Milk in the Mideast Marketing Area; Final Partial Decision on Proposed Amendments to Marketing Agreement and to Order, 3435-3442 [E6-684]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 71, Number 14 (Monday, January 23, 2006)]
[Proposed Rules]
[Pages 3435-3442]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-684]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 71, No. 14 / Monday, January 23, 2006 / 
Proposed Rules

[[Page 3435]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1033

[Docket No. AO-166-A72; DA-05-01-A]


Milk in the Mideast Marketing Area; Final Partial Decision on 
Proposed Amendments to Marketing Agreement and to Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This document proposes to adopt as a final rule order language 
contained in the interim final rule published in the Federal Register 
on September 26, 2005, concerning pooling standards of the Mideast milk 
marketing order. This document also sets forth the final decision of 
the Department and is subject to approval by producers. A separate 
decision will be issued that will address proposals to deter the de-
pooling of milk, transportation credits and clarification of the 
Producer definition.

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

SUPPLEMENTARY INFORMATION: This final partial decision permanently 
adopts amendments that prohibit the ability to simultaneously pool the 
same milk on the Mideast Federal milk order and on a marketwide pool 
administered by another government entity. Additionally, this decision 
permanently adopts amendments that increase supply plant performance 
standards and lower diversion limit standards.
    This administrative action is governed by the provisions of 
Sections 556 and 557 of Title 5 of the United States Code and, 
therefore, is excluded from the requirements of Executive Order 12866.
    The amendments to the rules proposed herein have been reviewed 
under Executive Order 12988, Civil Justice Reform. They are not 
intended to have a retroactive effect. If adopted, the proposed 
amendments would not preempt any state or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Agricultural Marketing Agreement Act of 1937, (the Act), as 
amended (7 U.S.C. 601-674), provides that administrative proceedings 
must be exhausted before parties may file suit in court. Under section 
608c(15)(A) of the Act, any handler subject to an order may request 
modification or exemption from such order by filing with the Department 
of Agriculture (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 Act 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 March 2005, the month during which the hearing occurred, 
there were 9,767 dairy producers pooled, and 36 handlers regulated by, 
the Mideast order. Approximately 9,212 producers, or 94.3 percent, were 
considered small businesses based on the above criteria. Of the 36 
handlers regulated by the Mideast order during March 2005, 26 handlers, 
or 72.2 percent, were considered small businesses.
    The permanent adoption of the proposed pooling standards serve to 
revise established criteria that determine those producers, producer 
milk and plants that have a reasonable association with and are 
consistently serving the fluid needs of the Mideast milk marketing 
area. Criteria for pooling are established on the basis of performance 
levels that are considered adequate to meet the Class I fluid needs 
and, by doing so, determine those producers who are eligible to share 
in the revenue that arises from the classified pricing of milk. 
Criteria for pooling are established without regard to the size of any 
dairy industry organization or entity. The criteria established are 
applied in an identical fashion to both large and small businesses and 
do not have any different economic impact on small entities as opposed 
to large entities. Therefore, the adopted 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 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 decision does not require additional information collection 
that requires clearance by the Office of Management and Budget (OMB) 
beyond

[[Page 3436]]

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 from all 
handlers does not significantly disadvantage any handler that is 
smaller than the industry average.
    No other burdens are expected to fall on the dairy industry as a 
result of overlapping Federal rules. This rulemaking proceeding does 
not duplicate, overlap, or conflict with any existing Federal rules.

Prior Documents in This Proceeding

    Notice of Hearing: Issued February 14, 2005; published February 17, 
2005 (70 FR 8043).
    Amendment to Public Hearing on Proposed Rulemaking: Issued March 1, 
2005; published March 3, 2005 (70 FR 10337).
    Tentative Partial Decision: Issued July 21, 2005; published July 
27, 2005 (70 FR 43335).
    Interim Final Rule: Issued September 20, 2005; published September 
26, 2005 (70 FR 56111).

Preliminary Statement

    The proposed amendments set forth below are based on the record of 
a public hearing held in Wooster, Ohio, on March 7-10, 2005, pursuant 
to a notice of hearing issued February 14, 2005, published February 17, 
2005 (70 FR 8043), and an amendment to the hearing notice issued March 
1, 2005, published March 3, 2005 (70 FR 10337).
    The material issues, findings, conclusions and rulings of the 
tentative partial decision are hereby approved, adopted and are set 
forth herein. The material issues on the record of the hearing relate 
to:

1. Pooling Standards
    A. Standards for Producer Milk.
    a. Simultaneous pooling of milk on the order and on a marketwide 
pool administered by another government entity.
    b. Diversion limit standards.
    B. Supply Plant performance standards.
2. Determination that emergency marketing conditions exist that 
warranted the omission of a recommended decision.

Findings and Conclusions

    This partial final decision specifically addresses proposals, 
published in the hearing notice as Proposals 1 and 2, along with a 
portion of Proposal 3, seeking to change the performance standards and 
producer milk provisions of the order. The portion of Proposal 3, 
seeking to clarify the definition of ``temporary loss of Grade A 
approval'', Proposals 4-8, seeking to establish provisions to deter the 
``de-pooling'' of milk, and Proposal 9, seeking to establish 
transportation credits, will be addressed in a separate decision. The 
following findings and conclusions on the material issues are based on 
evidence presented at the hearing and the record thereof:

1. Pooling Standards

A. Standards for Producer Milk
    Three proposals were presented at the hearing that would amend 
certain features of the Producer milk provision of the Mideast order. A 
proposal, published in the hearing notice as Proposal 1, seeking to 
eliminate the ability to simultaneously pool the same milk on the 
Mideast Federal milk order and on a marketwide equalization pool 
administered by another government entity, commonly referred to as 
``double dipping,'' previously adopted on an interim basis, is adopted 
on a permanent basis by this partial final decision. Additionally, a 
portion of a proposal published in the hearing notice as Proposal 2, 
seeking to seasonally adjust the percentage of total receipts a pool 
plant can divert to nonpool plants to 50 percent for the months of 
August through February and to 60 percent for the months of March 
through July, previously adopted on an interim basis, is adopted on a 
permanent basis by this partial final decision. Proposal 3, which 
sought to adjust the number of days of the milk production of a 
producer that must be physically received at a Mideast order pool plant 
before being eligible for diversion to a nonpool plant, commonly 
referred to as ``touching base'', was abandoned at the hearing and will 
no longer be referenced.
    Proponents contend that milk has been simultaneously pooled on the 
Mideast order and on a marketwide pool administered by another 
government entity since January of 2000, and although no milk is 
currently simultaneously pooled on the Mideast order and a marketwide 
pool administered by another government entity, the possibility exists 
and provisions should be adopted to eliminate its occurrence. 
Additionally, proponents contend that inadequate limits on the amount 
of milk that pool plants can divert to non-pool plants is allowing 
large volumes of milk to be pooled on the Mideast order that does not 
demonstrate a reliable and consistent service to the fluid milk needs 
of the order.
    The Mideast order currently does not prohibit the simultaneous 
pooling of the same milk on the order and on a marketwide equalization 
pool operated by another government entity. Although no milk is 
currently simultaneously pooled on the Mideast order and a marketwide 
equalization pool operated by another government entity, the situation 
has occurred in the past and should be prevented from occurring in the 
future.
    The current Producer milk provision of the Mideast order considers 
the milk of a dairy farmer to be producer milk when the milk has been 
delivered to a pool plant of the order. As a condition for pooling the 
milk of a producer diverted to a nonpool plant on the Mideast order, a 
dairy farmer must ship two days' milk production to a pool plant during 
each of the months of December through July. This standard is 
applicable only if two days' milk production was not shipped to a 
Mideast pool plant in each of the previous months of August through 
November. A producer must also deliver two days' milk production to a 
pool plant during the months of August through November in order for 
the milk diverted to nonpool plants to be pooled. A pool handler may 
not divert more than 60 percent of its total receipts to a nonpool 
plant during the months of August through February and no more than 70 
percent of its total receipts during the months of March through July.
    Proposals 1 and 2 were submitted by Dairy Farmers of America (DFA), 
Michigan Milk Producers Association (MMPA), Dairylea Cooperative Inc. 
(Dairylea) and the National Farmers Organization (NFO). DFA is a member 
owned Capper-Volstead cooperative of 13,500 farms that produce milk in 
49 states. MMPA is a member owned Capper-Volstead cooperative of 1,350 
farms producing milk in four states. Dairylea is a member owned Capper-
Volstead cooperative of 2,400 farms producing milk in seven states. NFO 
is a member owned Capper-Volstead cooperative with over 1,500 members 
in 18 states. Hereinafter, this decision will refer to DFA, MMPA, 
Dairylea and NFO collectively as the ``Cooperatives.''
    A witness appearing on behalf of the Cooperatives testified that 
adoption of Proposal 1 would eliminate the potential for the same milk 
to be simultaneously pooled on the Mideast Federal milk order and on a 
marketwide pool administered by another

[[Page 3437]]

government entity. The witness referred to this practice as ``double 
dipping'' and as a practice resulting in disorderly marketing 
conditions. The witness noted that regulatory action has been taken in 
the Northeast, Central, Upper Midwest, Pacific Northwest and Arizona-
Las Vegas Federal milk marketing orders to prohibit the practice. The 
witness testified that little milk is currently associated with the 
Mideast marketing order that is simultaneously pooled by another 
government entity, but should be prohibited in the same manner as in 
other Federal milk marketing order areas. The Cooperatives noted in 
their post-hearing briefs that no opposition to adoption of Proposal 1 
was received at the hearing.
    A witness appearing on behalf of Dean Foods (Dean) testified in 
support of Proposal 1. Dean Foods owns and operates several 
distributing plants regulated by the Mideast order. The witness 
testified that double dipping should be prohibited in the Mideast order 
in the same manner as in other Federal orders. In their post-hearing 
brief, Dean added that if the ability to simultaneously pool milk is 
eliminated, the wording of the order language should be similar to the 
order language used to prohibit simultaneous pooling in the Central and 
Upper Midwest orders.
    Continental Dairy Products (Continental) noted support for adoption 
of Proposal 1 in their post-hearing brief. Continental is a member 
owned Capper-Volstead cooperative that pools milk on the Mideast order. 
Continental was of the opinion that double dipping should be prohibited 
for the Mideast marketing area as it has been in other Federal milk 
marketing orders.
    A witness appeared on behalf of the Cooperatives in support of the 
portion of Proposal 2 that would lower the diversion limit standards. 
The witness was of the opinion that current diversion limit standards 
are inadequate and have resulted in milk pooled on the order which does 
not demonstrate regular and consistent performance in supplying the 
Class I needs of the marketing area. The witness cited market 
administrator data showing that during the months of January through 
February and August through December of 2004, many pool distributing 
plants and cooperative handlers diverted more than 50 percent of their 
total milk receipts to nonpool plants. Adoption of the portion of 
Proposal 2 to limit diversions to no more than 50 percent of total milk 
receipts in August through February and 60 percent in March through 
July for distributing plants and cooperative handlers would increase 
shipments to distributing plants and raise returns for Mideast 
producers, the witness noted.
    A witness for MMPA appeared on behalf of the Cooperatives in 
support of the portion of Proposal 2 that would lower diversion limit 
standards. The witness was of the opinion that an adjustment to the 
diversion limit standards will serve to decrease market reserves and 
increase proceeds for producers servicing the needs of the fluid market 
on a regular and consistent basis.
    Several independent and cooperative member dairy farmers whose milk 
is pooled in the Mideast order also testified in support of the portion 
of Proposal 2 that would adjust diversion limit standards. Most were of 
the opinion that adjusting diversion limit standards will serve to more 
adequately identify the milk that is serving the needs of the Mideast 
order fluid market.
    A witness appearing on behalf of Prairie Farms Dairy (Prairie 
Farms) testified that they were not in support of, nor in opposition 
to, adoption of the portion of Proposal 2 that would adjust diversion 
limits. Prairie Farms is a member owned Capper-Volstead cooperative 
that pools milk on the Mideast order.
    A witness appeared on behalf of White Eagle Cooperative Federation 
(White Eagle) and ``constituent members'' in opposition to the portion 
of Proposal 2 that would lower diversion limit standards. The members 
of White Eagle Cooperative Federation include White Eagle Cooperative 
Association, Alto Dairy Cooperative, Scioto Cooperative, and Erie 
Cooperative Association. White Eagle Cooperative Federation also 
identified Superior Dairy, United Dairy, Family Dairies USA, Dairy 
Support Inc., Guggisberg Cheese and Brewster Cheese as constituent 
members.
    The White Eagle witness testified that lowering diversion limit 
standards will decrease the volume of milk that manufacturing plants 
can pool, and will remove milk located in Wisconsin, Illinois, 
Minnesota and Iowa from pooling on the Mideast order. The witness was 
of the opinion that when the volume of milk pooled in manufacturing 
uses is decreased, producer milk that supplies manufacturing plants can 
face decreased returns. In their post-hearing brief White Eagle 
reiterated that lowering diversion limit standards will decrease 
returns to producers whose milk is marketed through White Eagle.
    A consultant witness provided additional testimony on behalf of 
White Eagle in opposition to lowering the diversion limit standards of 
the order. The witness testified that reducing the diversion limit 
standards would disadvantage small cooperatives that pool milk on the 
Mideast order. The witness was of the opinion that lowering the 
diversion limit standards would increase the market power of large 
cooperatives and milk processors over small cooperatives and milk 
processors.
    The consultant White Eagle witness relied on Market Administrator 
data to demonstrate the effects of a 10 percent reduction in the 
diversion limit standards for the period of 2003-2004. The witness 
stated that if the proposed diversion limit standards had been 
effective for the month of October 2004, the total volume of milk 
pooled in the Mideast market would have been reduced by 4.1 percent. 
The witness predicted that the reduction in milk volume pooled would 
have increased the PPD by about 2 cents per hundredweight (cwt.) for 
milk remaining pooled, but would have decreased the relative PPD by 
about $0.73 per cwt. on the milk that was not able to be pooled because 
of lowered diversion limit standards. The witness noted that the 
majority of the milk not pooled would have been milk usually pooled by 
small cooperatives. Accordingly, the witness was of the opinion that 
lowering the diversion limit standards of the Mideast order should not 
be adopted until additional analysis is done on the possible negative 
effects on small cooperatives and processors.
    White Eagle reiterated opposition to the lowering of diversion 
limit standards in exceptions to the tentative partial decision. The 
White Eagle exceptions noted that changes to the diversion limit 
standards of the order are unnecessary since the fluid milk needs of 
the Mideast order are adequately met, and will pose difficulties to 
their members since access to distributing plants is limited.
    Exceptions to the tentative partial decision submitted by National 
All Jersey (NAJ), an organization promoting the Jersey breed with 
member farms in the Mideast marketing area, also opposed the lowering 
of diversion limit standards. The exception noted that the lowering of 
diversion limit standards is unnecessary since the fluid milk needs of 
the order are adequately met. NAJ commented that access to distributing 
plants for pooling is limited, and that producer milk able to service 
the fluid milk needs of the market may not be

[[Page 3438]]

able to be pooled. NAJ was also of the opinion that supply plants 
seeking to be pooled may have to pay increased pooling fees in order to 
be pooled via plants or cooperatives that may have excess pooling 
capacity.
    In their exceptions to the tentative partial decision, NAJ noted 
that decreasing diversion limit standards will force the higher solid 
milk typically produced by the Jersey breed away from its optimum use, 
cheese plants, to distributing plants. NAJ was of the opinion that the 
processing efficiencies afforded to cheese plants using high-component 
Jersey milk will decrease, and put cheese plants in the Mideast at a 
disadvantage to competitor plants in surrounding areas. NAJ predicted 
that decreased diversion limits will lower the marketing options for 
Mideast dairy farmers and subsequently decrease the prices received for 
their milk.
B. Supply Plant Performance Standards
    Several proposed changes to the supply plant pooling provisions of 
the Mideast order, contained in Proposal 2, are also adopted on a 
permanent basis by this partial final decision. The lack of adequate 
performance standards in the current supply plant pooling provisions 
allow large volumes of milk to be pooled on the order that do not 
demonstrate a regular service to the Class I needs of the market 
causing an unwarranted decrease in the order's blend price.
    Specifically, the following amendments are permanently adopted: (1) 
Increasing supply plant performance standards for Sec.  1033.7(c) by 10 
percentage points, from 30 percent to 40 percent, for all months, (2) 
Increasing performance standards for supply plants operated by a 
cooperative association under Sec.  1033.7(d) by five percentage 
points, from 30 percent to 35 percent, for the month of August, and by 
10 percentage points, from 30 percent to 40 percent, for the months of 
September through November, and (3) Increasing performance standards 
for a supply plant with a marketing agreement with a cooperative under 
Sec.  1033.7(e) by 10 percentage points, from 35 percent to 45 percent, 
for the months of August through November.
    Currently, the Mideast order provides that a supply plant must ship 
30 percent of its total monthly receipts to a pool distributing plant 
in order for the plant and all of the receipts of the plant to be 
pooled for the month. This same standard applies to supply plants owned 
and operated by a cooperative association. A supply plant operated 
under a marketing agreement with a cooperative, however, must ship 35 
percent of total receipts to a pool distributing plant in every month 
of the year in order for the plant and all the receipts of the plant to 
be pooled.
    A witness appeared on behalf of the Cooperatives in support of the 
portion of Proposal 2 that raises the performance standards for supply 
plants. The Cooperatives witness was of the opinion that supply plant 
performance standards are inadequate and in need of review and 
adjustment. Current supply plant performance standards, the witness 
testified, allow for more milk to be associated with the Mideast pool 
than is needed. Relying on market administrator data, the witness noted 
that the projected Class I utilization of the Mideast order of 58.9 
percent, specified during Federal order reform, had only been achieved 
in one month since January 2000. The witness stressed that the Mideast 
order has ample reserve milk supplies located within the marketing 
area, but that milk located outside of the marketing area that is being 
pooled on the order is lowering the proceeds of producers who are 
consistently serving the fluid needs of the market.
    The Cooperatives witness was of the opinion that increasing supply 
plant performance standards will provide greater incentive to deliver 
local milk supplies to the Class I market than the current standards. 
The witness was of the opinion that returns to producers are increased 
the shorter the distance milk must travel to distributing plants 
because transportation costs are lower.
    The Cooperatives witness testified that the costs of transporting 
and procuring milk for Class I use is not being borne equally by all 
producers whose milk is pooled on the order even though Class I returns 
are shared by all. The witness added that increasing supply plant 
performance standards would prevent milk that does not service the 
fluid needs of the market from sharing in the additional proceeds 
generated from fluid sales in the marketing area.
    The Cooperatives witness relied on market administrator data which 
showed an increase in the volume of milk pooled on the Mideast order 
from states outside the marketing area including Illinois, Iowa, 
Minnesota and Wisconsin. The witness testified that although the volume 
of milk pooled from states outside of the Mideast marketing area has 
increased, the volume of milk pooled from states within the marketing 
area has remained constant. The witness added that the increase in the 
volume of milk pooled from states outside of the marketing area has not 
resulted in increased volumes of milk shipped to the order's pool 
distributing plants. When milk that does not service the needs of the 
Mideast fluid market is pooled from areas outside the states comprising 
the Mideast marketing area, the witness stressed, the blend price 
received by Mideast order producers who regularly demonstrate service 
to the fluid market is lowered.
    The Cooperatives witness relied on market administrator data to 
illustrate that supply-demand relationships for milk in five different 
regions of the Mideast marketing area--Northern Ohio, Southern Ohio, 
Michigan, Indiana and Pennsylvania indicate that there is sufficient 
locally produced milk to meet the needs of the fluid market. According 
to the witness, only in the Southern Ohio/Southern Indiana region do 
total Class I sales exceed the total amount of milk locally supplied. 
The witness attributed the deficit local milk supply in Southern Ohio/
Southern Indiana to local milk being shipped to the Appalachian milk 
marketing area.
    The Cooperatives witness was also of the opinion that a ``hard'' 40 
percent standard on cooperative owned supply plant shipments to 
distributing plants during the fall months is superior to using the 
``rolling annual average'' method currently provided by the order. The 
witness added that if a cooperative owned supply plant shipped 40 
percent of its total receipts to distributing plants during the fall 
months, the ``rolling annual average'' method could be used during the 
remainder of the year.
    The Cooperatives witness testified that the performance standards 
for supply plants in the Mideast order were increased as a result of a 
previous Federal order hearing in 2001, but was of the opinion that the 
market is in need of further refinement. The witness emphasized that 
while there is a seasonal need for supplemental milk across certain 
regions of the Mideast market, the current standards allow far more 
milk to associate with the market than is reasonably warranted. The 
witness added that increasing supply plant performance standards will 
increase returns for Mideast dairy farmers who do regularly and 
consistently service the needs of the fluid market.
    A witness appearing on behalf of Dean was also in support of 
increasing supply plant performance standards. Dean testified at the 
hearing, and reiterated in their post-hearing brief, that increasing 
supply plant performance standards will serve to better identify the 
milk that demonstrates a consistent ability to

[[Page 3439]]

service the fluid milk needs of the market.
    In their post-hearing brief, Dean proposed a modification to 
Proposal 2 regarding cooperative owned supply plants. Specifically, 
Dean suggested that a cooperative owned supply plant should be located 
within the geographic boundaries of the Mideast marketing area and that 
qualifying shipments to distributing plants or nonpool plants must be 
classified as Class I.
    A witness from MMPA appearing on behalf of the Cooperatives 
modified a portion of Proposal 2 at the hearing. The witness testified 
that Proposal 2 should increase the performance standards for a 
cooperative owned supply plant by 5 percentage points, from 30 to 35 
percent of total receipts, for the month of August, and by 10 
percentage points, from 30 to 40 percent of total receipts for the 
months of September through November. The witness was of the opinion 
that an increase in performance standards are needed in order to ensure 
that the proceeds generated from Class I sales are shared among those 
who regularly supply the needs of the fluid market.
    The MMPA witness testified that their cooperative exceeded the 
current 30 percent performance standard (from 35 percent to 41 percent 
of total receipts) during the preceding months of August through 
November. The MMPA witness testified that they are in support of a 
``hard'' performance standard during the August through November 
period, rather than the use of the annual rolling average provision 
currently provided for in all months by the order for cooperative owned 
supply plants. The witness also noted that if market conditions warrant 
a higher degree of performance, the Market Administrator has the 
authority to increase the performance standard.
    Several independent and cooperative member dairy farmers whose milk 
is pooled in the Mideast order also testified in support of increasing 
supply plant performance standards. Most were of the opinion that 
increasing supply plant performance standards will more adequately 
identify what milk is consistently serving the needs of the Mideast 
fluid market.
    A witness appeared on behalf of Smith Dairy in general support of 
any proposal that would serve to address the reduction of producer pay 
prices in the Mideast order and any proposals that will better identify 
milk that provides service to the Mideast fluid market. Smith Dairy 
operates two distributing plants regulated by the Mideast order that 
are primarily supplied by independent dairy farmers.
    A witness appearing on behalf of White Eagle testified in 
opposition to increasing supply plant performance standards at the 
hearing and reiterated this position in their post-hearing brief. White 
Eagle is of the opinion that increasing supply plant shipping standards 
will displace milk from outside of the geographic boundaries of the 
Mideast marketing area that has historically supplied the milk needs of 
the Mideast market.

Discussion/Findings

    The record of this proceeding supports finding that several 
amendments to the pooling standards of the Mideast order be permanently 
adopted. These amendments will better identify the milk of producers 
that should share in the order's blend price and establish more 
appropriate performance measures for providing regular and consistent 
service in meeting the market's fluid needs. Currently, milk located 
outside the Mideast marketing area that does not demonstrate regular 
and consistent performance in supplying the needs of the Class I market 
is able to qualify for pooling on the Mideast order and share in the 
increased revenues arising from Class I sales in the marketing area. 
The vast majority of this milk is pooled on the order at low classified 
use-values and in turn lowers the blend price to those producers who 
regularly and consistently supply the Class I needs of the Mideast 
market. Such milk is not demonstrating a reasonable level of 
performance in servicing the Class I market to receive the additional 
revenue arising from the Class I use of milk in the Mideast marketing 
area. Such milk should not be pooled.
    The pooling standards of all Federal milk marketing orders, 
including the Mideast order, are intended to ensure that an adequate 
supply of milk is available to meet the Class I needs of the market and 
to provide the criteria for identifying the milk of those producers who 
are reasonably associated with the market as a condition for receiving 
the order's blend price. The pooling standards of the Mideast order are 
represented in the Pool Plant, Producer, and the Producer milk 
provisions of the order and are performance based. Taken as a whole, 
these provisions are intended to ensure that an adequate supply of milk 
is available to meet the Class I needs of the market and provide the 
criteria for determining the producer milk that has demonstrated 
reasonable measures of service to the Class I market and thereby should 
share in the marketwide distribution of pool proceeds.
    Pooling standards that are performance based provide the only 
viable method for determining those eligible to share in the marketwide 
pool. It is primarily the additional revenue generated from the higher-
valued Class I use of milk that adds additional income, and it is 
reasonable to expect that only those producers who consistently bear 
the costs of supplying the market's fluid needs should be the ones to 
share in the returns arising from higher-valued Class I sales.
    Pooling standards are needed to identify the milk of those 
producers who are providing regular and consistent service in meeting 
the Class I needs of the market. If a pooling provision does not 
reasonably accomplish this end, the proceeds that accrue to the 
marketwide pool from fluid milk sales are not properly shared with the 
appropriate producers. The result is the unwarranted lowering of 
returns to those producers who actually incur the costs of servicing 
the fluid needs of the market.
    Pool plant standards, specifically standards that provide for the 
pooling of milk through supply plants, need to reflect the supply and 
demand conditions of the marketing area. This is important because 
producers whose milk is pooled, regardless of utilization, receives the 
order's blend price. When the pooling provisions of the order result in 
pooling milk that cannot reasonably be considered as regularly and 
consistently serving the fluid needs of the market, it is appropriate 
to re-examine those standards.
    The geographic boundaries of the Mideast order are not intended to 
limit or define which producers, which milk of those producers, or 
which handlers should enjoy the benefits of being pooled on the order. 
What is important and fundamental to all Federal orders, including the 
Mideast order, is the proper identification of those producers, the 
milk of those producers, and handlers that should share in the proceeds 
arising from Class I sales in the marketing area. The Mideast order's 
current pooling standards, specifically supply plant performance 
standards and diversion limit standards for producer milk do not 
reasonably accomplish this fundamental objective.
    Since the 1960's, the Federal milk order program has recognized the 
harm and disorder that results to both producers and handlers when the 
same milk of a producer is simultaneously pooled on more than one 
Federal order, commonly referred to as ``double-dipping''. In the past, 
this situation caused price differences between producers and gave rise 
to competitive

[[Page 3440]]

equity issues. The need to prevent ``double-dipping'' became critically 
important as distribution areas expanded and orders merged.
    When the same milk can be simultaneously pooled on a marketwide 
equalization pool operated by a government entity and on a Federal milk 
marketing order, it has the same undesirable outcomes as pooling the 
same milk on two Federal orders which was corrected many years ago. The 
Mideast order recently has experienced ``double-dipping'' and it is 
clear that the Mideast order should be permanently amended to prevent 
the ability to pool the same milk on the order and on a marketwide 
equalization pool operated by another government entity. This action is 
consistent with other recent Federal order amendatory actions regarding 
the simultaneous pooling of the same milk on a Federal order and on 
other government operated programs.
    The hearing record clearly indicates that the milk of producers 
that does not regularly and consistently service the needs of the fluid 
market is able to receive the Mideast order's blend price. Inadequate 
diversion limit standards are allowing large volumes of milk to be 
diverted to non-pool manufacturing plants located far from the 
marketing area. Additionally, inadequate supply plant performance 
standards also enable milk which has insufficient physical association 
with the market for demonstrating regular and consistent service to the 
Class I needs of the marketing area to receive the Mideast order's 
blend price.
    The Federal milk order system has consistently recognized that 
there is a cost incurred by producers in servicing an order's Class I 
market, and the order's blend price is the compensation to producers 
for performing such services. The amended pooling provisions will 
ensure that milk seeking to be pooled and receive the order's blend 
price will regularly and consistently service the marketing area's 
Class I needs. Consequently, the adopted pooling provisions will ensure 
the more equitable sharing of revenue generated from Class I sales 
among the appropriate producers.
    Accordingly, supply plant performance standards are permanently 
increased by 10 percentage points, from 30 percent to 40 percent of 
total receipts, for all months; cooperative owned supply plant 
performance standards should be increased by 10 percentage points, from 
30 percent to 40 percent of total receipts, for the months of September 
through November.
    Additionally, cooperative owned supply plant performance standards 
for the month of August are permanently increased by five percentage 
points, from 30 percent to 35 percent of total receipts, as proposed in 
MMPA's modification of Proposal 2. These standards will be met using 
the ``rolling annual average'' standard during December through July 
and the ``hard'' standard during August through November as proposed in 
Proposal 2. Also, as suggested by Dean in their post-hearing brief, a 
cooperative owned supply plant must be located in the marketing area. 
Limiting a cooperative owned supply plant to only those that are 
located within the marketing area is consistent with other pooling 
conveniences afforded to other supply plants. For example, system 
pooling of supply plants that regularly and consistently perform in 
supplying the Class I needs of the marketing area are a legitimate 
reserve supply source of milk and are restricted to supply plants 
located within the marketing area. Qualifying shipments, as already 
specified in the order, may only include shipments of Class I milk to 
distributing plants or non-pool plants.
    Performance standards for a supply plant with a marketing agreement 
with a cooperative are permanently increased by 10 percentage points, 
from 35 percent to 45 percent of total receipts, for the months of 
August through November.
    This final decision finds that permanent changes are necessary in 
the standards of the amount of milk that can be diverted from pool 
plants to nonpool plants to ensure that milk pooled on the order is 
part of the legitimate reserve supply of Class I handlers. The hearing 
record evidence clearly reveals that large volumes of milk not part of 
the legitimate reserve supply of the pooling handler can be reported as 
diverted milk by the pooling handler and receive the order's blend 
price.
    Comments filed by the Cooperatives were in support of all changes 
to the order's pooling standards adopted in the tentative partial 
decision.
    Exceptions to the tentative partial decision submitted by White 
Eagle and NAJ opposed the lowering of diversion limit standards on the 
basis that the fluid milk needs of the Mideast market are adequately 
met. Both entities also argued that the costs and difficulties in 
obtaining access to distributing plants for pooling will increase as a 
result of lowered diversion limit standards. NAJ predicted that 
decreased diversion limits will lower the marketing options for Mideast 
dairy farmers and subsequently decrease the prices received for their 
milk. These arguments are not persuasive.
    Providing for the diversion of milk to nonpool facilities is a 
desirable and needed feature of an order because it facilitates the 
orderly and efficient disposition of milk when not needed for fluid 
use. Despite the comments by White Eagle and NAJ, this decision 
maintains that it is necessary to safeguard against excessive milk 
supplies becoming associated with the market through the diversion 
process. Associating more milk than is actually part of the legitimate 
reserve supply of the pooling handler unnecessarily reduces the 
potential blend price paid to dairy farmers who regularly and 
consistently service the market's Class I needs. Such milk should not 
be pooled. Without reasonable diversion limit provisions, the order's 
performance standards are weakened and give rise to disorderly 
marketing conditions. Accordingly, diversion limit standards for pool 
plants are permanently lowered by ten percentage points, from 60 
percent to 50 percent for the months of August through February, and 
from 70 percent to 60 percent for the months of March through July.

3. Determination of Emergency Marketing Conditions

    Record evidence established that pooling standards of the Mideast 
order were inadequate and were resulting in the erosion of the blend 
price received by producers who were serving the Class I needs of the 
market and were changed on an emergency basis. The unwarranted erosion 
of such producer blend prices stemmed from improper diversion limits 
and supply plant performance standards.
    It was also appropriate to prohibit the ability to simultaneously 
pool the same milk on the Mideast Federal milk order and on a 
marketwide pool administered by another government entity.
    Consequently, it was determined that emergency marketing conditions 
existed in the Mideast marketing area and the issuance of a recommended 
decision was omitted. As stated in the tentative partial decision, a 
separate decision will be issued that will address proposals to deter 
the de-pooling of milk, establishing transportation credits and 
clarifying the Producer definition of the order.

Rulings on Proposed Findings and Conclusions

    Briefs, proposed findings and conclusions were filed on behalf of 
certain interested parties. These briefs, proposed findings and 
conclusions, and the evidence in the record were considered in making 
the findings and conclusions set forth above. To the

[[Page 3441]]

extent that the suggested findings and conclusions filed by interested 
parties are inconsistent with the findings and conclusions set forth 
herein, the requests to make such findings or reach such conclusions 
are denied for the reasons previously stated in this decision.

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the Mideast order was first issued and when 
it was amended. The previous findings and determinations are hereby 
ratified and confirmed, except where they may conflict with those set 
forth herein.
    (a) The tentative marketing agreement and the order, as hereby 
proposed to be amended, and all of the terms and conditions thereof, 
will tend to effectuate the declared policy of the Act;
    (b) The parity prices of milk as determined pursuant to section 2 
of the Act are not reasonable with respect to the price of feeds, 
available supplies of feeds, and other economic conditions which affect 
market supply and demand for milk in the marketing area, and the 
minimum prices specified in the tentative marketing agreement and the 
order, as hereby proposed to be amended, are such prices as will 
reflect the aforesaid factors, insure a sufficient quantity of pure and 
wholesome milk, and be in the public interest; and
    (c) The tentative marketing agreement and the order, as hereby 
proposed to be amended, will regulate the handling of milk in the same 
manner as, and will be applicable only to persons in the respective 
classes of industrial and commercial activity specified in, the 
marketing agreement upon which a hearing has been held.

Rulings on Exceptions

    In arriving at the findings and conclusions, and the regulatory 
provisions of this decision, each of the exceptions received was 
carefully and fully considered in conjunction with the record evidence. 
To the extent that the findings and conclusions and the regulatory 
provisions of this decision are at variance with any of the exceptions, 
such exceptions are hereby overruled for the reasons previously stated 
in this decision.

Marketing Agreement and Order

    Annexed hereto and made a part hereof is one document: A Marketing 
Agreement regulating the handling of milk. An interim order amending 
the order regulating the handling of milk in the Mideast marketing area 
was approved by producers and published in the Federal Register on 
September 26, 2005 (70 FR 56111), as an Interim Final Rule. Both of 
these documents have been decided upon as the detailed and appropriate 
means of effectuating the foregoing conclusions.
    It is hereby ordered that this entire partial final decision and 
the Marketing Agreement annexed hereto be published in the Federal 
Register.

Determination of Producer Approval and Representative Period

    March 2005 is hereby determined to be the representative period for 
the purpose of ascertaining whether the issuance of the order, as 
amended in the Interim Final Rule, published in the Federal Register on 
September 26, 2005 (70 FR 56111), regulating the handling of milk in 
the Mideast marketing area is approved or favored by producers, as 
defined under the terms of the order (as amended and as hereby proposed 
to be amended) who during such representative period were engaged in 
the production of milk for sale within the aforesaid marketing area.

List of Subjects in 7 CFR Part 1033

    Milk Marketing order.

    Dated: January 17, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.

Order Amending the Order Regulating the Handling of Milk in the Mideast 
Marketing Area

    This order shall not become effective unless and until the 
requirements of Sec.  900.14 of the rules of practice and procedure 
governing proceedings to formulate marketing agreements and marketing 
orders have been met.

Findings and Determinations

    The findings and determinations hereinafter set forth supplement 
those that were made when the order was first issued and when it was 
amended. The previous findings and determinations are hereby ratified 
and confirmed, except where they may conflict with those set forth 
herein.
    (a) Findings. A public hearing was held upon certain proposed 
amendments to the tentative marketing agreement and to the order 
regulating the handling of milk in the Mideast marketing area. The 
hearing was held pursuant to the provisions of the Agricultural 
Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the 
applicable rules of practice and procedure (7 CFR part 900).
    Upon the basis of the evidence introduced at such hearing and the 
record thereof, it is found that:
    (1) The said order as hereby amended, and all of the terms and 
conditions thereof, will tend to effectuate the declared policy of the 
Act:
    (2) The parity prices of milk, as determined pursuant to section 2 
of the Act, are not reasonable in view of the price of feeds, available 
supplies of feeds, and other economic conditions which affect market 
supply and demand for milk in the aforesaid marketing area. The minimum 
prices specified in the order as hereby amended are such prices as will 
reflect the aforesaid factors, insure a sufficient quantity of pure and 
wholesome milk, and be in the public interest; and
    (3) The said order as hereby amended regulates the handling of milk 
in the same manner as, and is applicable only to persons in the 
respective classes of industrial or commercial activity specified in, a 
marketing agreement upon which a hearing has been held.

Order Relative To Handling

    It is therefore ordered, that on and after the effective date 
hereof, the handling of milk in the Mideast marketing area shall be in 
conformity to and in compliance with the terms and conditions of the 
order, as amended, and as hereby amended, as follows:
    The provisions of the order amending the order contained in the 
interim amendment of the order issued by the Administrator, 
Agricultural Marketing Service, on September 20, 2005, and published in 
the Federal Register on September 26, 2005 (70 FR 56111), are adopted 
without change and shall be and are the terms and provisions of this 
order. [This marketing agreement will not appear in the Code of Federal 
Regulations]

Marketing Agreement Regulating the Handling of Milk in Certain 
Marketing Areas

    The parties hereto, in order to effectuate the declared policy of 
the Act, and in accordance with the rules of practice and procedure 
effective thereunder (7 CFR part 900), desire to enter into this 
marketing agreement and do hereby agree that the provisions referred to 
in paragraph I hereof as augmented by the provisions specified in 
paragraph II hereof, shall be and are the provisions of this marketing 
agreement as if set out in full herein.
    I. The findings and determinations, order relative to handling, and 
the provisions of Sec. Sec.  1033.1 to 1033.86 all inclusive, of the 
order regulating the handling of milk in the Mideast marketing area (7 
CFR part 1033) which is annexed hereto; and

[[Page 3442]]

    II. The following provisions: Record of milk handled and 
authorization to correct typographical errors.
    (a) Record of milk handled. The undersigned certifies that he/she 
handled during the month of September 2005, -------- hundredweight of 
milk covered by this marketing agreement.
    (b) Authorization to correct typographical errors. The undersigned 
hereby authorizes the Deputy Administrator, or Acting Deputy 
Administrator, Dairy Programs, Agricultural Marketing Service, to 
correct any typographical errors which may have been made in this 
marketing agreement.
    Effective date. This marketing agreement shall become effective 
upon the execution of a counterpart hereof by the Department in 
accordance with Section 900.14(a) of the aforesaid rules of practice 
and procedure.
    In Witness Whereof, The contracting handlers, acting under the 
provisions of the Act, for the purposes and subject to the limitations 
herein contained and not otherwise, have hereunto set their respective 
hands and seals.

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Signature By (Name)
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(Title)
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(Address)
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(Seal) Attest

[FR Doc. E6-684 Filed 1-20-06; 8:45 am]
BILLING CODE 3410-02-P