Milk in the Appalachian and Southeast Marketing Areas; Partial Decision on Proposed Amendments to Marketing Agreements and to Orders, 55458-55478 [05-18758]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 70, Number 182 (Wednesday, September 21, 2005)]
[Proposed Rules]
[Pages 55458-55478]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18758]



[[Page 55457]]

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Part II





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Parts 1005 and 1007



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

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

[[Page 55458]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1005 and 1007

[Docket No. AO-388-A15 and AO-366-A44; DA-03-11]


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

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; partial final decision.

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SUMMARY: This partial final decision adopts proposed amendments to the 
Appalachian and Southeast marketing areas as contained in a partial 
recommended decision published in the Federal Register on May 20, 2005. 
Specifically, this decision would expand the Appalachian milk marketing 
area, eliminate the ability to simultaneously pool the same milk on the 
Appalachian or Southeast order and on a State-operated milk order that 
has marketwide pooling, and amend the transportation credit provisions 
of the Southeast and Appalachian orders. The orders as amended are 
subject to approval by producers in the affected markets.

FOR FURTHER INFORMATION CONTACT: Antoinette M. Carter, Marketing 
Specialist, USDA/AMS/Dairy Programs, Order Formulation and Enforcement 
Branch, STOP 0231-Room 2971, 1400 Independence Avenue, SW., Washington, 
DC 20250-0231, (202) 690-3465, e-mail address: 
antoinette.carter@usda.gov.

SUPPLEMENTARY INFORMATION: This administrative action is governed by 
the provisions of Sections 556 and 557 of Title 5 of the United States 
Code and, therefore, is excluded from the requirements of Executive 
Order 12866.
    These proposed amendments have been reviewed under Executive Order 
12988, Civil Justice Reform. This rule is not intended to have a 
retroactive effect. If adopted, this proposed rule will not preempt any 
state or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule.
    The Agricultural Marketing Agreement Act of 1937, as amended (7 
U.S.C. 601-674) (Act), provides that administrative proceedings must be 
exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may request 
modification or exemption from such order by filing with the Department 
a petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with the law. A handler is afforded the opportunity for a hearing on 
the petition. After a hearing, the Department would rule on the 
petition. The Act provides that the district court of the United States 
in any district in which the handler is an inhabitant, or has its 
principal place of business, has jurisdiction in equity to review the 
Department's ruling on the petition, provided a bill in equity is filed 
not later than 20 days after the date of the entry of the ruling.

Regulatory Flexibility Analysis and Paperwork Reduction Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), the Agricultural Marketing Service has considered the economic 
impact of this action on small entities and has certified that this 
proposed rule will not have a significant economic impact on a 
substantial number of small entities.
    For the purpose of the Regulatory Flexibility Act, a dairy farm is 
considered a ``small business'' if it has an annual gross revenue of 
less than $750,000, and a dairy products manufacturer is a ``small 
business'' if it has fewer than 500 employees. For the purposes of 
determining which dairy farms are ``small businesses,'' the $750,000 
per year criterion was used to establish a production guideline of 
500,000 pounds per month. Although this guideline does not factor in 
additional monies that may be received by dairy producers, it should be 
an inclusive standard for most ``small'' dairy farmers. For purposes of 
determining a handler's size, if the plant is part of a larger company 
operating multiple plants that collectively exceed the 500-employee 
limit, the plant will be considered a large business even if the local 
plant has fewer than 500 employees.
    During February 2004, the month in which the hearing was held, the 
milk of 7,311 dairy farmers was pooled on the Appalachian (Order 5) and 
Southeast (Order 7) milk orders (3,395 Order 5 dairy farmers and 3,916 
Order 7 dairy farmers). Of the total, 3,252 dairy farmers (or 96 
percent) and 3,764 dairy farmers (or 96 percent) were considered small 
businesses on the Appalachian and Southeast orders, respectively.
    During February 2004, there were a total of 36 plants associated 
with the Appalachian order (25 fully regulated plants, 7 partially 
regulated plants, 1 producer-handler, and 3 exempt plants) and a total 
of 51 plants associated with the Southeast order (32 fully regulated 
plants, 6 partially regulated plants, and 13 exempt plants). The number 
of plants meeting the small business criteria under the Appalachian and 
Southeast orders were 13 (or 36 percent) and 13 (or 25 percent), 
respectively.
    The proposed amendments adopted in this partial final decision 
would expand the Appalachian milk marketing area to include 25 counties 
and 15 cities in the State of Virginia that currently are not in any 
Federal milk marketing area (the partial recommended decision 
inadvertently referenced ``14 cities'' verses ``15 cities''). This 
decision adopts proposed amendments to the producer milk provisions of 
the Appalachian and Southeast milk orders that would prevent producers 
who share in the proceeds of a state marketwide pool from 
simultaneously sharing in the proceeds of a Federal marketwide pool on 
the same milk. In addition, this decision adopts proposed amendments to 
the transportation credit provisions of the Appalachian and Southeast 
orders.
    The proposed amendments to expand the Appalachian marketing area 
would likely continue to regulate under the Appalachian order two fluid 
milk distributing plants located in Roanoke, Virginia, and Lynchburg, 
Virginia, and shift the regulation of a distributing plant located in 
Mount Crawford, Virginia, from the Northeast order to the Appalachian 
order.
    The proposed amendments would allow the Kroger Company's (Kroger) 
Westover Dairy plant, located in Lynchburg, Virginia, that competes for 
a milk supply with other Appalachian order plants to continue to be 
regulated under the order if it meets the order's minimum performance 
standards. The plant has been regulated by the Appalachian order since 
January 2000. In addition, the proposed amendments would remove the 
disruption that occurs as a result of the Dean Foods Company's (Dean 
Foods) Morningstar Foods plant, located in Mount Crawford, Virginia, 
shifting its regulatory status under the Northeast order.
    The Appalachian order currently contains a ``lock-in'' provision 
that provides that a plant located within the marketing area that meets 
the order's minimum performance standard will be regulated by the 
Appalachian order even if the majority of the plant's Class I route 
sales are in another marketing area. The proposed expansion along with 
the lock-in provision would regulate fluid milk distributing plants 
physically located in the marketing area that meet the order's minimum

[[Page 55459]]

performance standard even if the majority of their sales are in another 
Federal order marketing area. Accordingly, the proposed amendments 
would regulate three distributing plants under the Appalachian order: 
Kroger's Westover Dairy, located in Lynchburg, Virginia; Dean Foods' 
Morningstar Foods plant, located in Mount Crawford, Virginia; and 
National Dairy Holdings' Valley Rich Dairy, located in Roanoke, 
Virginia. Based on Small Business Administration criteria these are all 
large businesses.
    This decision adopts proposed amendments to the transportation 
credit provisions of the Appalachian and Southeast orders. The 
Appalachian and Southeast orders contain provisions for a 
transportation credit balancing fund from which payments are made to 
handlers to partially offset the cost of moving bulk milk into each 
marketing area to meet fluid milk demands.
    The proposed amendments adopted in this final decision would 
increase the maximum rate of the transportation credit assessment of 
the Appalachian and Southeast orders by 3 cents per hundredweight. 
Specifically, the proposed amendments would increase the maximum rate 
of assessment for the Appalachian order from 6.5 cents per 
hundredweight to 9.5 cents per hundredweight while increasing the 
maximum rate of assessment for the Southeast order from 7 cents per 
hundredweight to 10 cents per hundredweight. Increasing the 
transportation assessment rates will tend to minimize the exhaustion of 
the transportation credit balancing fund when there is a need to import 
supplemental milk from outside the marketing areas to meet Class I 
needs.
    Currently, the Appalachian and Southeast orders provide that 
transportation credits shall apply to the milk of a dairy farmer who 
was not a ``producer'' under the order during more than two of the 
immediately preceding months of February through May but not more than 
50 percent of the milk production of the dairy farmer, in aggregate, 
was received as producer milk under the order during those two months. 
The proposed amendments contained in this final decision would provide 
the Market Administrator of the Appalachian order and the Market 
Administrator of the Southeast order the discretionary authority to 
adjust the 50 percent milk production standard.
    This decision adopts proposed amendments that would prohibit the 
simultaneous pooling of the same milk on the Appalachian or Southeast 
milk marketing orders and on a State-operated order that provides for 
the marketwide pooling of milk. Since the 1960's, the Federal milk 
order program has recognized the harm and disorder that result to both 
producers and handlers when the same milk of a producer is 
simultaneously pooled on more than one Federal order. When this occurs, 
producers do not receive uniform minimum prices, and handlers receive 
unwarranted competitive advantages.
    The need to prevent ``double pooling'' became critically important 
as distribution areas expanded, orders merged, and a national pricing 
surface was adopted. Milk already pooled under a State-operated program 
and able to simultaneously be pooled under a Federal order has 
essentially the same undesirable outcomes that Federal orders once 
experienced and subsequently corrected. Accordingly, proposed 
amendments to eliminate the ``double pooling'' of the same milk on the 
Appalachian or Southeast order and a State-operated milk order that has 
marketwide pooling are adopted.
    The proposed amendments would be applied to all Appalachian and 
Southeast order participants (producers and handlers), which consist of 
both large and small business. Since the proposed amendments adopted in 
this final decision would be subject to all the orders' producers and 
handlers regardless of their size, the provisions are not expected to 
provide a competitive advantage to any participant. Accordingly, the 
proposed amendments will not have a significant economic impact on a 
substantial number of small entities.
    A review of reporting requirements was completed under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was 
determined that these adopted proposed amendments would have no impact 
on reporting, recordkeeping, or other compliance requirements because 
they would remain identical to the current requirements. No new forms 
are proposed and no additional reporting requirements would be 
necessary.
    This action does not require additional information collection that 
requires clearance by the Office of Management and Budget (OMB) beyond 
currently approved information collection. The primary sources of data 
used to complete the forms are routinely used in most business 
transactions. Forms require only a minimal amount of information which 
can be supplied without data processing equipment or a trained 
statistical staff. Thus, the information collection and reporting 
burden is relatively small. Requiring the same reports for all handlers 
does not significantly disadvantage any handler that is smaller than 
the industry average.
    Prior documents in this proceeding:
    Notice of Hearing: Issued January 16, 2004; published January 23, 
2004 (69 FR 3278).
    Partial Recommended Decision: Issued May 13, 2005; published May 
20, 2005 (70 FR 29410).

Preliminary Statement

    A public hearing was held upon proposed amendments to the marketing 
agreements and orders regulating the handling of milk in the 
Appalachian and Southeast marketing areas. The hearing was held, 
pursuant to the provisions of the Agricultural Marketing Agreement Act 
of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of 
practice and procedure governing the formulation of marketing 
agreements and marketing orders (7 CFR part 900), at Atlanta, Georgia, 
on February 23-26, 2004, pursuant to a notice of hearing issued January 
16, 2004, and published January 20, 2004 (69 FR 3278).
    Upon the basis of the evidence introduced at the hearing and the 
record thereof, the Department, on May 13, 2005, issued a Partial 
Recommended Decision containing notice of the opportunity to file 
written exceptions thereto.
    The material issues, findings, conclusions, and rulings of the 
Partial Recommended Decision are hereby approved and adopted and are 
set forth in herein. The material issues on the record of the hearing 
relate to:
    1. Merger of the Appalachian and Southeast Marketing Areas.
    a. Merging the Appalachian and Southeast milk marketing areas and 
remaining fund balances.
    b. Expansion of the Appalachian marketing area.
    c. Transportation credits provisions.
    2. Promulgation of a new ``Mississippi Valley'' milk order.
    3. Eliminating the simultaneous pooling of the same milk on a 
Federal milk order and a State-operated milk order that provides for 
marketwide pooling.
    4. Producer-handler provisions.
    This partial final decision deals only with Issues 1 through 3. 
Issue No. 4 will be addressed separately in a forthcoming decision.

Findings and Conclusions

    The following findings and conclusions on the material issues are 
based on evidence presented at the hearing and the record thereof:

[[Page 55460]]

1. Merger of the Appalachian and Southeast Marketing Areas

1a. Merging the Appalachian and Southeast Milk Marketing Areas and 
Remaining Fund Balances
    This decision does not adopt a proposal that would merge the 
current Appalachian marketing area and Southeast milk marketing area 
into a single marketing area under a proposed single milk order. 
Accordingly, a proposal that would combine the fund balances of the 
current Appalachian and Southeast orders is rendered moot and is not 
adopted in this final decision.
    The Appalachian marketing area consists of the States of North 
Carolina and South Carolina, parts of eastern Tennessee, Kentucky 
excluding southwest counties, 7 counties in northwest/central Georgia, 
20 counties in southern Indiana, 8 counties and 2 cities in Virginia, 
and 2 counties in West Virginia. The Southeast order marketing area 
consists of the entire States of Alabama, Arkansas, Louisiana, 
Mississippi, Georgia (excluding 7 northern counties), southern 
Missouri, western/central Tennessee, and southern Kentucky.
    A witness testifying on behalf of Southern Marketing Agency, Inc. 
(SMA), presented testimony in support of Proposals 1 and 2 as contained 
in the hearing notice published in the Federal Register (69 FR 3278). 
Proposal 1 would merge the current Appalachian and Southeast marketing 
areas into a single marketing area (hereafter referred to as the 
proposed merged milk order) and Proposal 2 would combine the remaining 
balances of funds of the current Appalachian and Southeast orders if 
the proposed merged order was adopted. According to the witness, SMA is 
a marketing agency whose cooperative members include Arkansas Dairy 
Cooperative Association, Inc. (ADCA), Dairy Farmers of America, Inc. 
(DFA), Dairymen's Marketing Cooperative, Inc. (DMC), Lone Star Milk 
Producers, Inc. (Lone Star), Maryland & Virginia Milk Producers 
Cooperative Association, Inc. (MD&VA), and Southeast Milk, Inc. (SMI) 
(proponent cooperatives).
    The witness for the proponent cooperatives said SMA was created in 
response to a changing market structure and is an extension of the 
cooperatives' initiative to consolidate and seek enhanced marketing 
efficiencies. The witness indicated that SMA pools certain costs and 
returns for its cooperative member producers supplying distributing 
plants fully regulated under the Appalachian and Southeast milk orders. 
SMA considers the Appalachian and Southeast orders one market in terms 
of the distribution of revenues, the allocation and pooling of 
marketing costs, milk supply and demand, and the development of its 
annual budget, the witness explained.
    The proponent cooperatives' witness stated that the proposed merged 
milk order would create a milk market which would be commonly supplied 
and deserving of a common blend price. The witness testified that the 
continued existence of the separate Appalachian and Southeast Federal 
milk orders across a functionally single fluid milk marketing area 
inhibits market efficiency in supplying and balancing the market, 
creates unjustified blend price differences, encourages uneconomic 
movements of milk, and results in the inequitable sharing of the Class 
I proceeds of what should be a single market.[FEDREG][VOL]*[/
VOL][NO]*[/NO][DATE]*[/DATE][PRORULES][PRORULE][PREAMB][AGENCY]*[/
AGENCY][SUBJECT]*[/SUBJECT][/PREAMB][SUPLINF][HED]*[/HED]?>
    The proponent cooperatives' witness stated that different blend 
prices and different and separate pool qualification requirements 
constitute disruptive conditions that would be removed by a merger of 
the orders. The witness asserted that the proposed merger would allow 
producer milk to flow more freely between pool plants and provide for 
the equal sharing of balancing costs across all producers in the 
proposed merged milk order.
    The proponent cooperatives' witness stressed that the adoption of 
the proposed merged milk order would assure producers that milk would 
be sold at reasonable minimum prices and producers would share pro rata 
in the returns from sales of milk including milk not needed for fluid 
use. The witness further stated that handlers would be assured that 
competitors would pay a single set of minimum prices for milk set by 
the established order. The witness stated that a proposed merged milk 
order is in the public interest because it assures that an adequate 
supply of high quality milk will be available for consumers.
    The proponent cooperatives' witness noted that the adoption of a 
new Federal order is contingent upon being able to show that interstate 
commerce occurs in the proposed marketing area. It is the opinion of 
the witness that ``interstate commerce'' does exist due to the movement 
of bulk and packaged milk products within, into, and out of the 
Appalachian and the Southeast marketing areas--the proposed marketing 
area.
    The proponent cooperatives' witness noted a trend of larger 
geographical areas being served by fewer Federal milk marketing orders. 
Specifically, the witness said between 1996 and 2003 the number of 
dairy farmers in the southeastern States of Alabama, Arkansas, Georgia, 
Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South 
Carolina, Tennessee, and Virginia declined from 11,712 to 7,180. This 
decrease, the witness explained, parallels the trend of a drop in the 
number of dairy farmers pooled on the current Appalachian and Southeast 
orders. The witness stated that based on the final decision for Federal 
Order Reform (issued March 12, 1999, and published April 2, 1999 (64 FR 
16025), 8,180 dairy farmers were expected to pool their milk on the 
consolidated Appalachian and Southeast orders. However, the witness 
noted only 7,243 dairy producers supplied milk to the two orders during 
December 2003.
    The proponent cooperatives' witness stressed that there is an acute 
milk deficit in the Appalachian and Southeast Federal orders. 
Referencing data obtained from the USDA National Agricultural 
Statistics Service (NASS) for the States of Alabama, Arkansas, Georgia, 
Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South 
Carolina, Tennessee, and Virginia (southeast region), the witness 
testified that a decline in dairy farmers led to a decline in milk 
production in the southeast region. The witness noted milk production 
decreased from 13,518 million pounds in 1996 to 10,671 million pounds 
in 2003 a decline of 21 percent. The witness asserted that this decline 
coupled with an increase in population has resulted in a major 
expansion of the milkshed for the southeastern region of the United 
States.
    According to the proponent cooperatives' witness, 9,072 million 
pounds of Class I producer milk was pooled on the combined Appalachian 
and Southeast orders during 2003. The witness said marketings of milk 
produced in the southeastern region was 10,671 million pounds in 2003, 
which means 85 percent of Grade A milk production was needed for Class 
I use on an annual basis.
    In 1996, the proponent witness testified, it was anticipated that 
72 fluid milk processing plants were or would become fully regulated 
distributing plants on the consolidated Appalachian and Southeast 
orders. However, the witness noted, only 52 remained regulated by the 
orders during December 2003. The witness indicated that of the fully 
regulated pool plants existing in both January 1996 and December 2003, 
more than two-thirds have experienced at least one ownership change and 
some have experienced several ownership changes.

[[Page 55461]]

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

[[Page 55462]]

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

[[Page 55463]]

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

[[Page 55464]]

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

[[Page 55465]]

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

[[Page 55466]]

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

 Table 1:--Overlapping Route Sales and Milk Supply Appalachian (Order 5)
                   and Southeast (Order 7) Milk Orders
------------------------------------------------------------------------
                                              From order 5  From order 7
                    Date                       to order 7    to order 5
                                                (percent)     (percent)
------------------------------------------------------------------------
                            Route Disposition
                        (Share of Class I Sales)
------------------------------------------------------------------------
Annual Average--2000........................          11.4           1.9
Annual Average--2001........................          12.2           2.4
Annual Average--2002........................          12.2           1.9
Annual Average--2003........................          12.4           2.0
---------------------------------------------
                        Overlapping Milk Supply
                     (Share of Total Producer Milk)
------------------------------------------------------------------------
Annual Average--2000........................           3.1           8.5
Annual Average--2001........................           3.2           6.9
Annual Average--2002........................           3.2           6.8
Annual Average--2003........................           3.2          4.3
------------------------------------------------------------------------
Source: Appalachian and Southeast Market Administrator Data.

    For the 2000 through 2003 period, route sales by distributing 
plants regulated by the Appalachian order into the Southeast marketing 
area averaged about 12 percent, while the route sales from plants 
regulated by the Southeast order into the Appalachian marketing area 
averaged about 2 percent. Record data also indicates that the majority 
of the Class I sales by distributing plants regulated by the 
Appalachian and Southeast orders is within each of the respective 
orders. For the 4-year period, Appalachian order handlers accounted for 
about 75 percent of the total Class I sales within the order's 
marketing area and plants regulated by the Southeast order accounted 
for about 85 percent of the order's total Class I sales.
    Of the total producer milk pooled on the Appalachian order, the 
amount of producer milk produced in the Southeast marketing area 
decreased from 8.5 percent in 2000 to 4.3 percent in 2003. The milk 
produced in the Appalachian marketing area that was pooled on the 
Southeast order accounted for about 3.2 percent of the total producer 
milk pooled on the Appalachian order for the same 4-year period.
    In