butterfat prices, $0.165, was determined IV butterfat price calculated from the
pound of cheese. Several witnesses by combining the CDFA plant survey value of butterfat in butter to also
representing cooperative associations with the RBCS survey. As was pointed represent the value of butterfat in cheese
supported the NMPF $0.1536 proposal out by several witnesses at the hearing, (Class III), and trying to incorporate the
but also would have included a cost several cost factors that are necessary to difference in value in the protein price.
factor for return on investment. One maintain the viability of processing Analysis shows that there is very little
witness testified that the make plants are not represented in one or both relationship between the cheese price
allowance should be based on data from of the RBCS and the CDFA studies. and either the current butterfat price or
actual plant operations through the These cost factors include marketing the current protein price.

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67927

As a result, instances have occurred This formula eliminated the following decisions. However, if 78 percent is a
when the protein price declines while, butterfat adjustment portion of the more appropriate factor to use as the
at the same time, the cheese price is earlier protein price formula: appropriate value for casein retention,
increasing. This outcome is contrary to +{[(NASS weighted average cheese then the first method yields a 1.37 yield
the concept of pricing components on price ¥0.165) × 1.582] ¥[the butterfat factor. The 1.32 factor was used in the
the basis of the value of the products in price]} × 1.28 protein price formula in the Federal
which they are used. The same inverse This butterfat adjustment portion of order reform proposed rule and in the
price scenario has affected the butterfat the formula represents the difference five Upper Midwest markets beginning
price, with occurrences in which the between the value of butterfat used in in January 1996 to compute the protein
Class III butterfat price increases cheese and the value of butterfat used in price prior to Federal order reform. The
because the butter price has increased butter. The butterfat adjustment portion 1.32 yield factor generally has been
while the cheese market has been became unnecessary when the Class III accepted as an appropriate factor to use
declining. butterfat price was calculated from the for computing a protein price.
When the final decision on Federal
Although reflection of the value of a value of butterfat in cheese in the
order reform was issued, the protein
manufactured product in the prices for tentative final decision.
Reconsideration of the protein price computation was changed to
the milk components that are compute the protein price on the basis
instrumental in the yield of that product formula in light of the determination
that there should be only one butterfat of true protein rather than crude
would require that the Class III protein protein, which had been the basis for
and butterfat prices be tied more price for Class III and Class IV resulted
protein price computations in the past.
directly to their value in cheese than the in the following recommended protein
As in determining the 1.32 factor,
result obtained from the Federal order price formula:
certain assumptions were made to arrive
reform price formulas, that outcome [(NASS weighted average cheese price at the current 1.405 yield factor. The
cannot be accomplished on the basis of ¥0.165) × 1.405] + ({[(NASS weighted 1.405 factor was computed based on the
this hearing record. However, any average cheese price¥0.165) × assumption that milk testing 3.3 percent
distortion between the Class III butterfat 1.582]–[the butterfat price × 0.9]} × crude protein has an equivalent true
and protein prices and the cheese price 1.17). protein test of 3.1 percent. The
should be ameliorated partially by the Leprino, in response to the tentative relationship between crude protein and
following changes included in the final decision, urged that the 1.405 true protein was based on the results of
protein formula. factor used to reflect the yield effect of laboratory testing of producer milk for
one pound of protein in milk be reduced both crude and true protein. The
Protein price. The protein price in this to 1.367 because the 1.405 factor
final decision is changed from the resulting percentage change in protein is
assumes that true protein contains more 1.0645 (3.3⁄3.1), which was then
recommended decision by changing the casein (83.3 percent) than is supported
1.405 factor to 1.383 to reflect an multiplied by 1.32 to arrive at 1.405. In
by testimony in the record (82.2–82.4 addition, use of the 1.405 yield factor
adjustment for farm-to-plant losses and percent).
to reflect a change from a 0.8325 casein when pricing true protein results in a
The hearing record contained much protein value equivalent to use of the
factor to a casein factor of 0.822 based discussion of the derivation of the 1.32
on a reevaluation of the hearing record 1.32 factor in pricing crude protein.
cheese yield factor per pound of crude Regardless of which procedure is
and comments filed in response to the protein used to determine the 1.405 used, assumptions must be made with
recommended decision. In addition, the cheese yield factor per pound of true regard to the various factors used in the
butterfat yield coefficient is changed protein. Two explanations of the factor formulas. These assumptions directly
from 1.582 to 1.572 to reflect the farm- were advanced. The first involved affect the outcome of the factors used in
to-plant butterfat losses. The remainder assumption of 75 percent casein the protein formula and the resulting
of the protein price formula is retention, 90 percent butterfat retention, protein price and value. Since use of the
unchanged. and 38 percent moisture content in the 1.405 factor resulted in an equivalent
The tentative final decision on the cheese. Holding butterfat and moisture protein value to use of 1.32—and there
hearing record for this proceeding constant and changing the protein was no testimony or comments filed
derived formulas for calculating a Class content by 0.1 results in a 0.1318 that the 1.32 factor was not
III butterfat price and a protein price (rounded to 0.132) pound change in the appropriate—there was no reason to
that considered only the contribution of cheese yield, or a one percent change in change the 1.405 cheese yield factor in
each of those components to cheese protein results in a 1.32 pound change the recommended decision.
yield and resulted in a 100 percent in cheese yield. The second method Leprino argued that the appropriate
correlation with the cheese market. assumes 78 percent casein retention, 90 casein recovery should be 82.3 percent
Therefore, the individual factors in the percent butterfat retention, and a 38 which, when using the second
portion of the earlier protein price percent moisture content in the cheese. procedure above with a 2.99 true
formula that adjusted the contribution In this second method the cheese yield protein level, would result in a factor of
of protein to cheese yield to account for is computed using a 3.2 percent protein 1.388. However, the majority (2⁄3) of the
differences in value between butterfat and zero butterfat. The resulting cheese difference between 1.405 and the 1.367
used in cheese and in butter and yield is divided by 3.2 to arrive at 1.316 factor advocated by Leprino accounts
accounted for much debate in the pounds of cheese per pound of protein. for shrinkage between the farm and the
hearing record were not considered in The 1.316 was rounded to 1.32. Given cheese vat. The issue of including
any detail. these particular assumptions, both shrinkage as an additional make
methods resulted in the same answer— allowance or yield factor in the
The protein price formula resulting
1.32. A witness for National All Jersey calculation of component prices was
from the tentative final decision took
testified that the second method is the discussed in the tentative final decision
the following form:
appropriate procedure and was the one and was determined to be inappropriate
(NASS weighted average cheese price used to compute the 1.32 yield factor in at that time. Eliminating shrinkage from
¥0.165) × 1.405. past Federal order protein price the 1.367 protein factor resulted in a

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67928 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

factor close to the recommended to-plant losses within the Van Slyke 1.17). The recommended decision
decision’s 1.405. The recommended cheese yield computation in order for it concluded that a 1.17 (or lower)
decision also stated that using the to accurately determine the value of butterfat-to-protein ratio assured that
second procedure and a 82.95 casein Class III farm milk. the value adjustment for butterfat in
recovery, which an expert witness This final decision finds that good butter to the value of butterfat in cheese
testified was equivalent to the 78 reason exists to provide for (included in the protein price formula)
percent casein recovery used for crude incorporating farm-to-plant loss would account for the total value of
protein, and a true protein test of 3 allowances into the Van Slyke cheese butterfat in producer milk.
percent, which was equivalent to the 3.2 yield formula for determining the Class Comments received in response to the
percent used in the second procedure, III milk price. As explained earlier in recommended decision from NMPF,
the protein factor would have been this final decision, the record supports Select, Leprino and others supported
1.3997, again, not significantly less than a finding that such losses are 0.25 the use of the 1.17 butterfat-to-protein
the recommended decision’s 1.405. percent on all milk solid components ratio in the protein price formula. This
Testimony from other parties also stated and that butterfat losses are fractionally final decision continues to use the 1.17
that the 1.405 was appropriate and higher. Butterfat losses are an additional factor.
should be continued. Based on the 0.015 pounds on top of the 0.25 percent
farm-to-plant loss. When farm-to-plant This final decision uses the following
hearing record, comments filed in variables in the Van Slyke formula for
response to the hearing and tentative losses are incorporated into the Van
Slyke cheese yield formula, the Van computing the protein and butterfat
final decision, and the analysis prior to yield factors used for computing the
the recommended decision, it was Slyke formula results in the protein
price factors from which the Class III protein price:
determined that there was no
protein price is derived. 1. Butterfat at the farm: 3.50 pounds
justification for reducing the 1.405
The Van Slyke formula as proposed per hundredweight.
cheese yield factor.
under reform and in the recommended 2. Protein at the farm: 2.9915 pounds
Comments received from Leprino, decision utilized a casein-to-protein per hundredweight.
IDFA, Kraft, NDA and others explained ratio of 83.25 percent or 0.8325.
that the recommended decision did not 3. Butterfat retention: 0.9.
Comments received on the
correct what these parties considered as recommended decision indicated that 4. Casein to true protein ratio: 0.822.
errors in the protein price formula. With the cheese industry considers 82.2 5. Moisture: 38 percent.
regard to the protein price computation, percent casein as a reasonable and For illustration purposes how the Van
the parties argued that the percentage of appropriate reflection of milk Slyke cheese yield formula has been
casein in true protein used in the Van composition nationally. An expert relied upon since Federal order reform
Slyke formula was too high. They were witness testified that the casein from is provided below for ease in comparing
of the opinion that since the Van Slyke true protein ranges between 0.822 and the adopted changes to previous
formula is generally used to analyze in- 0.824. In this regard, according to formulas.
plant efficiencies, an adjustment needs Leprino, ‘‘The Hearing Record contains
to be made for applying the formula to The Van Slyke Formula Used Under
clear evidence regarding milk
milk priced on farm weights and tests. Order Reform
chemistry * * * that true protein
Leprino, commenting on behalf of contains 82.20 percent casein.’’ • Cheddar cheese pounds attributable
cheese processors, stated that, ‘‘In order This final decision finds that using a to butterfat = ((0.9 × 3.5) × 1.09)/(1–0.38)
to properly adopt the Van Slyke formula casein percentage of 82.2 is appropriate. = 5.5379 pounds of cheddar cheese
for use in setting milk price The 0.822 is at the lower end of the • Cheddar cheese pounds attributable
policy * * * it is critical to understand range indicated by the expert witness to protein = ((0.8325 × 2.9915) ¥0.01 )
the context for its use.’’ Leprino further and is appropriate for use in ×1.09/(1–0.38) = 4.2025 pounds of
commented that the Van Slyke formula determining minimum Federal order cheddar cheese
is commonly used by the industry to prices. This casein-to-protein ratio is
measure in-plant operational included in the Van Slyke formula for • Cheddar cheese pounds attributable
performance, namely, product yield. determining the Class III protein to standard farm milk =
Leprino expressed the importance of formula factors. In addition, this final
including an allowance in the Van Slyke decision computes the protein yield 5.5379 pounds of cheese from
formula for farm-to-plant shrinkage. factor by dividing the cheese yield butterfat
Leprino stated that ‘‘The Van Slyke attributable to protein by the protein +4.2025 pounds of cheese from
yield formula can be used to determine test. This method is consistent with protein
cheddar yields of milk measured at the record evidence and, according to
farm, but only if component losses comments received in response to the 9.7404 total pounds of cheese
[farm-to-plant] are accounted for. recommended decision, is superior to from standard milk
Although the Van Slyke yield formula using the additional cheese yield that • Cheddar cheese yield contribution
was developed to measure production occurs when additional protein is per pound of fat at farm = 5.5379
efficiency starting at the vat, the yield added. This results in reducing the pounds of cheddar/3.5 pounds of fat at
formula can still be useful in 1.405 factor in the protein price formula farm = 1.582
determining the yield of farm level milk. to 1.383. The computation of 1.383 is
However, if the Van Slyke formula is to shown later in this discussion. • Cheddar cheese yield contribution
be used for this purpose, component As was proposed in the recommended per pound of protein at farm = 4.2025
losses prior to the vat must be decision, this final decision adopts a pounds of cheddar/2.9915 pounds of
accounted for to accurately reflect the butterfat-to-protein ratio of 1.17. The protein at farm = 1.405
composition of milk actually entering recommended decision proposed a fat- • Protein pounds in standard milk =
the vat.’’ Nine other comments to-protein ration of 1.17 that was based 3.1 × 0.965 = 2.9915
supported Leprino’s position on the upon the fat-to-protein ratio of standard • The butterfat-to-protein ratio factor
need to include an allowance for farm- milk at the dairy farm (3.5/2.9915 = used under reform was a fixed 1.28

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67929

The Van Slyke Formula as Proposed • Cheddar cheese yield contribution recovery factor reflects results from
Under the Recommended Decision per pound of protein at farm = 4.1369 many cheese vats installed prior to the
pounds of cheddar / 2.9915 pounds of late 1980’s.
• Cheddar cheese pounds attributable
protein at farm = 1.383 The recommended decision stated
to butterfat = ((0.9 × 3.5) × 1.09)/(1–0.38)
• Cheddar cheese pounds from that even though many cheese makers
= 5.5379 pounds of cheddar cheese standard farm milk = may be able to achieve a higher fat
• Cheddar cheese pounds attributable retention in cheese, the use of the 1.582
to protein = ((0.8325 × 2.9915) ¥0.01 ) factor representing 90 percent fat
×1.09/(1–0.38) = 4.2025 pounds of 5.5004 pounds of cheese from
standard farm butterfat recovery in cheese continued to be
cheddar cheese appropriate. The recommended decision
• Cheddar cheese pounds attributable +4.1369 pounds of cheese from
standard farm protein also stated that as a result of the 90
to standard farm milk = percent level, butterfat in cheese was
9.6615
total pounds of cheese not overvalued, and those cheese
5.5379 pounds of cheese from from standard farm milk makers who fail to recover more than 90
butterfat percent of the fat would not suffer a
+4.2025 pounds of cheese from • The butterfat-to-protein ratio factor
competitive disadvantage. The
in this final decision is 1.17 and is
protein preponderance of the record indicates
derived by dividing the farm butterfat
that most cheese manufacturers should
9.7404 total pounds of cheese by the farm protein (i.e. 3.5 pounds of
be able to obtain a 90 percent butterfat
from standard milk butterfat / 2.9915 pounds of protein =
recovery.
1.17). In testimony at the hearing and
• Cheddar cheese yield contribution The results of the above computations
comments filed on the tentative final
per pound of fat at farm = 5.5379 yield the following protein price
decision the issue was raised of whether
pounds of cheddar/3.5 pounds of fat at formula:
the butterfat adjustment portion of the
farm = 1.582 ((NASS cheese price ¥0.165) × 1.383) + protein price formula in which the
• Cheddar cheese yield contribution (((NASS cheese price ¥ 0.165) × value of butterfat in butter is subtracted
per pound of protein at farm = 4.2025 1.572) ¥(butterfat price × 0.9)) × 1.17 from the value of butterfat in cheese is
pounds of cheddar/2.9915 pounds of As stated in the recommended based on equivalent amounts of
protein at farm = 1.405 decision, since all of the butterfat used butterfat. The 1.582 factor represents 90
• The butterfat-to-protein ratio factor in Class III is to be priced on the basis percent recovery in cheese of one pound
proposed under the recommended of its value in butter, an adjustment of butterfat used in its manufacture,
decision was 1.17 and was derived by must be made to account for the while the butterfat price represents the
dividing the butterfat in standard milk difference in butterfat values between value of one pound of butterfat used to
by the protein in standard farm milk (i.e. cheese and butter. The butterfat make butter. Clearly, subtracting the
3.5 pounds of butterfat/2.9915 pounds adjustment portion of the protein price value of a pound of butterfat in butter
of protein = 1.17). formula is the method chosen for from the value of 0.9 pounds of butterfat
The Van Slyke Formula Used in This making that adjustment. The first part of in cheese reduces the actual value of
Final Decision the butterfat adjustment portion of the butterfat used in cheese. Therefore, the
protein price formula calculates the value of butterfat used in butter should
• Cheddar cheese pounds attributable value of butterfat in Cheddar cheese be reduced by 10 percent in this
to butterfat = ((0.9 × 3.5) × 1.09 / (1 ¥ using the Van Slyke formula, assuming calculation.
0.38) = 5.5379 pounds of cheddar a 90 percent recovery of butterfat in the Comments received from Select,
cheese finished cheese. The resulting cheese NMPF, LOL and National All-Jersey
• Cheddar cheese pounds lost due to yield factor attributable to butterfat is a (NAJ), in response to the recommended
the 0.015 farm-to-plant butterfat loss = multiplier of 1.582. Testimony in the decision, supported the use of the factor
((0.9 × 3.5) × 1.09 / (1 ¥ 0.38) = 0.0237 hearing record and comments on the resulting from multiplying the butterfat
pounds of cheddar cheese, 5.5379 ¥ tentative final decision urged adoption price by 0.9 prior to subtracting the
0.0237 = 5.5142 of cheese after farm-to- of different multipliers in the butterfat butterfat price from the value of
plant loss. adjustment portion of the protein price butterfat in cheese. NAJ was of the
• Cheddar cheese pounds lost due to formula that represents the effects of opinion that the 0.9 adjustment is
the 0.25 percent solids loss on fat solids butterfat on cheese yield. Suggestions to appropriate in that it recognizes that
= 5.5142 pounds of cheese from increase the butterfat recovery factor of only ninety percent of the butterfat is
butterfat × (1 ¥ 0.0025), 5.5142 × 0.9975 1.582 (to 1.6 or 1.617) were made by retained in cheese. Select explained that
= 5.5004 pounds of cheese from farm DFA; Select, Elite, et. al; and National using an adjustment to the value of
butterfat All-Jersey, Inc. These commenters relied butterfat in cheese (the 0.9) provides an
• Cheddar cheese yield contribution on hearing testimony that butterfat important factor for correcting the
per pound of fat at farm = 5.5004 recovery in cheddar cheese generally relatively low butterfat retention in
pounds of cheddar / 3.5 pounds of fat ranges between 90 and 93 percent, cheese, but maintained that the butterfat
at farm = 1.572 although Kraft testified that their retention factor should be larger. LOL
• Cheddar cheese pounds attributable butterfat recovery is lower. The supported the addition of the 0.9 factor
to protein = ((0.8220 × 2.9915) ¥ 0.01) commenters favored use of a factor that and indicated that it represented a more
× 1.09 / (1 ¥ 0.38) = 4.1473 pounds of reflected 91 or 92 percent fat recovery consistent margin across a wide range of
cheddar cheese because that level of recovery is butter and cheese prices.
• Cheddar cheese pounds lost due to common. In a comment filed by Opponents to the use of the 0.9
the 0.25 percent solids loss on protein Leprino, the cheese manufacturer urged adjustment factor to the butterfat value
solids = 4.1473 pounds of cheese from that the 1.582 factor not be increased, as included Leprino, Kraft, IDFA, and the
protein × (1 ¥ 0.0025) for farm-to-plant any increase would exacerbate the Wisconsin Cheese Makers Association
loss = 4.1473 × 0.9975 = 4.1369 pounds overvaluation of whey fat in the current (WCMA). These parties instead favored
of cheese from farm protein formula and because the 90 percent using a 0.95 factor. They explained that

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67930 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

not all of the butterfat attributable to the record and numerous comments filed, drying whey relative to the cost of
0.9 factor is represented in whey cream, most milk delivered by producers has a drying nonfat dry milk.
but rather is lost in the handling fat-to-protein ratio less than 1.28. The hearing included several
process. They were of the opinion that In a number of the comments filed in proposals that would change the dry
the portion that is lost in the handling response to the tentative final decision, whey or other solids price formula by
process should be accounted for in the commenters argued that this factor changing the make allowance. Although
protein price by using a factor of 0.95. should be reduced—to 1.22, 1.19, or the hearing notice included a proposal
They explained that butterfat in whey 1.17—to better reflect the fat-to-protein to use the CME average dry whey price,
cream is overvalued in the Class III ratio in producer milk. The factor, the proponent withdrew support for the
pricing formulas and that sweet cream which originally appeared in a comment proposal when it became apparent that
is worth approximately 40 cents more filed early in the Federal order reform the CME has no cash exchange market
than whey cream. In addressing this process as 1.20, was calculated by for dry whey. The NASS survey that
difference in value, the commenters dividing 1.582 by 1.32. When the currently is being used to identify
suggested subtracting 2-cents from the change was made from crude protein to commodity prices has included price
butterfat adjustment portion of the true protein, 1.20 was multiplied by data on dry whey since September 1998.
protein price formula. 1.0645 to reflect that change, becoming There were no proposals to change the
As explained in the previous 1.28. The recommended factor of 1.17 in 0.968 yield factor in the other solids
discussion on shrinkage, this final the protein price formula represented a price formula. The 0.968 factor reflects
decision makes a purposeful adjustment minimum value for the ratio of butterfat the solids content of dry whey, given a
for farm-to-plant milk losses, but not for to true protein in producer milk. Its use 3.2 percent moisture content.
in-plant losses. The use of the 0.9 factor assures that the value adjustment for As explained earlier in this decision,
is more appropriate than a 0.95 factor butterfat in butter to butterfat in cheese an adjustment factor for farm-to-plant
since the Van Slyke formula uses a 0.9 included in the protein price formula losses on all milk solids is 0.0025.
butterfat retention factor for computing accounts for the full amount of butterfat Application of this loss adjustment to
the cheese yield attributable to butterfat. in producer milk. the other solids price computation
The aforementioned adjustment for The Alliance of Western Milk formula is as follows:
farm-to-plant loss is also contained in Producers argued in a comment filed in • One pound of dry whey minus
the butterfat factor (1.572) used for response to the tentative final decision 0.0025 farm-to-plant solids loss equals
computing the protein price, as well as that the Class III component price 0.9975 pounds of dry whey.
an adjustment for farm-to-plant losses in formulas adopted in that decision • Since each pound of dry whey
the Class III butterfat price. It would not would lead to disorderly marketing and contains 96.8 percent milk solids,
be appropriate to include additional provide an incentive for processors to 0.9975 is divided by 0.968 to equal a dry
reductions in the protein price for seek alternative sources of butterfat, whey factor of 1.03.
butterfat losses. This finding is also resulting in negative effects on producer • Therefore, the Class III dry whey
supported by testimony by several income. The Alliance favored a return to price per pound is computed as follows:
witnesses indicating that whey cream is the Federal order reform Class III (NASS butter price ¥ 0.159) × 1.03
often returned to the cheese vat for use component price formulas, but
in cheese making, thus increasing the The other solids formula divisor is
suggested that a snubber to prevent the converted to a multiplier to simplify
value of whey cream above the value of butterfat value adjustment to the protein
whey cream used for whey butter, and provide consistency with the other
price from becoming negative would formulas contained in this final
which is not accounted for in the
mitigate the potential for undervaluing decision.
protein formula.
As stated in the recommended protein under the formula. Make Allowance (Dry Whey). This
decision, testimony at the hearing and This final decision concludes that the final decision continues to use a dry
analysis of the relationship between the Class III protein formula to be adopted whey make allowance of 0.159 as
current cheese, butterfat, and protein is as follows: contained in the recommended
prices revealed that the current Class III ((NASS Cheese decision.
pricing formulas cause inequities in Price ¥0.165) × 1.383) + Since the most recent CDFA and
producer payments based on the ((((NASS Cheese RBCS cost surveys did not include costs
relationship between producers’ Price ¥0.165) × 1.572) ¥ for drying whey, there is no information
butterfat and protein tests. The (Class III & IV Butterfat from those two studies to use for
inequities were attributed to the use of Price × 0.9)) × 1.17) computing the dry whey make
the 1.28 factor used in the portion of the Class III—Other Nonfat Solids price allowance. A witness from NMPF
protein price formula that is designed to (Dry Whey). As discussed above, this suggested using the nonfat dry milk
incorporate the butterfat value of milk final decision provides a loss allowance manufacturing cost allowance for dry
used in cheese that is not already for the other solids lost in moving milk whey since both products involve
accounted for by the Class III and IV from the farm to the processing plant. similar processing equipment and then
butterfat price. Such a factor is This loss is reflected in the Class III dry adding $0.01 per pound to reflect the
necessary to reflect the fact that there is whey formula by adjusting the 0.968 additional energy and higher equipment
more than one pound of butterfat in divisor for farm-to-plant losses. The costs incurred in drying whey. Since the
cheese for every pound of protein. The divisor is also converted to a multiplier make allowance for nonfat dry milk
record supports a conclusion that when in order to provide simplification and adopted under the tentative final
the price of butter increases, the price consistency in the price formulas. decision is $0.140, this procedure
paid for milk used in cheese and for As proposed in the recommended would result in a dry whey make
milk delivered by producers will decision, the manufacturing allowance allowance of $0.150. DFA proposed a
decline if the milk has a fat to protein for dry whey is increased from the 14 dry whey make allowance of $0.1478
ratio of less than 1.28, and decline at a cents per pound adopted in the tentative per pound based on costs at its plant at
more rapid rate than that at which the final decision to 15.9 cents per pound Smithfield, Utah. The plant is a cheddar
butter price increases. According to the of dry whey to reflect a higher cost of block plant running throughout the year

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67931

that condenses and dries whey from the tentative final decision, and ADCNE/ to 0.159. They based their opposition on
cheese manufactured in this Smithfield DFA supported not using the NCI lack of credible evidence.
plant only. The DFA costs include both survey on the manufacturing cost of dry The comments opposing the
direct and indirect costs, and return on whey. IDFA, Leprino, and Northwest recommended decision’s increase to the
investment and marketing cost data. Dairy Association advocated adoption of dry whey make allowance are not
A witness from Western States Dairy a dry whey make allowance of at least persuasive. This final decision
Producers Trade Association, et al. 15.92 cents per pound, the level concludes that the NCI-commissioned
(WSDPTA) testified that there is no determined in the NCI survey. These study should be utilized in the absence
reason to change the other solids price comments cited testimony in the record of other studies or direct evidence of the
computation from the current formula, that the cost of drying whey is as much total cost of drying whey. This final
and that it is a necessary component of as 2.6 cents greater than that of drying decision adopts the $0.159 make
the cheese pricing formula. He noted skim milk, a calculation that would allowance as proposed in the
that the use of dry whey as a commodity result in a make allowance of 16.6 cents. recommended decision.
is correct and that the 0.968 factor in the Kraft favored adding a value reflecting Snubber/Other Solids Price. The
pricing formula reflects 96.8 pounds of the reduced value of butterfat in whey tentative final decision snubbed the
solids in 100 pounds of dry whey. to the whey make allowance and other solids price at zero. Thus, if the
Most witnesses who testified about increasing the make allowance by at NASS dry whey price minus the make
the cost of drying whey expressed the least 2 cents. allowance resulted in a negative
belief that drying whey costs more than Since information regarding the costs number, the other solids price would
drying nonfat dry milk. Two cooperative of drying whey was not available from become zero. Michigan Milk Producers
association witnesses testified that their the sources used for determining the Association supported the inclusion of
organizations have determined that the other make allowances in product price such a ‘‘snubber’’ concept for the whey
returns from whey powder with the formulas, the tentative final decision price in a brief, citing testimony in
current make allowance would not determined that the dry whey make which the DFA witness referred to the
cover the costs associated with building allowance should remain the same as difficulty of explaining to producers a
and operating whey powder plants. At that for nonfat dry milk. However, in the negative component price. Snubbing the
the hearing, IDFA presented the results recommended decision it was other solids price to zero would have
of the survey contracted for by NCI. The prevented it from negatively affecting
determined that the dry whey make
IDFA witness testified that the survey the value of other Class III components
allowance should be changed to reflect
showed a dry whey manufacturing cost or having a negative impact on the
testimony and other evidence in the
of at least $0.1592. The IDFA witness producer price differential. Support was
hearing record that the cost of drying
testified that using the nonfat dry milk expressed for use of the snubber in two
whey is greater than that of drying
make allowance significantly additional comments received on the
nonfat dry milk.
understates the manufacturing cost of tentative final decision.
dry whey due to the relatively higher The recommended decision The snubber in the other solids price
percentage of water in liquid whey concluded that the other solids price formula was opposed in comments filed
compared to skim milk and the would be computed by subtracting the by two parties. Leprino stated that
additional crystallization process make allowance of $0.159 from the sound policy should allow not only
required. NASS weighted average dry whey price positive, but negative net revenues to be
A witness representing Leprino and dividing the result by 0.968. The reflected in the milk price to prevent
testified on the differences in the differential costs of manufacturing whey overvaluing milk. IDFA opposed the
manufacturing processes for dry whey powder, from one source, over those of snubber on the grounds that it would
and nonfat dry milk that result in higher nonfat dry milk, from others, did not prevent manufacturers of dry whey from
costs to produce whey powder. The provide close enough agreement with covering all manufacturing costs if
witness concluded that the cost of the NCI-sponsored survey to use them wholesale prices for dry whey failed to
making dry whey is $0.02559 above the with any confidence. Neither of the fully cover manufacturing costs. Both
cost of drying nonfat dry milk. witnesses who testified that the extra commenters suggested that if the
The brief submitted by Leprino costs of drying whey are 2.6 cents component price were to become
argued that the additional costs of greater than the costs of drying nonfat negative, the negative value could be
processing whey powder over those of dry milk testified about the total costs pooled as part of the producer price
processing nonfat dry milk should of either operation. differential, as inferred by the DFA
include additional staffing, cleaning, In lieu of other studies and direct witness.
and maintenance associated with the evidence of the total cost of drying The prices calculated for the
additional equipment for whey product. whey, the recommended decision components in Class III milk are
A witness from Kraft agreed that the concluded that the NCI-commissioned intended to reflect the value of those
dry whey manufacturing costs are about study results, rounded to the nearest 1⁄10 components in the products from which
2.6 cents per pound greater than the cent, should be used for determining the the prices are calculated. Use of a
nonfat dry milk manufacturing costs. dry whey make allowance. National snubber to limit the other nonfat solids
Although Kraft described its Tulare Milk Producers, in their comments on price would be inconsistent with the
plant as large and efficient, it also the recommended decision, stated that purpose of a pricing formula to reflect
represents a recent capital investment, the dry whey make allowance was a component value and would appear to
meaning that depreciation costs are acceptable. Schreiber and Leprino also be an arbitrary adjustment to the price
likely higher than average. stated that they supported the dry whey formula. After a thorough review of the
Comments on the dry whey make make allowance of 0.1592 (essentially record, including briefs and the
allowance portion of the tentative final 0.159). comments on the tentative final
decision generally followed the lines of DFA and Select/Continental, in their decision and the recommended
the testimony in the hearing record. comments to the recommended decision, USDA has determined that the
WSDPTA favored maintaining the 14- decision, opposed the recommended snubber on the other solids price should
cent make allowance adopted in the decision’s proposed increase from 0.14 be eliminated.

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67932 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

d. Effects of Changes to Class III and The July 2001 decline was the result of allowance from $0.1702 to $0.165 in the
Class IV Price Formulas a reduced support price. In fact, the recommended protein price formula
The changes to the Class III and Class nonfat dry milk price stayed within would have accounted for an increase of
IV component price formulas discussed about one cent of support over the 1.7 cents per pound of protein. The two
above would result not only in changes January 2000 through June 2001 period. changed factors in the protein price
Unlike the cheese and nonfat dry milk formula (0.9 and 1.17), using data for
to the respective component prices, but
market, the butter price did not trade the 19-month period, would have
also to the resulting Class III and Class
anywhere near the butter support price resulted in an increase in the calculated
IV skim milk and hundredweight milk
of $0.65 per pound or the revised protein price averaging approximately
prices at 3.5 percent butterfat. The
support price of $0.8548 per pound. The 14.8 cents. The total increase in the
changes discussed are relative to the
butter price traded in a range from a low protein price as a result of three changes
formulas resulting from Federal order
of $0.8820 per pound during January to aspects of the Federal order reform
reform. The calculations that were made
2000 to a high of $1.9263 per pound protein price formula (moisture
in the recommended decision showed during June 2001. It is important to keep adjustment, make allowance, and
some increase in the level of the Class in mind that since all milk is priced on formula changes) would have been
III price. USDA believed that the Class the basis of butterfat and skim or nonfat approximately 20.6 cents above the
III pricing formulas incorporated in the components under Federal orders, price that would have been computed
recommended decision were more focusing on the calculated based on the formula prior to 2001.
technically correct than those adopted hundredweight prices at 3.5 percent At the same time, the increase from
as a result of Federal order reform butterfat that are announced for $0.137 to $0.159 in the dry whey make
because they were based on more comparison purposes may result in allowance for calculating the other
complete information derived through misleading conclusions. solids price would have resulted in a
the formal rulemaking process. The The formulas used for computing the calculated decline in the other solids
product-price formulas adopted as part Class IV prices in the recommended price of $0.0227 over the 19-month
of Federal order reform have decision were unchanged from those period. Elimination of the snubber on
contributed to further industry analysis contained in the tentative final decision the other solids price would have made
and participation in developing more which currently are being used. no difference during the period
precise and accurate measures of Changing the butterfat price make considered. The combination of the
determining the pricing formulas allowance from $0.114 to $0.115 would changes in both the protein price and
adopted herein. have resulted in a calculated average the other solids price would have
It is important to note that these decline in the Class IV butterfat price of resulted in an average of about $0.50 per
calculated class price differences, or the $0.0012 over the 19-month period hundredweight increase in the Class III
‘‘static effect’’ of the recommended included in the recommended decision. skim milk price over the 19-month
changes, are based on historical product The two changes to the Class IV nonfat period if cheese and dry whey prices
price data and not on product prices solids formula—increasing the make were unchanged.
that will occur in the future. The price allowance from $0.137 to $0.140 and The recommended decision showed
differences calculated in this portion of eliminating the 1.02 divisor—would that the changes in the protein price
the decision cannot be used to calculate have resulted in a net increase of formula improved significantly the
or estimate changes in revenue that $0.0141 per pound in the Class IV relationship between the cheese price
would have occurred or may occur in nonfat solids price in the absence of any and the protein price, from a correlation
the future because changing other changes. Since the Class II prices coefficient of 0.54, using the Federal
intersections of supply and demand for were to continue to be computed on the order reform protein formula, to a
each product result in different prices. basis of the Class IV formulas plus the correlation coefficient of 0.70 using the
The 19-month comparisons included Class II differential of $0.70 per formula recommended in that decision.
in the recommended decision were hundredweight, changes to the Class II In addition to improving the
calculated based on the NASS weighted prices would have been the same as the relationship between the cheese price
average commodity prices from January changes to the Class IV prices. The and the protein price, the recommended
2000 through July 2001. NASS weighted calculated Class IV skim milk price protein formula reduced the variability
average commodity prices for that time would have increased by an average of of the protein price and moderated the
period were available, and no estimates $0.127 per hundredweight. The extremes that occurred under the
of the relevant commodity prices were calculated 3.5 percent Class IV milk Federal order reform protein formula,
needed. Although that time period was price would have increased by an thereby giving producers a more
relatively short, a number of interesting average of $0.118 per hundredweight, consistent and positive protein price
price relationships occurred in the data reflecting the net difference between the signal.
series. increase in the skim milk price and the The calculation of the Class III price
For instance, during that period the very small decline in the Class IV at 3.5 percent butterfat, based on the
cheddar cheese (39 percent moisture) butterfat price. formulas contained in the recommended
market ranged from a low of $1.0245 per As a result of the 38 percent moisture decision, would have averaged about
pound during November 2000 to a high adjustment to barrel cheese prices, the $0.48 per hundredweight above the 3.5
of $1.6434 per pound during July 2001. NASS weighted average cheese price percent Class III price based on the
The November low was about 7.5 cents used for computing the Class III protein Class III formulas implemented under
below the $1.10 per pound support price would have been calculated to be Federal order reform.
price for 40-pound blocks of cheddar. higher by $0.011 per pound over the 19- In comments filed in response to the
During this same 19-month period the month period January 2000 through July tentative final decision, IDFA and
NASS weighted average nonfat dry milk 2001. Use of this cheese price increase Leprino urged that in no case should the
price showed little movement until July in the recommended protein price Class III price be enhanced relative to
2001, ranging from a high of $1.0165 per formula would have resulted in an price levels under Federal order reform.
pound during January 2001 to a low of increase of 3.6 cents per pound of Leprino reiterated the importance of
$0.9634 per pound during July 2001. protein. The decrease in the make assuring that yield factors not be too

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67933

high or make allowances too low for were defined as the difference between together with the industry’s concern
cheese plants to retain sufficient the sum of the selling price of cheese regarding the definition of ‘‘implied
revenue to maintain their operations. and dry whey based on monthly average margin,’’ the gross margin analysis was
IDFA focused on the negative long-term NASS prices and whey butter, estimated not considered in adopting the
effects on producer prices, as described at nine cents below the NASS AA butter provisions contained in this final
in USDA’s analysis, of adopting price, and the cost of milk under the decision.
enhanced Class III and Class IV prices. two sets of formulas. The gross margins This final decision compares prices
As described in detail above (in Issue therefore reflected the amount of money over the period of January 2000 through
3c), the factors incorporated in the Class available to processors to procure,
May 2002 instead of the more limited
III component price calculations are process, and market the end products of
19-month price period from January
based solidly on testimony and data in milk used in Class III: cheese, whey
2000 to July 2001. Nevertheless, the 29-
the hearing record. butter and dry whey.
The recommended decision stated The recommended decision stated month period from January 2000
that the record provided ample basis for that using Class III component tests through May 2002 used in this final
believing that the margins provided in from the Upper Midwest market to decision arrives at similar conclusions
the formulas would have been adequate estimate product yields, the estimated as those reached in the recommended
for cheesemakers to maintain their gross margins would have averaged decision. In particular, the conclusions
operations. As observed at the hearing approximately $3.00 per hundredweight made in the recommended decision
and in comments filed in response to using the Federal order reform Class III regarding make allowances continue to
the tentative final decision by the expert formulas and $2.52 per hundredweight be valid. Product yield formulas have
witness from Cornell, a break-even point over the 19-month period of January been amended to include a farm-to-
would be where the value of cheese plus 2000 through July 2001 if the plant loss allowance and to provide
whey cream plus whey powder equals recommended Class III formulas had simplification and consistency in
the value of the milk price plus the been in effect. The gross margins pricing formulas. The effects on class
make allowances. According to the indicated in the recommended decision prices are different due to the
witness, under Federal order reform, were significantly different than the amendments adopted in this final
and to a greater extent in the tentative cheese make allowances of $0.1702 and decision together with their application
final decision, the total value of these $0.165 used in the formulas, which to the expanded 29-month period.
products exceeded the sum of the milk would have been equivalent to It is important to again note that these
price and the make allowances. approximately $1.70 and $1.65 per calculated class price differences, or the
The discussion at the hearing hundredweight of milk with an ‘‘static effect’’ of the following adopted
centered specifically on the make estimated yield of 10 pounds of cheese. changes, are based on historical product
allowance used in the protein formula, Such a difference was expected since price data and not on product prices
with the implication that it represented the make allowances for whey butter that will occur in the future. The price
the entire make allowance for cheese. and dry whey were significantly lower differences calculated in this portion of
The recommended decision stated that than the cheese make allowance. Any the decision cannot be used to calculate
unlike the Class IV price formulas, residual value could have been used by or estimate changes in revenue that
where the make allowances used in the the handler to improve returns or would have occurred or may occur in
butterfat and nonfat solids price increase producer pay prices. Also, the the future because changing
formulas can be attributed directly to lower gross margins under the
intersections of supply and demand for
butter and nonfat dry milk, the make recommended formulas could have lead
allowances used for butterfat, protein, each product result in different prices.
to reduced over-order premiums to
and other solids in the pricing formulas reflect increased milk costs and Class III Butterfat. When the Class III
for Class III must be looked at in maintain current gross margins. formulas adopted in this decision are
aggregate. The recommended decision Comments received from Leprino, applied to the 29-month period from
also stated that all three components are IDFA, and NDA expressed concern with January 2000 through May 2002, the
involved in the cheesemaking process the accuracy of gross margin analysis value of Class III fat would have been
and have a significant effect on contained in the recommended $0.0247 per butterfat pound lower from
cheesemakers’ costs and returns. decision. Comments received from the announced price of $1.5126 per
The recommended decision stated Select and Continental stated that the butterfat pound. The adopted formula
that gross margins (including make gross margins presented in the results in an average of $1.4879 per
allowances) could be compared using recommended decision effectively butterfat pound. As proposed in the
both the cost of milk based on the restored the margins to their computed recommended decision, Class III
Federal order reform Class III formulas, ‘‘implied margin’’ offered in their formulas would have resulted in an
and the cost of milk based on the Class testimony at the hearing. Because of average butterfat price of $1.5121. The
III formulas. For this purpose, gross industry concerns regarding the following table is provided for
margins in the recommended decision accuracy of the gross margin analysis comparison purposes:

CLASS III BUTTERFAT PRICE


[$/lb]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 1.2522 1.2509 1.2309


2001 average ............................................................................................................................... 1.8480 1.8480 1.8184
Jan-May 2002 average ................................................................................................................ 1.3325 1.3325 1.3112
29-month average ........................................................................................................................ 1.5126 1.5121 1.4879

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67934 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

Class III Protein. Using the same 29- increased from the announced average average protein price of $2.0334. The
month period, the Class III protein price of $1.8610 per protein pound to $2.0213 following table is provided for
would have been higher if the formula per protein pound. The Class III protein comparison purposes:
adopted herein had been used. The price as proposed in the recommended
Class III protein price would have decision would have resulted in an

CLASS III PROTEIN PRICE


[$/lb]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 1.6938 1.8631 1.8513


2001 average ............................................................................................................................... 1.9613 2.1612 2.1498
Jan-May 2002 average ................................................................................................................ 2.0218 2.1352 2.1210
29-month average ........................................................................................................................ 1.8610 2.0334 2.0313

Class III Other Solids. Using the 29- allowance of $0.159 instead of $0.140. solids price as proposed in the
month period, the Class III other solids Under the same conditions, the Class III recommended decision would have
price would have been lower if the other solids price would have decreased resulted in an average other solids price
formula adopted herein had been used. from the announced average of $0.0904 of $0.0694. The following table is
Most of this difference is explained by per other solids pound to $0.0692 per provided for comparison purposes:
using the increased dry whey make other solids pound. The Class III other

CLASS III OTHER SOLIDS PRICE


[$/lb]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 0.0509 0.0282 0.0281


2001 average ............................................................................................................................... 0.1343 0.1146 0.1143
Jan-May 2002 average ................................................................................................................ 0.0796 0.0600 0.0598
29-month average ........................................................................................................................ 0.0904 0.0694 0.0692

Class III Standard Skim. Using the 29- would have increased from the decision would have resulted in an
month period, the Class III standard announced average of $6.30 per average Class III skim price of $6.71 per
skim milk price would have been higher hundredweight to $6.67 per hundredweight. The following table is
if the formula adopted herein had been hundredweight. The Class III skim price provided for comparison purposes:
used. The Class III standard skim price as proposed in the recommended

CLASS III STANDARD SKIM MILK PRICE


[$/cwt]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 5.55 5.94 5.90


2001 average ............................................................................................................................... 6.87 7.38 7.34
Jan-May 2002 average ................................................................................................................ 6.74 6.97 6.93
29-month average ........................................................................................................................ 6.30 6.71 6.67

Class III Standard Milk. Using the 29- would have increased from the decision would have resulted in an
month period, the Class III standard announced average of $11.38 per average Class III standard milk price of
milk price would have been higher if hundredweight to $11.65 per $11.77 per hundredweight. The
the formula adopted herein had been hundredweight. The Class III milk price following table is provided for
used. The Class III standard milk price as proposed in the recommended comparison purposes:

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67935

CLASS III STANDARD MILK PRICE


[$/cwt]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 9.74 10.11 10.01


2001 average ............................................................................................................................... 13.10 13.59 13.45
Jan-May 2002 average ................................................................................................................ 11.16 11.39 11.27
29-month average ........................................................................................................................ 11.38 11.77 11.65

Class IV Butterfat (same as Class III butterfat pound lower from the formulas would have resulted in an
butterfat). When the Class IV formulas announced price of $1.5126 per average butterfat price of $1.5121. The
adopted in this decision are applied to butterfat pound. The adopted formula following table is provided for
the 29-month period from January 2000 results in an average of $1.4879 per comparison purposes:
through May 2002, the value of Class IV butterfat pound. As proposed in the
fat would have been $0.0247 per recommended decision, Class IV

CLASS IV BUTTERFAT PRICE


[$/lb]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 1.2522 1.2509 1.2309


2001 average ............................................................................................................................... 1.8480 1.8480 1.8184
Jan-May 2002 average ................................................................................................................ 1.3325 1.3325 1.3112
29-Month average ........................................................................................................................ 1.5126 1.5121 1.4879

Class IV Nonfat Milk Solids (NFMS). 29-month period, the Class IV NFMS decision would have resulted in an
When the Class IV formulas in this solids price would have decreased from average NFMS price of $0.8399 per
decision are applied to the 29-month an average of $0.8340 per NFMS pound hundredweight. The following table is
period the prices of Class IV nonfat milk to $0.8315 per NFMS pound. Class IV provided for comparison purposes:
solids would have been lower. Using the NFMS as proposed in the recommended

CLASS IV NONFAT MILK SOLIDS PRICE


[$/lb]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 0.8574 0.8715 0.8629


2001 average ............................................................................................................................... 0.8391 0.8391 0.8306
Jan-May 2002 average ................................................................................................................ 0.7656 0.7658 0.7580
29-month average ........................................................................................................................ 0.8340 0.8399 0.8315

Class IV Standard Skim. Using the 29- skim milk price would have decreased decision would have resulted in an
month period, the Class IV standard from the announced average of $7.51 average Class IV skim price of $7.56 per
skim milk price would have been lower per hundredweight to $7.48 per hundredweight. The following table is
if the pricing formulas adopted herein hundredweight. The Class IV skim milk provided for comparison purposes:
had been used. The Class IV standard price as proposed in the recommended

CLASS IV STANDARD SKIM MILK PRICE


[$/cwt]

Rec-
Announced ommended Final decision
price decision

2000 average ............................................................................................................................... 7.72 7.84 7.77


2001 average ............................................................................................................................... 7.55 7.55 7.48
Jan-May 2002 average ................................................................................................................ 6.89 6.89 6.82
29-month average ........................................................................................................................ 7.51 7.56 7.48

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67936 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

Class IV Standard Milk. The Class IV hundredweight price (a decrease of IV milk price of $12.59 per
milk price over the 29-month period $0.11/cwt) if the formulas adopted hundredweight. The following table is
would have decreased from the herein had been used. Class IV milk as provided for comparison purposes:
announced average price of $12.54 per proposed in the recommended decision
hundredweight to a $12.43 per would have resulted in an average Class

CLASS IV STANDARD MILK PRICE


[$/cwt]

Rec-
Announced ommended Final decision
price decision

2000 average ..................................................................................................................................... 11.83 11.95 11.80


2001 average ..................................................................................................................................... 13.76 13.76 13.58
Jan-May 2002 average ...................................................................................................................... 11.31 11.31 11.17
29-month average .............................................................................................................................. 12.54 12.59 12.43

Class Price Relationships price relationships clearly were not the farmers throughout the Federal order
The price relationships between intent of Congress. A brief filed on system which Proposals 30 and 31
Classes I, II , III and IV established behalf of IDFA in support of Proposal 31 would cause. ADCNE urged that the
under the Federal order reform process stated that the correct price relationship conclusions of the tentative final
should be maintained. One proposal between NFDM and Class II is 70 cents decision to deny proposals 30 and 31 be
heard in this proceeding would have and that the record provides no basis for affirmed.
reduced the Class IV butterfat price changing that relationship. Actually, as The recommended decision also did
without affecting the computation of explained in the final decision on not adopt Proposal 30 or Proposal 31.
other butterfat or product prices. That Federal order reform, 70 cents Comments received on the
proposal is addressed specifically in the represents the correct price relationship recommended decision from DFA
Class IV Butterfat price. between milk used to make dry milk indicated agreement with the
The current pricing system uses the powder and milk used in Class II, as Department’s reasoning for rejecting
same formulas for computing the nearly as can be determined from the these proposals and any modifications
advance component prices used to information available. to those proposals that called for
compute the Class I skim milk and A proposal (Proposal 30) by two
changing how Class I and Class II prices
butterfat prices and Class II skim milk parties that any increases resulting from
as established. Accordingly, this final
price as are used to calculate the Class changes to the Class III and Class IV
decision continues with the findings
III and Class IV component prices. price formulas not be allowed to result
contained in the recommended decision
Several witnesses testified as to what in increases in Class I prices was
for not adopting Proposal 30 or 31.
the class price relationships should be supported in testimony by one of the
if changes were made to any of the Class parties, who argued that any increases According to the recommended
III or Class IV component price in the Class I price mover should be decision, neither the price relationships
formulas. The witness for IDFA and balanced with reductions in Class I established in the tentative final
several other parties stated that any differentials. The witness stated that the decision between milk used in Class III
changes to the Class III and Class IV proponents want to be sure that Class I and Class IV, nor milk used in Classes
formulas should also apply to the prices are not further decoupled from I and II, should be changed. The
advance price formulas used for Class III and Class IV pricing formulas, recommended decision stated that
computing the Class I and Class II or that Class I prices are not artificially changes should be reflected in the Class
prices. The witness explained that inflated. I and Class II prices to the extent that
failure to use the same formulas Neither Proposal 30 nor Proposal 31 there may be differences in the Class III
between the related classes of use would was adopted under the tentative final or Class IV prices between the current
result in a direct impact on the Class I decision. prices as a result of adjustments to the
and Class II differentials which was In comments on the tentative final component pricing formulas. Any
clearly not the intent of Congress when decision filed by ADCNE and fully reevaluation of the formulas used to
it instructed the Secretary to conduct a supported by DFA, consideration of price the components used in
rulemaking proceeding concerning the Proposal 30 was opposed as being manufactured products should be
Class III and Class IV price formulas. beyond the scope of the Congressional carried through to the class prices that
A witness for Hershey Foods pointed mandate and not fully debated at the are based on those component prices. A
out that the Secretary went to great hearing. ADCNE further opposed any change in the computation of the nonfat
lengths to justify the 70-cent Class II modifications to Proposal 30, such as solids price, for instance, is intended to
differential above the Class IV price. In the Family Dairies’ testimony better reflect the value of those solids in
support of Proposal 31, the witness said supporting a weighted average Class I dry milk products. If the new nonfat
that there is no justification or new price mover, or to a similar proposal solids price formula results in an
evidence for changing the current price relative to the Class II price, that would increase in the Class IV price, the record
relationship that exists between the change the basis for Class I and Class II provides no basis for changing the
manufactured products (butter and prices or Class I and Class II difference in the value of the milk used
nonfat dry milk) and the Class II price differentials. ADCNE continued that in those solids between Class IV and
if the Class IV formulas were revised as there was no evidence presented at the Class II use. Similarly, the availability of
suggested in several proposals. The hearing that would support the milk for use in Class I is related to the
witness stated that such changes in substantial revenue reductions to higher of the alternative manufacturing

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values for that milk. The current established under Federal milk orders appropriate relationship between the
relationships should be maintained. are based on national dairy product California and the Federal order
prices which reflect the national supply program should be.
California Price Relationships
and demand conditions of milk used in
Many witnesses provided comments 5. Class I Price Mover
these two classes. The California milk
on the recommended decision in regard program is single-state oriented while A proposal that was not included in
to the relationship of Federal order the Federal program is national in the hearing notice was made at the
Class III prices as compared to the scope. hearing by a Family Dairies, USA,
California 4b prices. These two prices Class III and Class IV dairy products witness on behalf of that cooperative
are considered to be minimum prices compete in a national market. Because and the Midwest Dairy Coalition, which
that reflect the value of producer milk of this, Class III and Class IV milk prices represents 13 additional organizations
used to make cheese. Multiple established for all Federal milk of dairy farmers. The proposal would
comments received indicated the marketing order areas are the same. The change the Class I price mover from the
importance of maintaining a close Federal milk order program gradually higher of the Class III and Class IV
relationship between these prices. adopted the Minnesota-Wisconsin (M– prices to a weighted average of the two.
Northwest Dairy Association W) price as the Class III price in all The witness for Family Dairies testified
expressed concern that the Federal milk marketing orders. that the results of the current regulation
recommended decision ‘‘simply Although the M–W was first adopted in are disturbing and unanticipated with
ignored’’ the ‘‘issue of price alignment 1963, it was not until the mid 1970’s the unexpected strength of the Class IV
with the nation’s largest dairy that the M–W established a uniform price relative to Class III.
producing state’’ and that there are class price for milk used in Class III In testimony at the hearing, the
‘‘differences between the Federal and products in all Federal milk orders. Family Dairies representative
California pricing systems that the Observations of the market place for complained that 10 percent of
Department has utterly failed to explore cheese, butter, and nonfat dry milk production under Federal orders (milk
and explain.’’ provided the basis for concluding that used to make nonfat dry milk) has been
A comment received from Agri-Mark these products compete in a market that driving the Class I price that applies to
stated that ‘‘USDA must take in is national in scope. Such findings were 40 percent of the milk. As a result, he
consideration the competitive situation upheld with the adoption of the Basic testified, milk production for fluid
between California and Federal Order Formula Price (BFP), which provided an purposes is encouraged in markets with
Class III and IV plants.’’ interim pricing method for milk (due high Class I differentials and relatively
In their comments, Dairylea stated largely to the declining statistical high Class I use at a time when
that ‘‘It is important that manufacturers reliability of the M–W price series) until marketing conditions (an oversupply of
buying Federal order milk pay Class a more long-term pricing method could milk) should have the opposite effect.
prices that are competitive with similar be developed. As fluid-oriented markets are receiving
manufacturers in California and Idaho.’’ The implementation of milk order increased prices relative to markets in
A comment received from Western reform in January 2000 continued which cheese is the dominant use, he
United Dairymen stated that, ‘‘It is finding that Class III and Class IV dairy complained, inequities in blend prices
imperative that California’s prices products compete in a national between markets are increasing.
maintain a close relationship with marketplace. However, a competitive A group representing Upper Midwest
Federal order prices.’’ price for milk, as represented by the M– producer interests filed a brief
Lastly, a comment received from W and BFP prices, was no longer viable. describing the recent movement of milk
Select Milk Producers and Continental As an intended long-term method, the from the Upper Midwest pool onto the
Dairy Products stated that, ‘‘Considering Federal milk order program has adopted Central and Mideast marketwide pools
the fact that California has transformed end-product price formulas, valuing as disorderly marketing caused by
itself into the number one dairy state Class III and Class IV milk on the basis increases of Class I prices in these
and soon to be number one cheese of the value of Class III and Class IV higher-Class I use markets.
producing state in little more than a end-products in the marketplace. The An argument in another brief stated
decade, it is appealing to consider NASS price survey for dairy products that since the 1960’s the dairy industry
modeling the decision in this hearing off used as a basis for establishing Class III has used a Class I mover tied to a
the California system.’’ They go on to and Class IV prices includes all dairy market-clearing price represented by a
state that ‘‘Producer groups in California product prices and sales volumes in all weighted average of milk used in butter,
along with others are now seeking to regions of the country, including cheese, and powder.
have California adjust to the Federal California. In this regard, the Federal In several briefs it was argued that the
scheme. It would be a sad day indeed order program has and will continue to Regulatory Impact Analysis (RIA)
if the [Department] reduced prices to reflect California’s impact on dairy published with the final decision on
meet California’s while California was product prices while establishing Class Federal order reform stated that the
in the process to make such an effort III and Class IV prices that are reflective price formulas adopted therein were
unnecessary.’’ of national supply and demand expected to generate a sufficient
Class III and Class IV prices conditions. quantity of milk, and that both the
established under the Federal milk With the adoption of end-product adoption of Class I pricing option IA
order program should not be based pricing formulas under order reform, the and use of the higher of the Class III and
upon, aligned with, or identical to the need for periodic adjustments that IV prices as the price mover have
equivalent class prices established for would arise with the changes in worked to enhance Class I price levels.
milk under California’s State milk order marketing conditions is acknowledged. A brief filed by a group representing
program. The equivalent class prices Although the relationship of Federal fluid milk handlers suggested that
established under the California milk Order prices to California prices is USDA should give careful consideration
order program are based largely on the important, the record does not indicate to the proposal to use a weighted
conditions unique to California while how California and Federal order prices average of the Class III and Class IV
the Class III and Class IV prices should be aligned or what the prices to move Class I prices.

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Based on analysis of the hearing decision to continue to use the higher of fluid plants will be better able to attract
record and briefs filed by interested the advanced Class III and IV prices as milk away from manufacturing uses.
persons, the tentative final decision the basis for calculating the Class I price Use of the weighted average of the two
continued use of the higher of the mover be affirmed. prices when there is a significant
advance Class III or Class IV prices as The shift in the pooling of milk from difference between them would provide
the mover for Class I prices. the Upper Midwest to higher-valued no assurance that milk would be
In comments on the tentative final markets complained of in one Upper available as needed for fluid uses and
decision, the Midwest Dairy Coalition Midwest brief has been a long-sought would be more likely to result in Class
repeated its position that the existing outcome on the part of Upper Midwest price inversions (where the Class I price
mover should be changed to a weighted producer groups. It is difficult to falls below one or more of the
average of the advanced Class III and understand why it is now seen as a manufacturing class prices). In addition,
advanced Class IV prices, with the manifestation of disorderly marketing. use of a weighted average Class I price
weight based on the portion of Those briefs that cited the sufficient mover would increase the occurrence of
manufacturing milk used for Class III level of milk production projected the blend price falling below the Class
and Class IV during the prior year. The under the RIA for Federal order reform III or IV price in markets with low Class
Coalition stated that using the higher of appeared to base their arguments in I utilization.
Class III or Class IV prices could result opposition to use of the ‘‘higher of’’ Aside from the fact that the proposal
in setting a minimum fluid milk price Class I price mover on that projection. to use a weighted average of the Class
that is actually above the market It should be noted that Congressional III and Class IV prices as the Class I
clearing price for milk, especially if the action relative to Class I prices mover was not noticed for consideration
higher of the Class III and IV prices were following issuance of the final decision in this proceeding, it should be rejected
not representative of manufacturing on Federal order reform applied only to on the basis of its lack of merit.
markets. The Coalition also expressed the Class I pricing surface. Use of the Comments received on the
concern that the tentative final decision higher of the Class III and IV prices as recommended decision from the Kroger
adopted, as an unnoticed and the Class I price mover was included in Company opposed using the higher of
unsupported change, the higher of the Federal order reform and in the Class III or Class IV for establishing the
advanced Class III or Class IV milk accompanying RIA. Class I price for milk. They suggested a
prices at 3.5 percent butterfat as the new The Upper Midwest Coalition’s review of alternatives that would not
Class I mover instead of using the skim concern that the tentative final decision lead to higher Class I milk prices.
value. adopted the higher of the advanced Comments received from MMPA and
In comments, NMPF noted that Class III or Class IV milk prices at 3.5 DFA on the recommended decision,
significant fluctuation that could occur percent butterfat instead of using the however, continued to express their
in the Class I skim milk price mover due skim value as the new Class I mover, support for using the ‘‘higher of.’’
to using the higher of the advanced and the NMPF criticism that doing so MMPA was of the opinion that using the
Class III or Class IV prices at 3.5 percent would result in significant fluctuations higher of the Class III or Class IV prices
butterfat. Several parties noted that use in the Class I skim price is now moot as the Class I mover establishes farm
of the advanced price at 3.5 percent because of the return to the use of one milk prices that assure priority in
butterfat could cause the Class III price butterfat price. Use of the same butterfat providing milk for Class I uses. After
to be the Class I price mover, even with price for the Class III and Class IV prices consideration of the entire record on
a very low Class III skim milk price, will result in the ‘‘higher of’’ the two this proceeding this final decision
causing significant month-to-month being determined by the relative skim adopts the recommended decision
changes in the Class I skim milk price. milk prices. Therefore, the provision to continue to use the higher
Michigan Milk Producers Association recommended decision concluded that of the advance Class III or Class IV
(MMPA) filed comments, stating that fluctuations in the Class I skim milk prices for establishing the Class I base
using a weighted average to set the Class price projected under the tentative final price or, as it is sometimes referenced,
I mover would severely impact fluid decision should be reduced. the Class I mover.
users’ ability to attract sufficient The price referred to in the brief
quantities of milk when there were large expressing preference for the historical 6. Miscellaneous and Conforming
differences between Class III and Class use of a weighted average of prices paid Changes
IV prices. MMPA and NMPF supported for milk used in butter, cheese, and a. Advanced Class I butterfat price.
the continued use of the higher of the powder was, at first, the Minnesota- Because of the change made between
Class III or Class IV prices as the Class Wisconsin price series (the M–W). The the interim rule and this final
I mover. M–W, and later the M–W adjusted by a decision—to use only one butterfat price
ADCNE’s comments to the tentative weighted average of current product for butterfat used in both Class III and
final decision, fully supported by DFA, prices for manufactured products, was Class IV—the conforming change made
expressed opposition to the Family specific to the Upper Midwest area and in the interim final rule to the procedure
Dairies’ proposal for a weighted average included very little NFDM, since that for calculating the Class I butterfat and
Class I price mover or any other area manufactures a higher percentage hundredweight prices is no longer
proposal that would change the basis for of cheese, relative to NFDM, than the necessary. The advanced butterfat price
Class I and Class II prices or Class I and rest of the U.S. The current pricing used for pricing Class I butterfat will
Class II differentials. ADCNE argued system is much more representative of continue to be calculated by the
that there was no evidence presented at national supply and demand for application of the Class III and Class IV
the hearing that would support the manufactured dairy products than either price formulas to the advanced NASS
substantial revenue reductions to of the versions of the former Class I prices as announced.
farmers throughout the Federal order mover. b. Classification. The classification of
system which would result from As explained in the final decision on anhydrous milkfat, butteroil, and plastic
adoption of the weighted average Class Federal order reform, the higher of the cream was changed in the tentative final
I price mover. ADCNE urged that the Class III or Class IV prices are used to decision from Class III to Class IV as a
conclusions of the tentative final move the Class I price to assure that conforming change required by the

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adoption of separate butterfat prices for differential mechanism in the market to pool the class use butterfat values and
the two classes. The hearing notice order pools. The brief continued that the return a weighted average butterfat price
contained no proposal to change the producer price differential is a blending to producers. The difference adopted in
classification of these products, and of various debits and credits in the this final decision may result in some
there was no testimony in the record of pooling process and the additional inconsistency between the producer
the proceeding supporting their re- equalizing of any butterfat pricing butterfat prices under MCP and non-
classification. Therefore, with the adjustments through this procedure MCP orders. However, it is expected
elimination of the separate Class III currently makes the most sense. that such inconsistency will not result
butterfat price, the sole basis for the In a post-hearing brief, National All- in disorderly marketing.
change in classification also is Jersey (NAJ) urged that USDA retain the d. Inclusion of Class I other source
eliminated. current practice of using Class III milk butterfat in producer butterfat price
As noted in the tentative final component values to price producer computation. In the process of
decision, a difference between the component values. NAJ noted that this promulgating the tentative final
classification of these products, which scenario makes it easier to use accepted decision, it was determined that the
have a very high butterfat content, and hedging tools, such as Class III futures value associated with the occasional
butter should not cause any market contracts, and helps simplify pricing for classification of other source milk as
dislocation in a pricing plan where producers. NAJ further stated that the Class I should be included in pooling
butterfat used in Class III products has current procedure maintains the same the class butterfat values to determine
the same value as butterfat used in Class producer butterfat price in all Federal butterfat prices to producers. For the
IV products. One commenter to the orders with multiple component pricing orders under which butterfat is pooled,
tentative final decision opposed (MCP). this change was made in the interim
changing the classification of these Seventy-nine dairy organizations final rule and should continue so that
products. supported payment to producers on the the value of all of the butterfat in the
In comments to the recommended basis of the milk components priced in pool will be reflected in the producer
decision, MMPA disagreed with Class III, including the Class III butterfat butterfat price.
returning anhydrous milkfat, butteroil, price instead of a pooled butterfat price, In the component pricing orders, the
and plastic cream back to Class III plus the producer price differential in a changes made in the interim final rule
classification because, in their opinion, comment filed in response to the to include the Class I other source
the products compete with butter and tentative final decision. The butterfat value in the butterfat pool
therefore should have a cost base similar commenters argue that payment to should be reversed. Although the
to butterfat. Comments received from producers on the basis of Class III District Court’s injunction had the effect
NDA and WestFarm Foods also components facilitates the use of risk of reversing these changes and the
indicated opposition to returning these management tools by producers and Federal order reform language has
products back to Class III. avoids wider fluctuations in Class I and continued in effect, the order language
As a result of the elimination of the producer fat, skim, and component in the Code of Federal Regulations
separate Class III butterfat price, this values. reflects the provisions adopted in the
final decision finds that anhydrous One of the principal reasons given in interim final rule. The proposed order
milkfat, butteroil, and plastic cream is the tentative final decision for changing language amendments in the
most appropriately classified as Class the pooling provisions of the MCP recommended decision and in this final
III. orders was that potential large decision reflect the language that is
In a comment filed in response to the differences between the Class III and currently in effect in the MCP orders,
tentative final decision, Hershey Foods Class IV/II butterfat prices would be reversing the changes that were made to
urged that the Federal orders adopt a 2- likely to result in significant distortions include Class I other source butterfat in
class pricing system. Such a suggestion in the effect of those differences on the the butterfat pool.
is entirely outside the scope of the producer price differential. The
current proceeding. recommended decision also concluded 7. Issue of Reopening of the Hearing, or
c. Distribution of Butterfat Value to that according to observation made Issuance of a Final Decision
Producers. There were several responses under the tentative final decision, it was The statute requiring that this
in comments on the tentative final possible that pool calculations in some proceeding be held to reconsider the
decision to the issue of whether the markets would result in a negative Class III and Class IV pricing formulas
butterfat price paid to producers should producer price differential if the also required that a final decision be
be the result of pooling butterfat prices producer butterfat price was not published by December 1, 2000, with
from the different classes or continue to changed to represent a blend of the any amendments to the orders to be
reflect the value of butterfat in Class III. values of butterfat in the four classes of effective January 1, 2001.
A witness from Northwest Dairy use. The hearing record reflected
Association testified that being able to The reversal to calculate separate unanimity among those addressing the
line up the Class III price to plants with Class III and Class IV butterfat prices issue that the industry should be
the component value calculation for invalidated the principal reason for afforded the opportunity to comment on
producers is helpful, especially with pooling butterfat under the MCP orders. a decision before its content results in
regard to forward pricing. In a brief filed Therefore, in the recommended a final rule. Consequently, a tentative
on behalf of DFA and ADCNE, the co- decision it was determined that final decision was issued affording
op groups supported continued use of producer payments under the MCP interested persons an opportunity to
the Class III butterfat price as the orders would continue to be made on comment even though the amendments
producer butterfat price. According to the basis of the prices for milk adopted in the decision were to become
the brief, changes in direct pricing to the components used in Class III rather than effective January 1, 2001. An injunction
producer are not prudent at this time, pooling the butterfat values of the four was issued on January 31, 2001, to
and any change between the Class III classes and this continues in this final prevent some of the provisions adopted
and Class IV butterfat price should be decision. The four orders that do not in the interim final rule from becoming
settled through the producer price have component pricing will continue effective.

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The recommended decision noted Rulings on Proposed Findings and decision, all exceptions received were
that several interested parties Conclusions considered in conjunction with the
commented in opposition to reopening Briefs, proposed findings and record evidence. To the extent that the
the proceeding with regard to the Class conclusions, and comments on the findings and conclusions and the
III butterfat and protein price formulas. tentative final decision and the regulatory provisions of this final
The only commenter that favored recommended decision were filed on decision are at variance with any of the
revisiting any of the issues involved behalf of certain interested parties. exceptions, such exceptions are hereby
stated that some way of reflecting These briefs, the proposed findings and overruled for the reasons previously
increased energy costs in make conclusions, the comments, and the stated in this final decision.
allowances should be explored. The evidence in the record were considered Marketing Agreement and Order
commenter seemed to refer to in making the findings and conclusions
conducting an entirely new proceeding Annexed hereto and made a part
set forth above. To the extent that the hereof are two documents, a Marketing
rather than reopening the current suggested findings and conclusions filed
proceeding. At that time it was decided Agreement regulating the handling of
by interested parties are inconsistent milk, and an Order amending the orders
that reopening the proceeding would with the findings and conclusions set
not be considered due to the lack of regulating the handling of milk in the
forth herein, the requests to make such Northeast and other marketing areas,
interest in pursuing development of findings or reach such conclusions are
Class III component prices that are more which have been decided upon as the
denied for the reasons previously stated detailed and appropriate means of
closely correlated with cheese prices. in this final decision. effectuating the foregoing conclusions.
Two commenters on the tentative General Findings It is hereby ordered that this entire
final decision urged that USDA act decision and the two documents
quickly to conclude the proceeding. The The findings and determinations annexed hereto be published in the
most rapid conclusion to the proceeding hereinafter set forth supplement those Federal Register.
was through issuance of a tentative final that were made when each of the
decision, followed by a determination of aforesaid orders were first issued and Referendum Order to Determine
producer approval and issuance of a when they were amended. The previous Producer Approval; Determination of
final rule for the orders approved. findings and determinations are hereby Representative Period; and Designation
However, because significant changes ratified and confirmed, except where of Referendum Agent
were made to the tentative final they may conflict with those set forth It is hereby directed that referenda be
decision by the District Court order and herein. conducted and completed on or before
by the recommended decision, The following findings are hereby the 30th day from the date this decision
interested parties were given an made with respect to each of the is issued, in accordance with the
additional opportunity to comment on aforesaid tentative marketing procedure for the conduct of referenda
those changes. Therefore, USDA issued agreements and orders; (7 CFR 900.300–311), to determine
the recommended decision and (a) The tentative marketing whether the issuance of the orders as
provided for a 30-day comment period. agreements and the orders, as hereby amended and as hereby proposed to be
Additional time to file comments was proposed to be amended, and all of the amended, regulating the handling of
requested by a number of proprietary terms and conditions thereof, will tend milk in the Northeast and Mideast
and cooperative handlers in order to to effectuate the declared policy of the marketing areas are approved or favored
allow for more thorough analysis of the Act; by producers, as defined under the
impacts of the technical changes in the (b) The parity prices of milk as terms each of the orders, as amended
pricing formulas. determined pursuant to section 2 of the and as hereby proposed to be amended,
Act are not reasonable in view of the who during such representative period
Several comments on the price of feeds, available supplies of
recommended decision were received were engaged in the production of milk
feeds, and other economic conditions for sale within the aforesaid marketing
urging prompt implementation of the which affect market supply and demand
amendments recommended. The areas.
for milk in the aforesaid marketing The representative period for the
National Milk Producers Federation areas, and the minimum prices specified
(NMPF) supported the recommended conduct of such referenda is hereby
in the tentative marketing agreements determined to be May 2002.
decision’s amendments in their entirety. and the orders, as hereby proposed to be The agents of the Secretary to conduct
They stated that, ‘‘In the absence of a amended, are such prices as will reflect such referenda are hereby designated to
clear-cut industry consensus for change, the aforesaid factors, insure a sufficient be the respective market administrators
and without clear evidence of a market quantity of pure and wholesome milk, of the aforesaid orders.
failure caused by federal order and be in the public interest; and
provisions, we believe it would be (c) The tentative marketing Determination of Producer Approval
detrimental to the industry to reopen agreements and the orders, as hereby and Representative Period for All Other
these proceedings in the near future.’’ proposed to be amended, will regulate Orders
Several comments from both the handling of milk in the same May 2002 is hereby determined to be
processors and producers on the manner as, and will be applicable only the representative period for the
recommended decision suggested to persons in the respective classes of purpose of ascertaining whether the
reopening the hearing. A few comments industrial and commercial activity issuance of the orders, as amended and
noted the outdated nature of some of the specified in, marketing agreements upon as hereby proposed to be amended,
data, while other comments indicated a which a hearing has been held. regulating the handling of milk in the
need to further study the impacts that Appalachian, Florida, Southeast, Upper
new price formulas would have on Rulings on Exceptions Midwest, Central, Pacific Northwest,
cheese plants that are small businesses. In arriving at the findings and Southwest, Arizona Las-Vegas, and
The proceeding is not being reopened conclusions, and the regulatory Western marketing areas is approved or
and this final decision is being issued. provisions adopted in this final favored by producers, as defined under

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the terms of each of these orders as applicable only to persons in the day of the month following the month
amended and as hereby proposed to be respective classes of industrial or to which it applies.
amended, who during such commercial activity specified in (a) Class I price. The Class I price per
representative period were engaged in marketing agreements upon which a hundredweight, rounded to the nearest
the production of milk for sale within hearing has been held. cent, shall be 0.965 times the Class I
the aforesaid marketing areas. skim milk price plus 3.5 times the Class
Order Relative to Handling
I butterfat price.
List of Subjects in 7 CFR Parts 1000, It is therefore ordered, that on and (b) Class I skim milk price. The Class
1001, 1005, 1006, 1007, 1030, 1032, after the effective date hereof, the I skim milk price per hundredweight
1033, 1124, 1126, 1131, and 1135.
handling of milk in the Northeast and shall be the adjusted Class I differential
Milk marketing orders. other marketing areas shall be in specified in § 1000.52 plus the higher of
Dated: October 25, 2002. conformity to and in compliance with the advanced pricing factors computed
A.J. Yates, the terms and conditions of the order, as in paragraph (q)(1) or (2) of this section.
Administrator, Agricultural Marketing amended, and as hereby amended, as (c) Class I butterfat price. The Class I
Service. follows: butterfat price per pound shall be the
The provisions of the proposed adjusted Class I differential specified in
Order Amending the Orders Regulating marketing agreements and orders § 1000.52 divided by 100, plus the
the Handling of Milk in the Northeast amending the orders contained in the advanced butterfat price computed in
and Other Marketing Areas recommended decision issued by the paragraph (q)(3) of this section.
(This order shall not become effective Associate Administrator, Agricultural * * * * *
unless and until the requirements of Marketing Service, on October 19, 2001, (g) Class II butterfat price. The Class
§ 900.14 of the rules of practice and and published in the Federal Register II butterfat price per pound shall be the
procedure governing proceedings to on October 25, 2001 (66 FR 54064), as butterfat price plus $0.007.
formulate marketing agreements and modified herein, shall be and are the (h) Class III price. The Class III price
marketing orders have been met.) terms and provisions of this order, per hundredweight, rounded to the
Findings and Determinations amending the orders, and are set forth nearest cent, shall be 0.965 times the
in full herein. Class III skim milk price plus 3.5 times
The findings and determinations 1. The authority citation for 7 CFR the butterfat price.
hereinafter set forth supplement those parts 1000, 1001, 1005, 1006, 1007,
that were made when the orders were * * * * *
1030, 1032, 1033, 1124, 1126, 1131, and (j) Class IV price. The Class IV price
first issued and when they were 1135 continues to read as follows:
amended. The previous findings and per hundredweight, rounded to the
Authority: 7 U.S.C. 601–674. nearest cent, shall be 0.965 times the
determinations are hereby ratified and
confirmed, except where they may Class IV skim milk price plus 3.5 times
PART 1000—GENERAL PROVISIONS the butterfat price.
conflict with those set forth herein. OF FEDERAL MILK MARKETING
(a) Findings. A public hearing was * * * * *
ORDERS
held upon certain proposed (l) Butterfat price. The butterfat price
amendments to the tentative marketing 1. Section 1000.40 is amended by per pound, rounded to the nearest one-
agreements and to the orders regulating adding paragraph (c)(1)(ii) and revising hundredth cent, shall be the U.S.
the handling of milk in the Northeast paragraph (d)(1)(i) to read as follows: average NASS AA Butter survey price
and other marketing areas. The hearing reported by the Department for the
§ 1000.40 Classes of Utilization. month less 11.5 cents, with the result
was held pursuant to the provisions of
the Agricultural Marketing Agreement * * * * * multiplied by 1.20.
Act of 1937, as amended (7 U.S.C. 601– (c) * * * (m) Nonfat solids price. The nonfat
674), and the applicable rules of (1) * * * solids price per pound, rounded to the
practice and procedure (7 CFR part 900). (ii) Plastic cream, anhydrous milkfat, nearest one-hundredth cent, shall be the
Upon the basis of the evidence and butteroil; and U.S. average NASS nonfat dry milk
introduced at such hearing and the * * * * * survey price reported by the Department
record thereof, it is found that: (d) * * * for the month less 14 cents and
(1) The said orders as hereby (1) * * * multiplying the result by 0.99.
amended, and all of the terms and (i) Butter; and (n) Protein price. The protein price
conditions thereof, will tend to * * * * * per pound, rounded to the nearest one-
effectuate the declared policy of the Act; 2. Section 1000.50 is amended by hundredth cent, shall be computed as
(2) The parity prices of milk, as revising the last sentence of the follows:
determined pursuant to section 2 of the introductory text; by revising (1) Compute a weighted average of the
Act, are not reasonable in view of the paragraphs (a), (b), (c), (g), (h), (j), (l), amounts described in paragraphs
price of feeds, available supplies of (m), (n), (o), (p)(1), and (q)(3); and by (n)(1)(i) and (ii) of this section:
feeds, and other economic conditions removing paragraph (q)(4) to read as (i) The U.S. average NASS survey
which affect market supply and demand follows: price for 40-lb. block cheese reported by
for milk in the aforesaid marketing the Department for the month; and
areas. The minimum prices specified in § 1000.50 Class prices, component prices, (ii) The U.S. average NASS survey
the orders as hereby amended are such and advanced pricing factors. price for 500-pound barrel cheddar
prices as will reflect the aforesaid * * * The price described in cheese (38 percent moisture) reported
factors, insure a sufficient quantity of paragraph (d) of this section shall be by the Department for the month plus 3
pure and wholesome milk, and be in the derived from the Class II skim milk cents;
public interest; and price announced on or before the 23rd (2) Subtract 16.5 cents from the price
(3) The said orders as hereby day of the month preceding the month computed pursuant to paragraph (n)(1)
amended regulate the handling of milk to which it applies and the butterfat of this section and multiply the result
in the same manner as, and are price announced on or before the 5th by 1.383;

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(3) Add to the amount computed Class I pursuant to § 1000.44(a)(8) and 3. Section 1001.62 is amended by
pursuant to paragraph (n)(2) of this the corresponding step of § 1000.44(b), revising paragraphs (e) and (g) to read as
section an amount computed as follows: excluding such skim milk and butterfat follows:
(i) Subtract 16.5 cents from the price in receipts of fluid milk products from
computed pursuant to paragraph (n)(1) an unregulated supply plant to the § 1001.62 Announcement of producer
prices.
of this section and multiply the result extent that an equivalent amount of
by 1.572; and skim milk or butterfat disposed of to * * * * *
(ii) Subtract 0.9 times the butterfat such plant by handlers fully regulated (e) The butterfat price;
price computed pursuant to paragraph under any Federal milk order is * * * * *
(l) of this section from the amount classified and priced as Class I milk and (g) The statistical uniform price for
computed pursuant to paragraph is not used as an offset for any other milk containing 3.5 percent butterfat
(n)(3)(i) of this section; and payment obligation under any order. computed by combining the Class III
(iii) Multiply the amount computed * * * * * price and the producer price
pursuant to paragraph (n)(3)(ii) of this 2. Section 1001.61 is revised to read differential.
section by 1.17. as follows: 4. Section 1001.71 is amended by
(o) Other solids price. The other solids revising paragraphs (b)(2) and (b)(3) to
price per pound, rounded to the nearest § 1001.61 Computation of producer price read as follows:
one-hundredth cent, shall be the U.S. differential.
average NASS dry whey survey price For each month, the market § 1001.71 Payments to the producer-
administrator shall compute a producer settlement fund.
reported by the Department for the
month minus 15.9 cents, with the result price differential per hundredweight. * * * * *
multiplied by 1.03. The report of any handler who has not (b) * * *
(p) * * * made payments required pursuant to (2) An amount obtained by
(1) Multiply 0.0005 by the weighted § 1001.71 for the preceding month shall multiplying the total pounds of protein,
average price computed pursuant to not be included in the computation of other solids, and butterfat contained in
paragraph (n)(1) of this section and the producer price differential, and such producer milk by the protein, other
round to the 5th decimal place; handler’s report shall not be included in solids, and butterfat prices respectively;
* * * * * the computation for succeeding months and
(q) * * * until the handler has made full payment (3) An amount obtained by
(3) An advanced butterfat price per of outstanding monthly obligations. multiplying the pounds of skim milk
pound, rounded to the nearest one- Subject to the conditions in this and butterfat for which a value was
hundredth cent, shall be calculated by paragraph, the market administrator computed pursuant to § 1001.60(h) by
computing a weighted average of the 2 shall compute the producer price the producer price differential as
most recent U.S. average NASS AA differential in the following manner: adjusted pursuant to § 1001.75 for the
Butter survey prices announced before (a) Combine into one total the values location of the plant from which
the 24th day of the month, subtracting computed pursuant to § 1001.60 for all received.
11.5 cents from this average, and handlers required to file reports 5. Section 1001.73 is amended by
multiplying the result by 1.20. prescribed in § 1001.30; revising paragraphs (a)(2)(ii) and
(b) Subtract the total of the values (b)(3)(vi) to read as follows:
PART 1001—MILK IN THE obtained by multiplying each handler’s
total pounds of protein, other solids, § 1001.73 Payments to producers and to
NORTHEAST MARKETING AREA
and butterfat contained in the milk for cooperative associations.
1. Section 1001.60 is amended by which an obligation was computed (a) * * *
revising paragraphs (c)(3), (d)(2), and (h) pursuant to § 1001.60 by the protein (2) * * *
to read as follows: price, other solids price, and the (ii) Multiply the pounds of butterfat
§ 1001.60 Handler’s value of milk. butterfat price, respectively; received by the butterfat price for the
(c) Add an amount equal to the minus month;
* * * * * location adjustments and subtract an
(c) * * * * * * * *
amount equal to the plus location (b) * * *
(3) Add an amount obtained by
adjustments computed pursuant to (3) * * *
multiplying the pounds of butterfat in
§ 1001.75; (vi) Multiply the pounds of butterfat
Class III by the butterfat price. (d) Add an amount equal to not less
(d) * * * in Class III and Class IV milk by the
than one-half of the unobligated balance butterfat price for the month;
(2) Add an amount obtained by
in the producer-settlement fund;
multiplying the pounds of butterfat in (e) Divide the resulting amount by the * * * * *
Class IV by the butterfat price. sum of the following for all handlers PART 1030—MILK IN THE UPPER
* * * * * included in these computations:
(h) Multiply the difference between MIDWEST MARKETING AREA
(1) The total hundredweight of
the Class I price applicable at the producer milk; and 1. Section 1030.60 is amended by
location of the nearest unregulated (2) The total hundredweight for which revising paragraphs (c)(3), (d)(2), and (i)
supply plants from which an equivalent a value is computed pursuant to to read as follows:
volume was received and the Class III § 1001.60(h); and
price by the pounds of skim milk and (f) Subtract not less than 4 cents nor § 1030.60 Handler’s value of milk.
butterfat in receipts of concentrated more than 5 cents from the price * * * * *
fluid milk products assigned to Class I computed pursuant to paragraph (e) of (c) * * *
pursuant to § 1000.43(d) and this section. The result, rounded to the (3) Add an amount obtained by
§ 1000.44(a)(3)(i) and the corresponding nearest cent, shall be known as the multiplying the pounds of butterfat in
step of § 1000.44(b) and the pounds of producer price differential for the Class III by the butterfat price.
skim milk and butterfat subtracted from month. (d) * * *

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(2) Add an amount obtained by adjustments computed pursuant to (v) The pounds of butterfat in Class III
multiplying the pounds of butterfat in § 1030.75; and Class IV milk times the butterfat
Class IV by the butterfat price. (d) Add an amount equal to not less price;
* * * * * than one-half of the unobligated balance * * * * *
(i) Multiply the difference between in the producer-settlement fund; (3) * * *
the Class I price applicable at the (e) Divide the resulting amount by the (ii) The pounds of butterfat received
location of the nearest unregulated sum of the following for all handlers times the butterfat price for the month;
supply plants from which an equivalent included in these computations: * * * * *
volume was received and the Class III (1) The total hundredweight of
price by the pounds of skim milk and producer milk; and PART 1032—MILK IN THE CENTRAL
butterfat in receipts of concentrated (2) The total hundredweight for which MARKETING AREA
fluid milk products assigned to Class I a value is computed pursuant to
1. Section 1032.60 is amended by
pursuant to § 1000.43(d) and § 1030.60(i); and
revising paragraphs (c)(3), (d)(2), and (i)
§ 1000.44(a)(3)(i) and the corresponding (f) Subtract not less than 4 cents nor
to read as follows:
step of § 1000.44(b) and the pounds of more than 5 cents from the price
skim milk and butterfat subtracted from computed pursuant to paragraph (e) of § 1032.60 Handler’s value of milk.
Class I pursuant to § 1000.44(a)(8) and this section. The result shall be known * * * * *
the corresponding step of § 1000.44(b), as the producer price differential for the (c) * * *
excluding such skim milk and butterfat month. (3) Add an amount obtained by
in receipts of fluid milk products from 3. Section 1030.62 is amended by multiplying the pounds of butterfat in
an unregulated supply plant to the revising paragraphs (e) and (h) to read Class III by the butterfat price.
extent that an equivalent amount of as follows: (d) * * *
skim milk or butterfat disposed of to (2) Add an amount obtained by
§ 1030.62 Announcement of producer
such plant by handlers fully regulated multiplying the pounds of butterfat in
prices.
under any Federal milk order is Class IV by the butterfat price.
classified and priced as Class I milk and * * * * *
* * * * *
is not used as an offset for any other (e) The butterfat price;
(i) Multiply the difference between
payment obligation under any order. * * * * * the Class I price applicable at the
* * * * * (h) The statistical uniform price for location of the nearest unregulated
2. Section 1030.61 is revised to read milk containing 3.5 percent butterfat, supply plants from which an equivalent
as follows: computed by combining the Class III volume was received and the Class III
price and the producer butterfat price price by the pounds of skim milk and
§ 1030.61 Computation of producer price differential. butterfat in receipts of concentrated
differential. 4. Section 1030.71 is amended by fluid milk products assigned to Class I
For each month the market revising paragraphs (b)(2) and (b)(4) to pursuant to § 1000.43(d) and
administrator shall compute a producer read as follows: § 1000.44(a)(3)(i) and the corresponding
price differential per hundredweight. step of § 1000.44(b) and the pounds of
The report of any handler who has not § 1030.71 Payments to the producer-
settlement fund. skim milk and butterfat subtracted from
made payments required pursuant to Class I pursuant to § 1000.44(a)(8) and
§ 1030.71 for the preceding month shall * * * * *
the corresponding step of § 1000.44(b),
not be included in the computation of (b) * * *
excluding such skim milk and butterfat
the producer price differential, and such (2) An amount obtained by
in receipts of fluid milk products from
handler’s report shall not be included in multiplying the total pounds of protein,
an unregulated supply plant to the
the computation for succeeding months other solids, and butterfat contained in
extent that an equivalent amount of
until the handler has made full payment producer milk by the protein, other
skim milk or butterfat disposed of to
of outstanding monthly obligations. solids, and butterfat prices respectively;
such plant by handlers fully regulated
Subject to the conditions of this * * * * * under any Federal milk order is
paragraph, the market administrator (4) An amount obtained by classified and priced as Class I milk and
shall compute the producer price multiplying the pounds of skim milk is not used as an offset for any other
differential in the following manner: and butterfat for which a value was payment obligation under any order.
(a) Combine into one total the values computed pursuant to § 1030.60(i) by * * * * *
computed pursuant to § 1030.60 for all the producer price differential as 2. Section 1032.61 is revised to read
handlers required to file reports adjusted pursuant to § 1030.75 for the as follows:
prescribed in § 1030.30; location of the plant from which
(b) Subtract the total values obtained received. § 1032.61 Computation of producer price
by multiplying each handler’s total 5. Section 1030.73 is amended by differential.
pounds of protein, other solids, and revising paragraphs (a)(2)(ii), (c)(2)(v), For each month the market
butterfat contained in the milk for and (c)(3)(ii) to read as follows: administrator shall compute a producer
which an obligation was computed price differential per hundredweight.
pursuant to § 1030.60 by the protein § 1030.73 Payments to producers and to
The report of any handler who has not
cooperative associations.
price, other solids price, and the made payments required pursuant to
butterfat price, respectively, and the (a) * * * § 1032.71 for the preceding month shall
total value of the somatic cell (2) * * * not be included in the computation of
adjustment pursuant to § 1030.30(a)(1) (ii) The pounds of butterfat received the producer price differential, and such
and (c)(1); times the butterfat price for the month; handler’s report shall not be included in
(c) Add an amount equal to the minus * * * * * the computation for succeeding months
location adjustments and subtract an (c) * * * until the handler has made full payment
amount equal to the plus location (2) * * * of outstanding monthly obligations.

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67944 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

Subject to the conditions of this (4) An amount obtained by classified and priced as Class I milk and
paragraph, the market administrator multiplying the pounds of skim milk is not used as an offset for any other
shall compute the producer price and butterfat for which a value was payment obligation under any order.
differential in the following manner: computed pursuant to § 1032.60(i) by * * * * *
(a) Combine into one total the values the producer price differential as 2. Section 1033.61 is revised to read
computed pursuant to § 1032.60 for all adjusted pursuant to § 1032.75 for the as follows:
handlers required to file reports location of the plant from which
prescribed in § 1032.30; received. § 1033.61 Computation of producer price
(b) Subtract the total values obtained 5. Section 1032.73 is amended by differential.
by multiplying each handler’s total revising paragraphs (a)(2)(ii), (c)(2)(v), For each month the market
pounds of protein, other solids, and and (c)(3)(ii) to read as follows: administrator shall compute a producer
butterfat contained in the milk for price differential per hundredweight.
which an obligation was computed § 1032.73 Payments to producers and to The report of any handler who has not
cooperative associations. made payments required pursuant to
pursuant to § 1032.60 by the protein
price, the other solids price, and the (a) * * * § 1033.71 for the preceding month shall
butterfat price, respectively, and the (2) * * * not be included in the computation of
total value of the somatic cell (ii) The pounds of butterfat received the producer price differential, and such
adjustment pursuant to § 1032.30(a)(1) times the butterfat price for the month; handler’s report shall not be included in
and (c)(1); * * * * * the computation for succeeding months
(c) Add an amount equal to the minus (c) * * * until the handler has made full payment
location adjustments and subtract an (2) * * * of outstanding monthly obligations.
amount equal to the plus location (v) The pounds of butterfat in Class III Subject to the conditions of this
adjustments computed pursuant to and Class IV milk times the butterfat paragraph, the market administrator
§ 1032.75; price; shall compute the producer price
(d) Add an amount equal to not less * * * * * differential in the following manner:
than one-half of the unobligated balance (3) * * * (a) Combine into one total the values
in the producer-settlement fund; (ii) The pounds of butterfat received computed pursuant to § 1033.60 for all
(e) Divide the resulting amount by the times the butterfat price for the month; handlers required to file reports
sum of the following for all handlers * * * * * prescribed in § 1033.30;
included in these computations: (b) Subtract the total values obtained
(1) The total hundredweight of PART 1033—MILK IN THE MIDEAST by multiplying each handler’s total
producer milk; and MARKETING AREA pounds of protein, other solids, and
(2) The total hundredweight for which butterfat contained in the milk for
a value is computed pursuant to 1. Section 1033.60 is amended by which an obligation was computed
§ 1032.60(i); and revising paragraphs (c)(3), (d)(2), and (i) pursuant to § 1033.60 by the protein
(f) Subtract not less than 4 cents nor to read as follows: price, the other solids price, and the
more than 5 cents from the price § 1033.60 Handler’s value of milk. butterfat price, respectively, and the
computed pursuant to paragraph (e) of total value of the somatic cell
* * * * *
this section. The result shall be known adjustment pursuant to § 1033.30(a)(1)
(c) * * *
as the producer price differential for the and (c)(1);
(3) Add an amount obtained by
month. (c) Add an amount equal to the minus
multiplying the pounds of butterfat in
3. Section 1032.62 is amended by location adjustments and subtract an
Class III by the butterfat price.
revising paragraphs (e) and (h) to read amount equal to the plus location
(d) * * *
as follows: (2) Add an amount obtained by adjustments computed pursuant to
multiplying the pounds of butterfat in § 1033.75;
§ 1032.62 Announcement of producer
prices. Class IV by the butterfat price. (d) Add an amount equal to not less
than one-half of the unobligated balance
* * * * * * * * * * in the producer-settlement fund;
(e) The butterfat price; (i) Multiply the difference between (e) Divide the resulting amount by the
* * * * * the Class I price applicable at the sum of the following for all handlers
(h) The statistical uniform price for location of the nearest unregulated included in these computations:
milk containing 3.5 percent butterfat, supply plants from which an equivalent (1) The total hundredweight of
computed by combining the Class III volume was received and the Class III producer milk; and
price and the producer price price by the pounds of skim milk and (2) The total hundredweight for which
differential. butterfat in receipts of concentrated a value is computed pursuant to
4. Section 1032.71 is amended by fluid milk products assigned to Class I § 1033.60(i); and
revising paragraphs (b)(2) and (b)(4) to pursuant to § 1000.43(d) and (f) Subtract not less than 4 cents nor
read as follows: § 1000.44(a)(3)(i) and the corresponding more than 5 cents from the price
step of § 1000.44(b) and the pounds of computed pursuant to paragraph (e) of
§ 1032.71 Payments to the producer- skim milk and butterfat subtracted from
settlement fund. this section. The result shall be known
Class I pursuant to § 1000.44(a)(8) and as the producer price differential for the
* * * * * the corresponding step of § 1000.44(b), month.
(b) * * * excluding such skim milk and butterfat 3. Section 1033.62 is amended by
(2) An amount obtained by in receipts of fluid milk products from revising paragraphs (e) and (h) to read
multiplying the total pounds of protein, an unregulated supply plant to the as follows:
other solids, and butterfat contained in extent that an equivalent amount of
producer milk by the protein, other skim milk or butterfat disposed of to § 1033.62 Announcement of producer
solids, and butterfat prices respectively; such plant by handlers fully regulated prices.
* * * * * under any Federal milk order is * * * * *

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(e) The butterfat price; volume was received and the Class III (2) The total hundredweight for which
* * * * * price by the pounds of skim milk and a value is computed pursuant to
(h) The statistical uniform price for butterfat in receipts of concentrated § 1124.60(h); and
milk containing 3.5 percent butterfat, fluid milk products assigned to Class I (f) Subtract not less than 4 cents nor
computed by combining the Class III pursuant to § 1000.43(d) and more than 5 cents from the price
price and the producer price § 1000.44(a)(3)(i) and the corresponding computed pursuant to paragraph (e) of
differential. step of § 1000.44(b) and the pounds of this section. The result shall be known
4. Section 1033.71 is amended by skim milk and butterfat subtracted from as the producer price differential for the
revising paragraphs (b)(2) and (b)(4) to Class I pursuant to § 1000.44(a)(8) and month.
read as follows: the corresponding step of § 1000.44(b), 3. Section 1124.62 is amended by
excluding such skim milk and butterfat revising paragraphs (e) and (g) to read as
§ 1033.71 Payments to the producer- in receipts of fluid milk products from
settlement fund. follows:
an unregulated supply plant to the
* * * * * extent that an equivalent amount of § 1124.62 Announcement of producer
(b) * * * skim milk or butterfat disposed of to prices.
(2) An amount obtained by such plant by handlers fully regulated * * * * *
multiplying the total pounds of protein, under any Federal milk order is (e) The butterfat price;
other solids, and butterfat contained in classified and priced as Class I milk and * * * * *
producer milk by the protein, other is not used as an offset for any other
solids, and butterfat prices, respectively; (g) The statistical uniform price for
payment obligation under any order.
milk containing 3.5 percent butterfat,
* * * * * * * * * * computed by combining the Class III
(4) An amount obtained by 2. Section 1124.61 is revised to read price and the producer price
multiplying the pounds of skim milk as follows: differential.
and butterfat for which a value was
computed pursuant to § 1033.60(i) by § 1124.61 Computation of producer price 4. Section 1124.71 is amended by
the producer price differential as differential. revising paragraphs (b)(2) and (b)(3) to
adjusted pursuant to § 1033.75 for the read as follows:
For each month the market
location of the plant from which administrator shall compute a producer § 1124.71 Payments to the producer-
received. price differential per hundredweight. settlement fund.
5. Section 1033.73 is amended by The report of any handler who has not * * * * *
revising paragraphs (a)(2)(ii) and made payments required pursuant to (b) * * *
(b)(3)(v) to read as follows: § 1124.71 for the preceding month shall (2) An amount obtained by
§ 1033.73 Payments to producers and to not be included in the computation of multiplying the total pounds of protein,
cooperative associations. the producer price differential, and such other solids, and butterfat contained in
(a) * * * handler’s report shall not be included in producer milk by the protein, other
(2) * * * the computation for succeeding months solids, and butterfat prices respectively;
(ii) The pounds of butterfat received until the handler has made full payment and
times the butterfat price for the month; of outstanding monthly obligations.
(3) An amount obtained by
Subject to the conditions of this
* * * * * multiplying the pounds of skim milk
paragraph, the market administrator
(b) * * * and butterfat for which a value was
shall compute the producer price
(3) * * * computed pursuant to § 1124.60(h) by
differential in the following manner:
(v) The pounds of butterfat in Class III the producer price differential as
and Class IV milk times the butterfat (a) Combine into one total the values adjusted pursuant to § 1124.75 for the
price; computed pursuant to § 1124.60 for all location of the plant from which
handlers required to file reports received.
* * * * *
prescribed in § 1124.30;
5. Section 1124.73 is amended by
PART 1124—MILK IN THE PACIFIC (b) Subtract the total values obtained revising paragraphs (a)(2)(ii), (c)(2)(v),
NORTHWEST MARKETING AREA by multiplying each handler’s total and (c)(3)(ii) to read as follows:
pounds of protein, other solids, and
1. Section 1124.60 is amended by butterfat contained in the milk for § 1124.73 Payments to producers and to
revising paragraphs (c)(3), (d)(2), and (h) which an obligation was computed cooperative associations.
to read as follows: pursuant to § 1124.60 by the protein (a) * * *
§ 1124.60 Handler’s value of milk. price, the other solids price, and the (2) * * *
butterfat price, respectively; (ii) The pounds of butterfat received
* * * * *
(c) * * * (c) Add an amount equal to the minus times the butterfat price for the month;
(3) Add an amount obtained by location adjustments and subtract an * * * * *
multiplying the pounds of butterfat in amount equal to the plus location
adjustments computed pursuant to (c) * * *
Class III by the butterfat price. (2) * * *
(d) * * * § 1124.75;
(d) Add an amount equal to not less (v) The pounds of butterfat in Class III
(2) Add an amount obtained by
than one-half of the unobligated balance and Class IV milk times the butterfat
multiplying the pounds of butterfat in
in the producer-settlement fund; price;
Class IV by the butterfat price.
(e) Divide the resulting amount by the * * * * *
* * * * *
(h) Multiply the difference between sum of the following for all handlers (3) * * *
the Class I price applicable at the included in these computations: (ii) The pounds of butterfat received
location of the nearest unregulated (1) The total hundredweight of times the butterfat price for the month;
supply plants from which an equivalent producer milk; and * * * * *

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67946 Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules

PART 1126—MILK IN THE total pounds of protein, other solids, § 1126.73 Payments to producers and to
SOUTHWEST MARKETING AREA and butterfat contained in the milk for cooperative associations.
which an obligation was computed (a) * * *
1. Section 1126.60 is amended by pursuant to § 1126.60 by the protein (2) * * *
revising paragraphs (c)(3), (d)(2), and (i) price, other solids price, and the (ii) Multiply the pounds of butterfat
to read as follows: butterfat price, respectively, and the received times the butterfat price for the
§ 1126.60 Handler’s value of milk. total value of the somatic cell month;
* * * * * adjustment pursuant to § 1126.30(a)(1) * * * * *
(c) * * * and (c)(1); (b) * * *
(3) Add an amount obtained by (c) Add an amount equal to the minus (3) * * *
multiplying the pounds of butterfat in location adjustments and subtract an (v) The pounds of butterfat in Class III
Class III by the butterfat price. amount equal to the plus location and Class IV milk times the butterfat
(d) * * * adjustments computed pursuant to price;
(2) Add an amount obtained by § 1126.75; * * * * *
multiplying the pounds of butterfat in (d) Add an amount equal to not less
Class IV by the butterfat price. than one-half of the unobligated balance PART 1135—MILK IN THE WESTERN
in the producer-settlement fund; MARKETING AREA
* * * * * (e) Divide the resulting amount by the
(i) Multiply the difference between 1. Section 1135.60 is amended by
sum of the following for all handlers
the Class I price applicable at the revising paragraphs (c)(3), (d)(2) and (h)
included in these computations:
location of the nearest unregulated (1) The total hundredweight of to read as follows:
supply plants from which an equivalent producer milk; and
volume was received and the Class III (2) The total hundredweight for which § 1135.60 Handler’s value of milk.
price by the pounds of skim milk and a value is computed pursuant to * * * * *
butterfat in receipts of concentrated § 1126.60(i); and (c) * * *
fluid milk products assigned to Class I (f) Subtract not less than 4 cents nor (3) Add an amount obtained by
pursuant to § 1000.43(d) and more than 5 cents from the price multiplying the pounds of butterfat in
§ 1000.44(a)(3)(i) and the corresponding computed pursuant to paragraph (e) of Class III by the butterfat price.
step of § 1000.44(b) and the pounds of this section. The result shall be known (d) * * *
skim milk and butterfat subtracted from as the producer price differential for the (2) Add an amount obtained by
Class I pursuant to § 1000.44(a)(8) and month. multiplying the pounds of butterfat in
the corresponding step of § 1000.44(b), 3. Section 1126.62 is amended by Class IV by the butterfat price.
excluding such skim milk and butterfat revising paragraphs (e) and (h) to read * * * * *
in receipts of fluid milk products from as follows: (h) Multiply the difference between
an unregulated supply plant to the the Class I price applicable at the
extent that an equivalent amount of § 1126.62 Announcement of producer
prices. location of the nearest unregulated
skim milk or butterfat disposed of to
supply plants from which an equivalent
such plant by handlers fully regulated * * * * *
(e) The butterfat price; volume was received and the Class III
under any Federal milk order is
price by the pounds of skim milk and
classified and priced as Class I milk and * * * * * butterfat in receipts of concentrated
is not used as an offset for any other (h) The statistical uniform price for
fluid milk products assigned to Class I
payment obligation under any order. milk containing 3.5 percent butterfat,
pursuant to § 1000.43(d) and
* * * * * computed by combining the Class III
§ 1000.44(a)(3)(i) and the corresponding
2. Section 1126.61 is revised to read price and the producer price
step of § 1000.44(b) and the pounds of
as follows: differential.
4. Section 1126.71 is amended by skim milk and butterfat subtracted from
§ 1126.61 Computation of producer price revising paragraphs (b)(2) and (b)(4) to Class I pursuant to § 1000.44(a)(8) and
differential. read as follows: the corresponding step of § 1000.44(b),
For each month the market excluding such skim milk and butterfat
administrator shall compute a producer § 1126.71 Payments to the producer- in receipts of fluid milk products from
price differential per hundredweight. settlement fund. an unregulated supply plant to the
The report of any handler who has not * * * * * extent that an equivalent amount of
made payments required pursuant to (b) * * * skim milk or butterfat disposed of to
§ 1126.71 for the preceding month shall (2) An amount obtained by such plant by handlers fully regulated
not be included in the computation of multiplying the total pounds of protein, under any Federal milk order is
the producer price differential, and such other solids, and butterfat contained in classified and priced as Class I milk and
handler’s report shall not be included in producer milk by the protein, other is not used as an offset for any other
the computation for succeeding months solids, and butterfat prices respectively; payment obligation under any order.
until the handler has made full payment * * * * * * * * * *
of outstanding monthly obligations. (4) An amount obtained by 2. Section 1135.61 is revised to read
Subject to the conditions of this multiplying the pounds of skim milk as follows:
paragraph, the market administrator and butterfat for which a value was
shall compute the producer price computed pursuant to § 1126.60(i) by § 1135.61 Computation of producer price
differential in the following manner: the producer price differential as differential.
(a) Combine into one total the values adjusted pursuant to § 1126.75 for the For each month the market
computed pursuant to § 1126.60 for all location of the plant from which administrator shall compute a producer
handlers required to file reports received. price differential per hundredweight.
prescribed in § 1126.30; 5. Section 1126.73 is amended by The report of any handler who has not
(b) Subtract the total of the values revising paragraphs (a)(2)(ii) and made payments required pursuant to
obtained by multiplying each handler’s (b)(3)(v) to read as follows: § 1135.71 for the preceding month shall

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Federal Register / Vol. 67, No. 216 / Thursday, November 7, 2002 / Proposed Rules 67947

not be included in the computation of (e) The butterfat price; agreement and do hereby agree that the
the producer price differential, and such * * * * * provisions referred to in paragraph I hereof
handler’s report shall not be included in (g) The statistical uniform price for as augmented by the provisions specified in
the computation for succeeding months paragraph II hereof, shall be and are the
milk containing 3.5 percent butterfat
until the handler has made full payment provisions of this marketing agreement as if
computed by combining the Class III
of outstanding monthly obligations. set out in full herein.
price and the producer price I. The findings and determinations, order
Subject to the conditions of this differential. relative to handling, and the provisions of
paragraph, the market administrator * * * * * §§ llll1 to llll, all inclusive, of the
shall compute the producer price 4. Section 1135.71 is amended by order regulating the handling of milk in the
differential in the following manner: revising paragraph (b)(2) and removing (llll Name of orderllll) marketing
(a) Combine into one total the values and reserving paragraph (b)(3) to read as area (7 CFR PARTllll2) which is
computed pursuant to § 1135.60 for all annexed hereto; and
follows:
handlers required to file reports II. The following provisions: § llll3
prescribed in § 1135.30; § 1135.71 Payments to the producer- Record of milk handled and authorization to
(b) Subtract the total values obtained settlement fund. correct typographical errors.
by multiplying each handler’s total * * * * * (a) Record of milk handled. The
pounds of protein, other solids, and (b) * * * undersigned certifies that he/she handled
butterfat contained in the milk for (2) An amount obtained by during the month ofllll4,
which an obligation was computed multiplying the total pounds of protein, hundredweight of milk covered by this
pursuant to § 1135.60 by the protein other solids, and butterfat contained in marketing agreement.
price, the other solids price, and the producer milk by the protein, other (b) Authorization to correct typographical
butterfat price, respectively; solids, and butterfat prices respectively; errors. The undersigned hereby authorizes
(c) Add an amount equal to the minus and the Deputy Administrator, or Acting Deputy
location adjustments and subtract an (3) [Reserved] Administrator, Dairy Programs, Agricultural
amount equal to the plus location Marketing Service, to correct any
* * * * * typographical errors which may have been
adjustments computed pursuant to 5. Section 1135.73 is amended by
§ 1135.75; made in this marketing agreement.
revising paragraphs (a)(2)(ii) and § llll3 Effective date. This marketing
(d) Add an amount equal to not less
(b)(3)(v) to read as follows: agreement shall become effective upon the
than one-half of the unobligated balance
in the producer-settlement fund; execution of a counterpart hereof by the
§ 1135.73 Payments to producers and to
(e) Divide the resulting amount by the Secretary in accordance with Section
cooperative associations.
sum of the following for all handlers 900.14(a) of the aforesaid rules of practice
(a) * * * and procedure.
included in these computations: (2) * * * In Witness Whereof, The contracting
(1) The total hundredweight of (ii) The pounds of butterfat received handlers, acting under the provisions of the
producer milk; and times the butterfat price for the month; Act, for the purposes and subject to the
(2) The total hundredweight for which
* * * * * limitations herein contained and not
a value is computed pursuant to (b) * * * otherwise, have hereunto set their respective
§ 1135.60(h); and (3) * * * hands and seals.
(f) Subtract not less than 4 cents nor (v) The pounds of butterfat in Class III Signature By (Name) lllllllllll
more than 5 cents from the price and Class IV milk times the butterfat (Title) lllllllllllllllll
computed pursuant to paragraph (e) of price; (Address) llllllllllllllll
this section. The result shall be known
as the producer price differential for the * * * * * (Seal)
Attest
month. Marketing Agreement Regulating the
3. Section 1135.62 is amended by Handling of Milk in Certain Marketing [FR Doc. 02–27570 Filed 11–6–02; 8:45 am]
revising paragraphs (e) and (g) to read as Areas BILLING CODE 3410–02–P
follows: The parties hereto, in order to effectuate
the declared policy of the Act, and in 1 Firstand last sections of order.
§ 1135.62 Announcement of producer accordance with the rules of practice and 2 Appropriate Part number.
prices. procedure effective thereunder (7 CFR Part 3 Next consecutive section number.

* * * * * 900), desire to enter into this marketing 4 Appropriate representative period for the order.

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