Milk in the Central Marketing Area; Final Decision on Proposed Amendments to Marketing Agreement and to Order, 54152-54170 [06-7498]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 71, Number 177 (Wednesday, September 13, 2006)]
[Proposed Rules]
[Pages 54152-54170]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-7498]



[[Page 54151]]

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Part IV





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 1032



Milk in the Central Marketing Area; Final Decision on Proposed 
Amendments to Marketing Agreement and to Order; Proposed Rule

Federal Register / Vol. 71, No. 177 / Wednesday, September 13, 2006 / 
Proposed Rules

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1032

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


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

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; final decision.

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SUMMARY: This document is the final decision proposing to adopt 
amendments that 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 limits the volume of milk a handler can 
pool to 125 percent of the total volume of milk pooled in the previous 
month. This final decision is subject to producer approval.

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 final decision adopts amendments that: 
(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 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. 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 January 2005, the time of the hearing, 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 adopted 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 action does not require additional information collection that 
requires clearance by the Office of Management and Budget (OMB) beyond 
currently approved information collection. The primary sources of data 
used to complete the forms are routinely used in most business 
transactions. Forms require only a minimal amount of information which 
can be supplied without data processing equipment or a trained 
statistical staff. Thus, the information collection and reporting 
burden is relatively small. Requiring the same reports for all handlers 
does not significantly disadvantage any handler that is smaller than 
the industry average.
    No other burdens are expected to fall on the dairy industry as a 
result of overlapping Federal rules. This rulemaking proceeding does 
not

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duplicate, overlap, or conflict with any existing Federal rules.
    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).
    Recommended Decision: Issued February 15, 2006; published February 
22, 2006 (71 FR 9015).

Preliminary Statement

    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 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).
    Upon the basis of the evidence introduced at the hearing and the 
record thereof, the Administrator, on February 15, 2006, issued a 
Recommended Decision containing notice of the opportunity to file 
written exceptions thereto.
    The material issues, findings, conclusions and rulings of the 
Recommended Decision, with one minor modification, are hereby approved, 
adopted and are set forth herein. 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 adopted. 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 adopted. 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 within 
the Central order boundaries from pooling on the Appalachian and 
Southeast orders. According to the witness this would tend to increase 
the

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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 adopted. Another Dean proposal, 
published in the hearing notice as Proposal 9, seeking to eliminate the 
split plant provision is not adopted.
    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 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 could either be a pool plant

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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 
adopted. Proposal 11 would have eliminated providing for supply plant 
systems. Proposal 12 would have required a supply plant system to be 
operated by only one handler. Proposal 13 would have required that 
every plant participating in a system ship 40 percent of the system's 
qualifying shipment as if they had been operating as separate plants. 
Proposal 13 also would have prohibited 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 adopted.
    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 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

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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 adopted. 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 adopted 
amendments 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 adopted.
    Proposal 1 increases 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.
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    \1\ Amendments to the pooling provisions of the Upper Midwest 
order were implemented on February 1, 2006 (70 FR 73126). See Final 
Partial Decision published in the Federal Register, October 5, 2005 
(70 FR 58086).
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    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 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

[[Page 54157]]

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 are not 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.
    NAJ and AMPI, et al., also submitted exceptions to increasing the 
touch-base standard and lowering the diversion limit standards in the 
recommended decision. NAJ and AMPI, et al., reaffirmed their opinion 
that adoption of a one day touch-base standard along with a decrease in 
diversion limits would unnecessarily burden their members.
    Central Equity, a dairy farmer cooperative located in Missouri, 
also took exception to increasing the touch-base standard. One hundred 
and fourteen Central Equity dairy farmer members submitted a form-
letter detailing the difficulties the cooperative would endure in 
meeting the increased touch-base standard. The cooperative members were 
of the opinion that the recommended touch-base standard would 
significantly increase hauling costs and require the cooperative to pay 
pooling fees for access to pool plants. The cooperative added that they 
are not opposed to increased performance standards in general, but are 
concerned with difficulties that small cooperatives and independent 
dairy farmers face in obtaining access to pool facilities.
    Exceptions to increasing the touch-base standard and lowering the 
diversion limit standard were also received from Wells Dairy (Wells). 
Wells Dairy is an Iowa based dairy products manufacturer. Wells was of 
the opinion that the recommended touch-base standard would be difficult 
for certain dairy farmers and dairy farmer cooperatives to meet. Wells 
noted that increasing the touch-base standard and lowering the 
diversion limit standard will unduly burden dairy farmers and 
cooperatives that have limited access to pooling facilities served 
under full-supply contracts.
    The record reveals that distributing plants in certain areas of the 
marketing area are having difficulty obtaining reliable milk supplies. 
Because this decision does not adopt 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 are being 
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 results 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

[[Page 54158]]

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 do 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 
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.
    Despite the comments by AMPI et al., NAJ, Central Equity and Wells 
Dairy, this decision continues to find that several of the performance 
standards advanced in Proposal 1 are reasonable in light of other 
adopted 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 adopted 
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. This standard is a necessary 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 
is 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 adopted.
    Exceptions received by AMPI, et al., NAJ, Central Equity and Wells 
Dairy opined the difficulties that certain cooperatives and independent 
dairy farmers face in meeting an increased touch-base standard. 
However, this decision continues to find that 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 is widely supported by the record and 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 six months will more properly identify the 
milk of those producers serving the market's Class I needs. 
Accordingly, exceptions received from AMPI, et al., NAJ, Central Equity 
and Wells Dairy are found to not be compelling.
    Record evidence does not support finding that the 4-day touch base

[[Page 54159]]

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 adopted amendments to the order's pooling 
standards.
    The amendment requiring a handler to make a 12-month commitment if 
opting to create a split plant will ensure that the milk shipped from 
the pool side of a split-plant serves the Class I market. This 
amendment (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 adopted.
    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 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 formulae 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 weighted average price of Class I, II and IV milk in the 
pool is greater than the Class III price, then 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

[[Page 54160]]

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 adopts Proposal 2, offered by DFA/PF. Specifically, adoption 
of the proposal will limit the volume of milk a handler can 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 and 
allocated as Class I in excess of the volume shipped to pool 
distributing plants in the prior month will 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 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