Milk in the Central Marketing Area; Recommended Decision and Opportunity To File Written Exceptions on Proposed Amendments to Tentative Marketing Agreement and to Order, 9015-9033 [06-1584]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 71, Number 35 (Wednesday, February 22, 2006)]
[Proposed Rules]
[Pages 9015-9033]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-1584]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1032

[Docket No. AO-313-A48; DA-04-06]


Milk in the Central Marketing Area; Recommended Decision and 
Opportunity To File Written Exceptions on Proposed Amendments to 
Tentative Marketing Agreement and to Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; recommended decision.

-----------------------------------------------------------------------

SUMMARY: This decision recommends adoption of proposals that would 
amend certain features of the Central Federal milk marketing order. 
Specifically, this decision recommends adoption of proposals that would 
increase supply plant performance standards, amend features of the 
``touch-base'' provision, amend certain features of the ``split plant'' 
provision and decrease the diversion limit standards of the order. This 
decision also recommends adoption of a proposal that would limit the 
volume of milk a handler can pool in a month to 125 percent of the 
total volume of milk pooled in the previous month.

DATES: Comments should be submitted on or before April 24, 2006.

ADDRESSES: Comments (6 copies) should be filed with the Hearing Clerk, 
STOP 9200-Room 1031, United States Department of Agriculture, 1400 
Independence Avenue, SW., Washington, DC 20250-9200.

[[Page 9016]]

Comments may also be submitted at the Federal e-Rulemaking portal: 
https://www.regulations.gov or by submitting comments by e-mail: 
amsdairycomments@usda.gov. Reference should be made to the title of 
action and docket number.

FOR FURTHER INFORMATION CONTACT: Jack Rower, Marketing Specialist, 
Order Formulation and Enforcement Branch, USDA/AMS/Dairy Programs, STOP 
0231-Room 2971, 1400 Independence Avenue, SW., Washington, DC 20250-
0231, (202) 720-2357, e-mail address: jack.rower@usda.gov.

SUPPLEMENTARY INFORMATION: This decision recommends adoption of 
amendments that would: (1) Increase supply plant performance standards 
to 25 percent for the months of August through February and to 20 
percent for the months of March through July; (2) Require the non-pool 
side of a split plant to maintain nonpool status for 12 months; (3) 
Amend the ``touch-base'' feature of the order to require that at least 
one day's production of the milk of a dairy farmer be received at a 
pool plant in each of the months of January, February, and August 
through November, to be eligible for diversion to non-pool plants; (4) 
Lower the diversion limit standards by five percentage points, from 80 
percent to 75 percent, for the months of August through February, and 
by five percentage points, from 85 percent to 80 percent for the months 
of March through July; and (5) Establish provisions that would limit 
the volume of milk a handler may pool in a month to 125 percent of the 
volume of milk pooled in the prior month.
    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. It is not intended to have 
a retroactive effect. If adopted, the proposed rule 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 January 2005, there were 5,778 dairy producers pooled on, 
and 23 handlers regulated by, the Central order. Approximately 5,365 
producers, or 92.9 percent, were considered ``small businesses'' based 
on the above criteria. Of the 23 handlers regulated by the Central 
order during January 2005, 11 handlers, or 47.8 percent, were 
considered ``small businesses.''
    The recommended amendments regarding the pooling standards serve to 
revise established criteria that determine those producers, producer 
milk, and plants that have a reasonable association with and 
consistently serve the fluid needs of the Central 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 of the 
market 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. Therefore, 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 proposed amendments would have no impact on 
reporting, record keeping, 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 recommended decision 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.
    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.
    Interested parties are invited to submit comments on the probable 
regulatory and informational impact of this proposed rule on small 
entities. Also, parties may suggest modifications of this proposal for 
the purpose of tailoring their applicability to small businesses.

Prior Documents in This Proceeding

    Notice of Hearing: Issued September 17, 2004; published September 
22, 2004 (69 FR 56725).
    Notice of Hearing Delay: Issued October 18, 2004; published October 
13, 2004 (69 FR 61323).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this

[[Page 9017]]

recommended decision with respect to the proposed amendments to the 
tentative marketing agreement and the order regulating the handling of 
milk in the Central marketing area. This notice is issued pursuant to 
the provisions of the Agricultural Marketing Agreement Act (AMAA) and 
the applicable rules of practice and procedure governing the 
formulation of marketing agreements and marketing orders (7 CFR part 
900).
    Interested parties may file written exceptions to this decision 
with the Hearing Clerk, United States Department of Agriculture, Room 
1031-Stop 9200, 1400 Independence Avenue, SW., Washington, DC 20250-
9200, by the [insert date 60 days after publication of this decision in 
the Federal Register.] Six (6) copies of the exceptions should be 
filed. All written submissions made pursuant to this notice will be 
made available for public inspection at the office of the Hearing Clerk 
during regular business hours (7 CFR 1.27(b)).
    The hearing notice specifically invited interested persons to 
present evidence concerning the probable regulatory and informational 
impact of the proposals on small businesses. Some evidence was received 
that specifically addressed these issues, and some of the evidence 
encompassed entities of various sizes.
    A public hearing was held upon proposed amendments to the marketing 
agreement and the order regulating the handling of milk in the Central 
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 governing the 
formulation of marketing agreements and marketing orders (7 CFR part 
900).
    The proposed amendments set forth below are based on the record of 
a public hearing held in Kansas City, Missouri, on December 6-8, 2004, 
pursuant to a notice of hearing issued September 17, 2004, published 
September 22, 2004 (69 FR 56725), and a notice of a hearing delay 
issued October 13, 2004, published October 18, 2004, (69 FR 61323).
    The material issues on the hearing record relate to:
    1. Pooling Standards.
    A. Performance standards for supply plants.
    B. The ``Split plant'' provision.
    C. System pooling for supply plants.
    D. Elimination of the supply plant provision.
    E. Standards for producer milk.
    2. Establishing pooling limits.
    3. Transportation and assembly credits.

Findings and Conclusions

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

1. Pooling Standards

A. Performance Standards for Supply Plants
    A portion of a proposal, published in the hearing notice as 
Proposal 1, seeking to increase supply plant performance standards by 
five percentage points, from 20 percent to 25 percent, for the months 
of August through February, and from 15 percent to 20 percent for the 
months of March through July, is recommended for adoption. A portion of 
another similar proposal, published in the hearing notice as Proposal 
5, seeking to increase supply plant performance standards by 20 
percentage points, from 15 percent to 35 percent, for the month of 
July, by 15 percentage points, from 20 percent to 35 percent, for the 
months of August through January and by 10 percentage points, from 15 
percent to 25 percent, for the month of March is not recommended for 
adoption. Currently, the Central order requires a supply plant to ship 
20 percent of its total receipts to a distributing plant during the 
months of August through February, and 15 percent of its total receipts 
during the months of March through July, in order for the total 
receipts of the supply plant to be pooled.
    Proposal 1 was offered jointly by Dairy Farmers of America, Inc., 
(DFA), and Prairie Farms Cooperative (PF), hereafter referred to as 
DFA/PF. DFA/PF are member-owned Capper-Volstead cooperatives that pool 
milk on the Central order. Proposal 1 would increase the amount of milk 
a supply plant would be required to ship to a distributing plant by 
five percentage points, from 20 percent to 25 percent, for the months 
of August through February, and from 15 percent to 20 percent for the 
months of March through July, in order to pool all of its receipts on 
the Central order.
    The proponents are of the opinion that current supply plant 
performance standards enable milk that does not demonstrate a 
consistent and reliable service to the Class I market to be pooled on 
the order. The proponents contend that the pooling of this additional 
milk is causing an unwarranted lowering of the order's blend price.
    A witness appearing on behalf of DFA/PF testified in support of 
Proposal 1. The DFA/PF witness stated that increasing the volume of 
milk a supply plant is required to ship to a pool distributing plant in 
order to have all the receipts of the supply plant pooled, combined 
with other proposed changes to the Central order pooling provisions, 
will better identify milk ready, willing and able to service the fluid 
milk needs of the Central marketing area.
    The DFA/PF witness testified that the proposed increase in the 
performance standards for supply plants would increase the blend price 
received by dairy farmers whose milk is pooled and priced on the 
Central order. The witness was of the opinion that an increase in the 
blend price will serve to attract and retain milk supplies that are 
otherwise shipped from the Central order area to neighboring marketing 
areas. The witness asserted that increasing supply plant performance 
standards will ensure that the Class I needs of the Central marketing 
area are being met.
    The DFA/PF witness testified that current supply plant performance 
standards allow far more milk to be pooled on the Central order than is 
necessary. Relying on market administrator data, the witness noted that 
the projected Class I utilization of 50.1 percent, anticipated during 
Federal order reform for the consolidated marketing area, was not 
achieved. The witness added that the average Class I utilization in the 
Central marketing area has ranged from a low of 26 percent in 2002 to 
nearly 33 percent in 2003. The witness was of the opinion that these 
average Class I utilization levels demonstrate that reserve supplies of 
milk in the marketing area of 74 and 67 percent, respectively, for 2002 
and 2003, far exceed the 49-50 percent reserve levels projected during 
Federal order reform. In addition, the witness noted that increased 
supply plant performance standards implemented in 2001 have not been 
effective in reducing the excess reserve supply of milk in the 
marketing area. The witness concluded that this data confirms that the 
current performance standards of the Central order provide 
opportunities for milk not regularly and consistently serving the Class 
I market to be pooled on the order.
    The DFA/PF witness described concerns regarding the geography of 
the Central marketing area and explained that higher prices are 
received for milk in the bordering Southeast and Appalachian marketing 
areas. According to the witness, higher milk prices in the Appalachian 
and Southeast orders tend to attract milk from the Central marketing 
area and create localized supply imbalances within the eastern portion 
of the marketing area. The witness testified that increasing supply 
plant performance standards would deter milk originating from

[[Page 9018]]

within the Central order boundaries from pooling on the Appalachian and 
Southeast orders. According to the witness this would tend to increase 
the blend price paid to dairy farmers whose milk is pooled on the 
Central order.
    A number of DFA member dairy farmers whose milk is pooled on the 
Central order testified in support of the portion of Proposal 1 that 
would increase supply plant performance standards. The dairy farmer 
witnesses were of the opinion that increasing supply plant performance 
standards will raise the level of Class I utilization and in turn, 
increase the blend price.
    A witness from National All-Jersey (NAJ) representing AMPI, et al., 
(Associated Milk Producers Inc., Central Equity Cooperative, Land O'' 
Lakes, Inc., First District Association, Foremost Farms USA, joined by 
Wells Dairy, Inc., Milnot Holdings and National All-Jersey), testified 
in opposition to the portion of Proposal 1 that would increase supply 
plant performance standards. NAJ is a national organization whose 
mission is to promote milk pricing equity and increase the value and 
demand for the milk produced by the Jersey breed. The NAJ witness was 
of the opinion that increasing supply plant performance standards would 
result in inefficient movements of milk and pass the costs of 
regulatory inefficiencies to consumers.
    In their post hearing brief, DFA/PF reiterated their support for 
Proposal 1. The brief asserted that adoption of the portion of Proposal 
1 that would increase supply plant performance standards would more 
accurately identify the milk of producers servicing the fluid needs of 
the market. According to the brief, increasing supply plant performance 
standards will increase the blend price for the producers who provide 
regular and consistent service to the Class I market. The DFA/PF brief 
reiterated support for not pooling milk which does not provide regular 
and consistent service to the fluid milk needs of the Central marketing 
area.
    A brief from Select Milk Producers, Inc. (Select) and Continental 
Dairy Products, Inc. (Continental) supported adoption of the higher 
performance standard features of Proposal 1. Select and Continental are 
member-owned Capper-Volstead cooperatives whose milk is pooled on the 
Central order. The brief noted that adoption of higher performance 
standards would deter the pooling of milk on the order not servicing 
the fluid needs of the market.
    A portion of Proposal 5, advanced by Dean Foods (Dean) (who 
described themselves as the largest processor and distributor of fluid 
milk in the United States, owning and operating nine distributing 
plants regulated by the Central order,) would increase supply plant 
performance standards by 20 percentage points, from 15 percent to 35 
percent, for the month of July, by 15 percentage points, from 20 
percent to 35 percent, for the months of August through January and by 
10 percentage points, from 15 percent to 25 percent, for the month of 
March. These proposed changes to supply plant performance standards are 
not recommended for adoption.
    Two witnesses appeared on behalf of Dean in support of increasing 
supply plant performance standards. The witnesses were of the opinion 
that current supply plant performance standards are inadequate to 
assure a reasonable supply of fluid milk to the order's distributing 
plants. The witnesses were of the opinion that increasing supply plant 
performance standards as they proposed to the levels advanced would 
better attract an adequate milk supply for Class I use to the marketing 
area.
    The first Dean witness testified that marketwide pooling and 
classified pricing are built on the assumption that Class I milk is the 
highest priced class and that pool revenues generated from Class I 
sales will attract a regular and consistent milk supply. The witness 
was of the opinion that current supply plant performance standards 
allow handlers to pool milk on the Central order that does not 
regularly and consistently serve the Class I market. According to the 
witness, low supply plant performance standards reduce the blend price 
paid to producers who consistently serve the needs of the Central order 
fluid market by allowing lower-valued milk to be pooled on the order.
    The first Dean witness was of the opinion that adoption of higher 
performance standards would increase the volume of milk available to 
the Class I market. The witness further testified that if the USDA 
adopted higher performance standards for supply plants, adoption of 
Proposals 9 and 10, or Proposals 11, 12, and 13 would also be 
necessary. (Proposals 9, 10, 11, 12, and 13 are discussed later in this 
decision.)
    The second Dean witness also was of the opinion that increasing 
supply plant performance standards would help to ensure that the fluid 
milk needs of the marketing area are being met. According to the 
witness, increasing supply plant performance standards would decrease 
the volumes of milk in lower-valued uses pooled on the order, thereby 
increasing the order's blend price. The witness testified that 
increasing supply plant performance standards would assist fluid milk 
handlers located in St. Louis and southern Illinois, who compete with 
handlers located in the Appalachian and Southeast orders, obtain needed 
milk supplies.
    A brief submitted on behalf of DFA/PF opposed adoption of the level 
of performance standards for supply plants offered by Dean. DFA/PF 
noted that increasing supply plant performance standards to the levels 
advanced in Proposal 5 are unnecessarily high and are more restrictive 
than current market conditions could reasonably justify.
    A brief submitted by AMPI, et. al., reiterated the group's 
opposition to increased performance standards for supply plants as 
advanced by both Dean and DFA/PF. The brief highlighted the contention 
that increased performance standards for supply plants would unfairly 
penalize reserve suppliers of the marketing area by restricting their 
ability to share in the benefits of the marketwide pool.
B. The ``Split Plant'' Provision
    A proposal from Dean, published in the hearing notice as Proposal 
10, seeking to require the nonpool side of a split plant to maintain 
nonpool status for 12 months, is recommended for adoption. Another Dean 
proposal, published in the hearing notice as Proposal 9, seeking to 
eliminate the split plant provision is not recommended for adoption.
    The current split plant provision provides for designating a 
portion of a pool plant as a nonpool plant provided that the nonpool 
portion of the plant is physically separate and operated separately 
from the regulated or ``pool'' side of the plant. Current provisions 
afford handlers operating a split plant the option of maintaining 
nonpool status or qualifying the nonpool side of the plant for pooling 
on a monthly basis.
    The Dean witness testified that the nonpool side of a split plant 
can facilitate the pooling of milk that does not demonstrate a regular 
and consistent service to the fluid milk needs of the Central marketing 
area. The witness stated that if Proposal 10 was adopted, then Proposal 
4, a proposal to eliminate all supply plant provisions, and Proposal 9, 
a proposal to eliminate split plants, would not be needed.
    The Dean witness testified that Proposal 10 would require the 
nonpool side of a split plant to maintain nonpool status for a 12-month 
interval. According to the witness, adoption of this provision would 
deter pooling milk that does not regularly and consistently

[[Page 9019]]

serve the Class I market. The witness added that Proposal 10 was 
advanced as an alternative to Proposal 9. The witness testified that as 
advanced in Proposal 9, a split plant plant could either be a pool 
plant or a nonpool plant but not both. The witness stated that if USDA 
did not eliminate split plants then Dean would seek the adoption of 
Proposal 10.
    In a post hearing brief, Select and Continental supported adoption 
of Proposal 10. The brief stated that Proposal 10 would deter the 
pooling of milk that does not regularly and consistently serve the 
Class I market. According to the brief, split plants should be 
prohibited from using milk receipts in the nonpool side of the plant 
from being pooled without demonstrating actual service to the Class I 
market. The brief expressed the opinion that reducing the volume of 
milk that a split plant could pool on the order from its nonpool side 
would tend to increase the Central order blend price.
    The Select and Continental brief however, opposed the elimination 
of split plants as advanced in Proposal 9. The brief stated that 
requiring a split plant to elect non-pool status for 12 months for its 
nonpool side would provide sufficient incentive to prevent the pooling 
of excess milk through split plants.
    DFA/PF commented on brief that Dean's Proposals 4-13 in general 
``go too far, too fast'' given the current market conditions of the 
Central marketing area. According to the brief, DFA/PF contend that the 
adoption of the Dean proposals would not serve the needs of small dairy 
farms. The brief noted that some small producers may not have 
alternative markets for their milk if Dean's proposal to eliminate the 
split plant provision was adopted.
    The AMPI, et al., brief opposed elimination of the split plant 
provision or requiring a 12 month pooling commitment from operators of 
split plants. Their opposition was based on the view that elimination 
of split plants, or imposing a 12 month pooling commitment for split 
plant operators, would unfairly restrict their ability to pool milk on 
the order.
C. System Pooling for Supply Plants
    Three proposals presented by Dean, published in the hearing notice 
as Proposals 11, 12 and 13, and modified at the hearing, are not 
recommended for adoption. Proposal 11 would eliminate providing for 
supply plant systems. Proposal 12 would require a supply plant system 
to be operated by only one handler. Proposal 13 would require that 
every plant participating in a system be required to ship 40 percent of 
the system's qualifying shipment as if they had been operating as 
separate plants. Proposal 13 also would prohibit using milk shipped 
directly from producer farms as qualifying shipments. Current Central 
order provisions provide the ability for 2 or more supply plants 
(subject to certain additional conditions) to operate as a ``system'' 
in meeting the qualifications for pooling in the same manner as a 
single plant.
    The Dean witness testified that system pooling affords handlers the 
ability to link several supply plants together in an effort to qualify 
producer milk for pooling on the order. According to the witness, 
current system pooling provisions allow plants and farms close to 
distributing plants to deliver producer milk on behalf of more distant 
plants, thereby providing for the pooling of milk that does not 
regularly and consistently serve the Class I market. According to the 
witness, adoption of Proposal 11 would require plants to transfer milk 
to obtain and maintain eligibility for pool qualification. The witness 
stated that Proposal 11 would require every handler to pool their 
producers on the basis of actual deliveries to distributing plants.
    The Dean witness testified in support of Proposal 12 in the event 
supply plant systems were not eliminated as advanced in Proposal 11. 
According to the witness, Proposal 12 would limit the use of supply 
plant systems to a single handler rather than multiple handlers as 
currently provided in the order. The witness testified that allowing 
only a single handler to qualify pool supply plants through system 
pooling provisions would ensure that each handler is willing and able 
to demonstrate regular and consistent service to the fluid milk needs 
of the Central marketing area.
    The Dean witness testified that Proposal 13 would require each 
plant in a supply plant system to meet at least 40 percent of the total 
performance standard required for pooling. According to the witness, 
Proposal 13 is similar to Proposal 11 in that it would prohibit the use 
of milk shipped directly from producer farms to qualify a supply plant 
system. However, the witness stated that Proposal 13 also would require 
every supply plant in a supply plant system to ship a significant 
volume of milk to the fluid market. The witness noted that 
qualification of distant milk would be discouraged by adoption of 
Proposals 12 and 13 since the use of milk shipped directly from 
producer farms for qualification purposes would be prohibited. The Dean 
witness expressed preferences for the adoption of Proposal 11 over 
Proposal 12, and adoption of Proposal 12 over Proposal 13.
    A witness from DFA/PF expressed opposition to Proposals 11, 12, and 
13, because their adoption would eliminate or overly restrict the 
operation of supply plant systems. On brief, DFA/PF noted that, as with 
elimination of the split plant provision, some small producers may not 
have alternative markets for their milk if supply plant systems are 
eliminated or are made overly restrictive.
    In a post hearing brief, AMPI, et al., reiterated opposition to 
Proposals 11, 12, and 13. The AMPI, et al., brief opposed restrictions 
on pooling milk of producers ready, willing, and able to serve the 
Class I needs of the Central marketing area. The brief opposed 
elimination or restriction of supply plant systems contending such 
action would eliminate markets for the milk of small dairy farmers 
without alternative markets available.
    Select and Continental also opposed adoption of Proposals 11, 12 
and 13 in their post-hearing brief. The brief opposed eliminating or 
restricting supply plant systems on the basis that no verifiable 
evidence was presented demonstrating that supply plant systems do not 
provide consistent and reliable service to the Class I market.
D. Elimination of the Supply Plant Provision
    A proposal by Dean, published in the hearing notice as Proposal 4, 
seeking to eliminate the supply plant provision, is not recommended for 
adoption.
    A Dean witness characterized Proposal 4 as a preferred alternative 
to increasing supply plant performance standards sought in Proposals 1 
and 5. The witness explained that if Proposal 4 is adopted, then 
Proposals 9-13, seeking to increase performance standards for supply 
plants and supply plant systems would not be needed. The witness 
testified that while the role of supply plants in the milk order system 
is to supply the needs of distributing plants, the milk supply of 
plants for the Central marketing area is only of residual concern 
because it provides an outlet for reserve producers when their milk is 
not needed for fluid use.
    The Dean witness testified that supply plants no longer represent 
the most efficient means for supplying distributing plants. According 
to the witness, supply plants play a minor role in the Central 
marketing area, representing less than 5 percent of the milk shipped to 
distributing plants. According to the witness, milk assembled from 
farms must be received

[[Page 9020]]

at a supply plant, cooled and stored, and reloaded and delivered to 
distributing plants. The witness stated that the increased handling of 
milk through supply plants reduces its quality compared with milk that 
is direct delivered from farms. The witness said that direct delivery 
from farms to distributing plants is a superior method for ensuring 
that milk pooled on the order serves the Class I needs of the market. 
The witness was of the opinion that supply plants inappropriately 
facilitate pooling milk that does not regularly and consistently serve 
the Class I market.
    A witness representing NAJ testified in opposition to the 
elimination of supply plants. According to the witness, elimination of 
the supply plant provision also would reduce the ability of dairy 
farmers to pool milk on the Central order. The witness was of the 
opinion that eliminating the supply plant provision would have a 
negative impact on the income of the cooperatives represented by NAJ. 
The witness stated that supply plants provide a legitimate means by 
which producers continue to serve the Class I market of the Central 
marketing area.
    A witness for DFA/PF testified in opposition to the elimination of 
supply plants. According to the witness, provisions for supply plants 
should be provided because they continue to play a role in supplying 
milk to distributing plants. DFA/PF reiterated this opposition to 
Proposal 4 in their post-hearing brief. AMPI, et al., joined DFA/PF in 
opposing this proposal.
E. Standards for Producer Milk
    Several amendments to the Producer milk provision of the Central 
order are recommended for adoption. The amendments were largely 
contained in Proposal 1. Changes to the producer milk provision are 
necessary to more accurately identify the milk of those dairy farmers 
that are regularly and consistently serving the Class I needs of the 
market. The recommended amendments for adoption include: (1) Increasing 
the touch-base standard so that one day's milk production of a dairy 
farmer must be delivered to a pool plant in each of the months of 
January, February and August through November for the milk of the dairy 
farmer to be eligible for diversion to a nonpool plant; and (2) 
Decreasing the diversion limit standards to not more than 75 percent of 
receipts during August through February, and not more than 80 percent 
of receipts for March through July.
    The feature of Proposal 1 to geographically limit the location of 
nonpool plants eligible to receive diverted milk to those plants in 
States located in the marketing area and New Mexico is not recommended 
for adoption.
    Proposal 1 would increase the touch-base standard to require the 
equivalent of at least one days' milk production of a dairy farmer be 
physically received at a pool plant in each of the months of January, 
February and August through November. If the touch-base standard is not 
met, the milk would have to be physically received at a pool plant in 
each of the months of March through July and December. The current 
touch-base standard of the Central order specifies a one-time only 
delivery standard.
    The DFA/PF witness explained that the current one-time touch-base 
standard of the Central order should be replaced by the strengthened 
touch-base feature of Proposal 1. The witness continued that the months 
of January, February, and August through November, were added to the 
proposed touch-base standard to correspond with periods of higher Class 
I demands. The DFA witness explained that requiring one day's milk 
production of a producer to be delivered to a pool plant in each of 
these six months should increase milk available for Class I use. The 
DFA/PF witness was opposed to any touch-base standard of more than one 
day per month for the six months advanced by the proposal, as being 
overly restrictive.
    The DFA/PF witness testified that increasing the touch-base 
standard and lowering the diversion limit standards of the Central 
order will help to ensure that milk that could not consistently and 
reliably demonstrate service to the Class I market is not pooled on the 
order. The witness testified that the pooling of such milk on the order 
reduces the blend price paid to producers who consistently and reliably 
serve the Class I needs of the Central marketing area.
    The DFA/PF witness acknowledged that amendments to the pooling 
provisions of the Central order implemented in 2003 reduced the volume 
of milk pooled that was not serving the Class I needs of the market. 
However, the witness noted that those changes did not contemplate that 
milk from the Mountain States might seek to be pooled on the Central 
order. The witness was of the opinion that the current touch-base and 
diversion limit standards were inadequate to prevent the sharing of 
Class I revenue with the milk of producers that could not possibly 
serve the Class I market of the Central marketing area. The witness was 
of the opinion that if milk located far from the Upper Midwest 
marketing area \1\ and currently pooled on the Upper Midwest order were 
to seek an alternative order on which to pool, the current pooling 
standards of the Central order make it the most likely candidate among 
Federal milk orders. The witness testified that the current pooling 
standards of the Central order can not adequately prevent such milk 
from pooling because the pooling standards are too liberal. According 
to the witness, this milk can not demonstrate regular and reliable 
service to the Class I market.
---------------------------------------------------------------------------

    \1\ Interim amendments to the pooling provision of the Upper 
Midwest order were implemented on July 1, 2005. See Tentative 
Partial Decision published in the Federal Register, April 4, 2005 
(70 FR 19709).
---------------------------------------------------------------------------

    The DFA/PF witness illustrated that milk produced in Idaho, for 
example, cannot profitably be delivered to distributing plants located 
in the Central marketing area. According to the witness, milk produced 
in this region would need to travel more than 680 miles for delivery at 
the nearest distributing plant of the order located in Denver. The 
witness asserted that the current one-time touch-base standard combined 
with the existing diversion limit standards of the order provide the 
incentive for milk located far from the marketing area to be profitably 
pooled on the order which otherwise would not be economically feasible.
    The witness provided a scenario where a single 50,000-pound load of 
milk delivered once to Denver could cause one million pounds of milk to 
be pooled on the Central order through the diversion process but 
delivered to plants far from the marketing area. According to the 
witness' calculations, a 50,000-pound load of milk delivered once to a 
pool plant located in Denver would incur a loss $4,640. However, the 
witness explained that each additional load of milk, up to one million 
pounds now qualified for diversion to nonpool plants located near 
producers farms, would return an additional $7,081. The witness 
emphasized that the milk portrayed in this example would rely solely on 
the liberal pooling standards of the order. The milk would never 
consistently and reliably supply the Central marketing area.
    In another scenario, the DFA/PF witness illustrated the impact of 
25 million pounds of milk a month shipped from southern Idaho that 
would be pooled on the Central order through the diversion process by 
meeting the one-time touch-base standard during the months of November 
2003-January 2004. The witness explained that pooling this volume of 
milk would have

[[Page 9021]]

reduced the Central order's blend price by $0.25 per cwt.
    In a third scenario, the DFA/PF witness demonstrated how milk 
located in southern Idaho can be pooled every month through the 
diversion process by meeting the one-time touch-base standard of the 
Central order. The witness said that this scenario was based on the 58-
month period of January 2000 to October 2004. The witness explained 
that this scenario assumes that a single 50,000-pound load of milk was 
shipped to a distributing plant located in the Central marketing area 
and all other milk diverted to nonpool plants are located in Idaho. The 
witness testified that the shipping handler would receive a positive 
return averaging $0.348 per cwt per month ($201,000 over the 58-month 
period) on the total volume of milk pooled. The DFA/PF witness 
concluded that from their scenarios, the current Central order 
diversion limit and touch-base standards encourage pooling of milk that 
can not and does not regularly and consistently supply the Class I 
needs of the market.
    A brief submitted by Select and Continental supported the producer 
milk amendments called for in Proposal 1, except for limiting 
diversions to nonpool plants that are located in the States comprising 
the Central marketing area. The brief noted that the goal of the 
Federal order program should be to ensure that milk pooled on the order 
actually serves the Class I market.
    Features of Proposal 5, offered by Dean, regarding diversion limits 
and touch-base standards should not be adopted. Proposal 5 seeks to 
raise the touch-base standard to 4 days in each month of the year and 
decrease diversion limits to 65 percent for the months of July through 
January, and 75 percent during the months of February through June. A 
Dean witness stated that increasing the touch base requirement would 
ensure the increased availability of milk to serve the needs of the 
fluid market. The witness testified that adopting higher touch-base and 
lower diversion limit standards would ensure that pool plants would 
keep their facilities operating at a higher level of output than would 
be the case if more milk were diverted.
    The diversion limit standard feature of Proposal 5 was modified by 
Dean on brief. The modification specified that milk would not be 
eligible for diversion ``unless'' (instead of ``until'') milk has been 
physically received as producer milk at a pool plant, and the exception 
for a loss of Grade A status was changed to a period not to exceed 21 
rather than 10 days in a calendar year.
    The witness from NAJ, on behalf of AMPI, et al., testified in 
opposition to increasing the touch-base and lowering the diversion 
limit standards as advanced. The witness stated that the proposed 
lowering of diversion limits together with increasing supply plant 
performance standards as called for in Proposal 5 would have negative 
consequences for dairy farmer income, if adopted. The NAJ witness was 
of the opinion that the aim of Proposal 5 was to deter milk from being 
pooled on the order. It was the witness' opinion that the adoption of 
Proposal 5 would create marketing inefficiencies and additional costs 
for members of NAJ. The witness also was of the opinion that the 
adoption of Proposal 5 would discourage available milk supplies in the 
milkshed from pooling on the Central order.
    The record reveals that the current pooling provisions of the 
Central order suggest that distributing plants in certain areas of the 
marketing area are having difficulty obtaining reliable milk supplies. 
Because this decision does not recommend the adoption of transportation 
credits (discussed later in this decision) for the movement of milk to 
distributing plants, increasing the performance standards for supply 
plants is a reasonable measure to better assure that all distributing 
plants of the order are adequately supplied. Additionally, other 
measures should be taken to prevent the pooling of milk which can not 
demonstrate regular and consistent service in supplying the Class I 
needs of the marketing area. The pooling of such milk would result in 
an unwarranted lowering of the blend price returned to those producers 
who demonstrate regular and consistent service in supplying the Class I 
needs of the market.
    The pooling standards of all Federal milk marketing orders, 
including the Central order, 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 service in meeting the Class I needs of the market and 
thereby receive the order's blend price. The pooling standards of the 
Central order are represented in the Pool plant, Producer, and the 
Producer milk provisions of the order and are based on performance, 
specifying standards that if met, qualify a producer, the milk of a 
producer, or a plant to share in the benefits arising from the 
classified pricing of milk.
    Pooling standards that are performance-based provide the only 
viable method for determining those producers eligible to share in the 
marketwide pool. It is usually the additional revenue generated from 
the higher-valued Class I use of milk that adds additional income to 
producers, and it is reasonable to expect that only those producers who 
consistently bear the costs of supplying the market's fluid needs 
should share in the returns arising from higher-valued Class I sales. 
An important objective of pooling standards is identifying the milk 
that serves the fluid milk needs of the market, a feature which if 
ineffective can result in pooling milk that is not providing such 
service. Record evidence supports finding that certain features of 
pooling standards of the Central order relating to performance 
standards for supply plants, diversion limits, touch-base, and split 
plants need to be amended given the pooling of milk that does not 
regularly and consistently serve the Class I needs of the Central 
marketing area.
    The most recent amendments to the Central order (published in the 
August 27, 2003, Final Decision (68 FR 51640)) intended to correct 
similar inadequacies of the supply plant pooling provisions and 
diversion limit standards for the consolidated Central order. However, 
the record reveals that the combination and features adopted for pool 
plants in 2003, have not been as effective as intended to reasonably 
assure that only milk of producers who regularly and consistently serve 
the Class I market is pooled on the order.
    Record evidence reveals that the performance and pooling standards 
of the Central order are inadequate to ensure that the benefits of 
consistently and reliably servicing the Class I market are shared 
equitably among those producers who actually bear the costs of serving 
that market. The record evidence demonstrates that milk distant from 
the Central marketing area does not provide reasonable service to the 
Class I market but can be pooled on the order because of current 
pooling standards. This evidence shows that pooling large volumes of 
milk at lower class-use values has lowered the order's blend price. 
Specifically, the record shows that the current one-time touch-base 
standard and the diversion limit standard of the order does not 
properly identify the milk of producers who reliably and consistently 
serve the Class I market.
    The record demonstrates that current pooling standards of the 
Central order make it the most logical order for distant milk--such as 
in Southern Idaho--to be pooled. The record shows that the current 
performance standards of the Central order are insufficient to prevent

[[Page 9022]]

milk from qualifying for pooling while not performing service to the 
Class I market.
    In addition, the record provides evidence that milk produced in 
areas distant from the marketing area cannot profitably be delivered to 
distributing plants in the Central marketing area. However, the current 
liberal touch-base and diversion limit standards make pooling on the 
Central order attractive while reducing the blend price of the order 
for those producers who actually provide service to the Class I market.
    Record evidence reveals the continued importance of supply plants 
for producers whose milk provides consistent and reliable service to 
the Class I market. According to the record, opposition to restrictive 
supply plant standards beyond those advanced in Proposals 1 and 10 was 
based on the continued need for supply plant service to distributing 
plants in the marketing area. Similarly, the record reveals a consensus 
among producers concerning their continued support for supply plant 
systems as an integral part of milk supply networks in the Central 
marketing area. Opposition to the elimination or additional restriction 
of supply plants and supply plant systems in Proposals 4, 11, 12, and 
13, is revealed by the record to be based on the continued importance 
of supply plant systems to supplying the Class I market.
    Record evidence from proponents and opponents of limiting 
diversions to supply plants located in the marketing area or New Mexico 
supports concluding that dairy farmers in some regions of the Central 
marketing area rely on supply plants to market their milk. In addition, 
the record contains evidence that supply plants and supply plant 
systems continue to provide necessary service to the Class I market 
without regard to the location of those plants or plant systems. 
According to the record, distant milk may use the pooling standards of 
the Central order as a means to pool milk that will never perform 
service to the Class I market. However, the record does not show 
clearly that milk diverted to supply plants outside the marketing area 
or New Mexico cannot be part of the legitimate reserve of the market 
which may require additional pooling safeguards. Performance rather 
than plant location continues to be the standard for identifying the 
milk of producers who should share in the benefits of pooling. In that 
regard, this decision finds agreement with the opponents of limiting 
diversions to supply plants located within the marketing area or New 
Mexico, as sought in Proposal 1, to serve the legitimate needs of the 
market.
    This decision finds that several of the performance standards 
advanced in Proposal 1 are reasonable in light of other recommended 
changes to the order's pooling provisions. The combination of 
amendments increasing supply plant performance standards, modifying the 
split plant provision, reducing diversion limit standards and 
increasing the touch-base standard are appropriate in light of denying 
proposals to establish transportation and assembly credits. The 
recommended amendments should more accurately identify the milk of 
those producers that provide a consistent and reliable supply of milk 
to the Class I needs of the Central marketing area and assure that 
distributing plants are adequately supplied.
    The record indicates that milk located either inside or outside the 
marketing area can be reported as diverted milk by a pooled handler. 
This milk is eligible to receive the order's blend price. Under the 
current pooling provisions, this can occur after a one-time delivery to 
a Central marketing area pool plant. After the initial delivery, 
however, such milk need never again be physically delivered to a 
Central marketing area pool plant. The record evidence confirms that 
usually this milk is delivered to a nonpool plant located nearer the 
farms of producers located far from the marketing area who cannot serve 
the Class I market. It is therefore appropriate to amend the order's 
diversion provisions to ensure that milk pooled through the diversion 
process is part of the legitimate reserve supply of the pool plant from 
which it was diverted. It is necessary to safeguard against excessive 
milk supplies becoming associated with the market through the diversion 
process to prevent the unwarranted reduction of the order's blend 
price.
    However, the record does not support finding that diversions to 
plants not located within the marketing area or New Mexico cannot be 
part of the legitimate reserve supply for the marketing area. In this 
regard, the proposed limitation on diversions based on plant location 
is not reasonable. Based on the record, the proposed increase in the 
touch-base standard and lowering of the diversion limitation standard 
should be adequate to ensure that milk consistently and reliably 
serving the Class I market is properly identified. Accordingly, the 
portion of Proposal 1 seeking to limit diversions to plants located in 
the marketing area or New Mexico is not recommended for adoption.
    This decision finds that the touch-base standard should be amended 
so that at least one days' milk production of a dairy farmer is 
physically received at a pool plant during January, February, and 
August through November for the milk of the dairy farmer to be eligible 
for diversion to a nonpool plant. Amending the touch-base standard 
should reduce the ability of milk not performing a consistent and 
reliable service to the Class I market from being pooled. The months of 
January, February, and August through November are, according to the 
record, the high demand months for fluid milk. Adoption of the one-day 
touch base standard for each of these three months would tend to more 
properly identify the milk of those producers serving the market's 
Class I needs. Accordingly, the proposal is recommended for adoption.
    Record evidence does not support finding that the 4-day touch base 
standard advanced by Dean would improve the identification of dairy 
farmers whose milk serves beyond what a 1-day standard would provide 
within the context of current marketing conditions. This will be 
reinforced by the other amendments to the order's pooling standards 
recommended for adoption.
    The proposal requiring a handler to make a 12-month commitment if 
opting to create a split plant would ensure that the milk shipped from 
the pool side of a split-plant serves the Class I market. This proposal 
(Proposal 10, advanced by Dean) is a reasonable modification of the 
split plant feature for supply plants to provide for orderly marketing 
and maintain the integrity and intent of the order's performance 
standards. The proposal retains the principle that milk regularly and 
consistently demonstrating service to the Class I needs of the market 
should benefit from being pooled on the order. Accordingly, Proposal 10 
is recommended for adoption.
    The Federal milk order system recognizes that there are costs 
incurred by producers in servicing an order's Class I market. The 
primary reward to producers for performing such service is receiving 
the order's blend price. Taken as a whole, the amended pooling 
provisions will ensure that milk seeking to be pooled consistently 
demonstrates service in meeting the marketing area's Class I needs. 
Consequently, adoption of these amended pooling provisions will provide 
for more equitable sharing of revenue generated from Class I sales 
among those producers who bear those

[[Page 9023]]

costs and assure Class I handlers of a regular and reliable supply for 
fluid use.

2. Establishing Pooling Limits

Preliminary Statement

    Federal milk marketing orders rely on the tools of classified 
pricing and marketwide pooling to assure an adequate supply of milk for 
fluid (Class I) use and to provide for the equitable sharing of the 
revenues arising from the classified pricing of milk. Classified 
pricing assigns a value to milk according to how the milk is used. 
Regulated handlers who buy milk from dairy farmers are charged class 
prices according to how they use the farmer's milk. Dairy farmers are 
then paid a weighted average or ``blend'' price. The blend price that 
dairy farmers are paid for their milk is derived through the marketwide 
pooling of all class uses of milk in a marketing area. Thus each 
producer receives an equal share of each use class of milk and is 
indifferent as to the actual Class for which the milk was used. The 
Class I price is usually the highest class price for milk. 
Historically, the Class I use of milk provides the additional revenue 
to a marketing area's total classified use value of milk.
    The series of Class prices that are applicable for any given month 
are not announced simultaneously. The Class I price and the Class II 
skim milk price are announced prior to the beginning of the month for 
which they will be effective. Class prices for milk in all other uses 
for the month are not determined until on or before the 5th day of the 
following month. The Class I price is determined by adding a 
differential value to the higher of either an advanced Class III or 
Class IV value. These values are calculated based on formula using 
National Agricultural Statistics Service (NASS) survey prices of 
cheese, butter, and nonfat dried milk powder for the first two weeks of 
the prior month. For example, the Class I price for August is announced 
in late July and is based on the higher of the Class III or IV value 
computed using NASS commodity price surveys for the first two weeks of 
July.
    The Class III and IV prices for the month are determined and 
announced after the end of the month based on the NASS survey prices 
for the selected dairy commodities during the month. For example, the 
Class III and IV prices for August are based on NASS survey commodity 
prices during August. A large increase in the NASS survey price for the 
selected dairy commodities from one month to the next can result in the 
Class III or IV price exceeding the Class I price. This occurrence is 
commonly referred to by the dairy industry as a ``Class price 
inversion.'' A producer price inversion generally refers to when the 
Class III or IV price exceeds the average classified use value, or 
blend price, of milk for the month. Price inversions have occurred with 
increasing frequency in Federal milk orders since the current pricing 
plan was implemented on January 1, 2000, despite efforts made during 
Federal Order Reform to reduce such occurrences. Price inversions can 
create an incentive for dairy farmers and manufacturing handlers who 
voluntarily participate in the marketwide pooling of milk to elect not 
to pool their milk on the order. Class I handlers do not have this 
option; their participation in the marketwide pool is mandatory.
    The producer price differential, or PPD, is the difference between 
the Class III price and the weighted average value of all Classes. In 
essence, the PPD is the dairy farmer's share of the additional/reduced 
revenues associated with the Class I, II and IV milk pooled in the 
market. If the value of Class I, II and IV milk in the pool is greater 
than the Class III value, dairy farmers receive a positive PPD. 
However, a negative PPD can occur if the value of the Class III milk in 
the pool exceeds the value of the remaining classes of milk in the 
pool. This can occur as a result of the price inversions discussed 
above.
    The Central Federal order operates a marketwide pool. The Order 
contains pooling provisions which specify criteria that, if met, allow 
dairy farmers to share in the benefits that arise from classified 
pricing through pooling. The equalization of all class prices among 
handlers regulated by an order is accomplished through a mechanism 
known as the producer settlement fund (PSF). Typically, Class I 
handlers pay the difference between the blend price and their use-value 
of milk into the PSF. Manufacturing handlers typically receive a draw 
from the PSF, usually the difference between the Class II, III or IV 
price and the blend price. In this way, all handlers pay the Class 
value for milk and all dairy farmer suppliers receive at least the 
order's blend price.
    When manufacturing class prices of milk are high enough to result 
in a use-value of milk for a handler that is higher than the blend 
price, handlers of manufacturing milk may choose to not pool their milk 
receipts. Opting to not pool their milk receipts allows these handlers 
to avoid the obligation of paying into the PSF. The choice by a 
manufacturing handler to not pool their milk receipts is commonly 
referred to as ``de-pooling''. When the blend price rises above the 
manufacturing class use-values of milk these same handlers again opt to 
pool their milk receipts. This is often referred to as ``re-pooling''. 
The ability of manufacturing handlers to de-pool and re-pool 
manufacturing milk is viewed by some market participants as being 
inequitable to both producers and handlers.

The ``De-Pooling'' Proposals

    Proponents are in agreement that milk marketing orders should 
contain provisions that will tend to deter the practice of de-pooling. 
Four proposals intending to deter the de-pooling of milk were 
considered in this proceeding. The proposals offered different degrees 
of deterrence against de-pooling by establishing limits on the amount 
of milk that can be re-pooled. The proponents of these four proposals 
are generally of the opinion that de-pooling erodes equity among 
producers and handlers, undermines the orderly marketing of milk and is 
detrimental to the Federal order system.
    Two different approaches to deter de-pooling are represented by 
these four proposals. The first approach, published in the hearing 
notice as Proposals 2 and 8, addresses de-pooling by limiting the 
volume of milk a handler can pool in a month to a specified percentage 
of what the handler pooled in the prior month. The second approach, 
published in the hearing notice as Proposals 6 and 7, addresses de-
pooling by establishing what is commonly referred to as a ``dairy 
farmer for other markets'' provision. These proposals would require 
milk of a producer that was de-pooled to not be able to be re-pooled by 
that producer for a defined time period. All proponents agreed that 
while none of the proposals would completely eliminate de-pooling, they 
would likely deter the practice.
    Of the four proposals received that would limit de-pooling, this 
decision recommends Proposal 2, offered by DFA/PF, for adoption. 
Specifically, adoption of the proposal would limit the volume of milk a 
handler could pool in a month to no more than 125 percent of the volume 
of milk pooled in the prior month. Milk diverted to nonpool plants in 
excess of this limit would not be pooled, and milk shipped to pool 
distributing plants would not be subject to the 125 percent limitation. 
The 125 percent limitation may be waived at the discretion of the 
Market Administrator for a new handler on the order or for an existing 
handler whose milk supply changes due to unusual circumstances.
    As published in the hearing notice, Proposal 8, offered by Dean 
Foods, addresses de-pooling in a similar manner as Proposal 2, but 
would

[[Page 9024]]

establish a limit on the total volume of milk a handler could pool in a 
given month to 115 percent of the volume that was pooled in the prior 
month. This proposal was modified at the hearing to allow for pooling 
the milk receipts of a new handler on the order without volume 
restrictions.
    As published in the hearing notice, Proposals 6 and 7, also offered 
by Dean Foods would address de-pooling by establishing defined time 
periods during which de-pooled milk could not be pooled. Proposal 6 
essentially would require an annual pooling commitment by handler to 
the market. Under Proposal 6, if the milk of a producer is de-pooled in 
a month, then the milk of the producer could not re-establish 
eligibility for pooling on the order during the following eleven months 
unless ten days milk production was delivered to a pool distributing 
plant. Under Proposal 6, handlers that de-pool milk have limited 
options to return milk to the pool, either shipping ten days milk 
production of a producer to a pool distributing plant or waiting eleven 
months for eligibility to re-pool.
    Under Dean's Proposal 7, a handler that de-pools milk cannot re-
pool for a 2 to 4 month time period, depending on the month in which 
de-pooling occurred. Proposal 7 also provides the option to return milk 
to the pool by shipping ten days milk production of a producer to a 
pool distributing plant. Proposals 6 and 7 were modified at the 
hearing.
    A witness appearing on behalf of DFA/PF testified in support of 
Proposal 2 and in general opposition to the practice of de-pooling. The 
witness testified that adoption of Proposal 2 would minimize the 
practice of de-pooling since not all the milk that was de-pooled could 
immediately return to the pool in the following month. The witness 
noted that both DFA and Prairie Farms de-pool milk when advantageous 
but stressed that the practice of de-pooling and re-pooling is 
detrimental to the Federal order system.
    The DFA/PF witness testified that restricting the pooling of milk 
on the basis of prior performance is not a new concept in Federal milk 
marketing order provisions. The witness referenced the ``dairy farmer 
for other markets'' provision currently in place in the Northeast order 
as an example of pooling provisions based on prior performance. The 
witness noted that Proposal 2 is similar to a ``dairy farmer for other 
markets'' provision as it limits pooling based on the handler's 
previous month's p