Milk in the Mideast Marketing Area; Recommended Decision and Opportunity To File Written Exceptions on Proposed Amendments to Tentative Marketing Agreement and Order, 1976-1992 [E9-607]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 74, Number 9 (Wednesday, January 14, 2009)]
[Proposed Rules]
[Pages 1976-1992]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-607]


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

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1000 and 1033

[AMS-DA-08-0049; AO-166-A77; Docket No. DA-08-06]


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

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; recommended decision.

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

SUMMARY: This decision recommends adoption of a proposal to adjust 
Class I prices in certain counties of the Mideast Federal milk 
marketing order. Class I prices are recommended to be unchanged in 193 
counties within the marketing area and to be increased by up to $0.20 
per hundredweight in 110 counties in the southern portion of the 
marketing area. The original hearing proposal to adjust Class I prices 
is recommended for adoption, except it is modified to recommend a $0.20 
increase in the Class I price at Charleston, West Virginia.

[[Page 1977]]


DATES: Comments must be submitted on or before March 16, 2009.

ADDRESSES: All comments received will be posted without change, 
including any personal information provided. Comments (six copies) 
should be filed with the Hearing Clerk, United States Department of 
Agriculture, STOP 9200-Room 1031, 1400 Independence Avenue, SW., 
Washington, DC, 20250-1031. You may send your comments by the 
electronic process available at the Federal eRulemaking portal: https://
www.regulations.gov. Reference should be made to the title of the 
action and docket number.

FOR FURTHER INFORMATION CONTACT: Erin C. Taylor, Order Formulation and 
Enforcement Branch, USDA/AMS/Dairy Programs, STOP 0231-Room 2963, 1400 
Independence Ave., SW., Washington, DC 20250-0231, (202) 720-7183, e-
mail address: erin.taylor@usda.gov.

SUPPLEMENTARY INFORMATION: This decision recommends adoption of 
amendments that would adjust the Class I pricing surface in certain 
counties within the geographical marketing area of the Mideast milk 
marketing order.
    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, as amended (7 
U.S.C. 601-674) (the Act), provides that administrative proceedings 
must be exhausted before parties may file suit in court. Under Section 
608c(15)(A) of the Act, any handler subject to an order may request 
modification or exemption from such order by filing with USDA 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, USDA 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 USDA'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-
612), the Agricultural Marketing Service (AMS) 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 farms. 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 August 2008, the time of the hearing, there were 7,376 dairy 
farms pooled on the Mideast order. Of these, approximately 6,927 dairy 
farms (or 93.9 percent) were considered small businesses.
    During August 2008, there were 53 handler operations associated 
with the Mideast order (27 fully regulated handlers, 9 partially 
regulated handlers, 2 producer-handlers and 15 exempt handlers). Of 
these, approximately 43 handlers (or 81 percent) were considered small 
businesses.
    Minimum Class I prices are determined in all Federal milk marketing 
orders by adding a location specific differential, referred to as a 
``Class I differential,'' to the higher of an advance Class III and 
Class IV price announced by USDA. The amendments recommended for 
adoption in this decision provide for adjusting Class I prices for 
certain counties within the geographic boundaries of the Mideast 
marketing area. Minimum Class I prices charged to regulated handlers 
are applied uniformly to both large and small entities. Class I price 
increases would generate a higher marketwide pool value in the Mideast 
order by approximately $280,000 to $300,000 per month. Therefore, the 
proposed Class I price adjustments will not have a significant economic 
impact on a substantial number of small entities.
    The Agricultural Marketing Service (AMS) is committed to complying 
with the E-Government Act, to promote the use of the Internet and other 
information technologies to provide increased opportunities for citizen 
access to Government information and services, and for other purposes.
    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, recordkeeping, or other compliance requirements because they 
would remain identical to the current requirements. No new forms are 
proposed and no additional reporting requirements would be necessary.
    This 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 approved forms are 
routinely used in most business transactions. The 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.
    Interested parties were invited to submit comments on the probable 
regulatory and informational impact of this proposed rule on small 
entities.

Prior Documents in This Proceeding

    Notice of Hearing: Issued July 21, 2008; published July 24, 3008 
(73 FR 43160).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
recommended decision with respect to proposed amendments to the 
tentative marketing agreement and the order regulating the handling of 
milk in the Mideast marketing area. This notice is issued pursuant to 
the provisions of the Agricultural Marketing Agreement Act 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

[[Page 1978]]

Hearing Clerk, U.S. Department of Agriculture, STOP 9200-Room 1031, 
1400 Independence Ave., SW., Washington DC 20250-9200, by March 16, 
2009. Six 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 Mideast 
marketing area. The hearing was held pursuant to the provisions of the 
Agricultural Marketing Agreement Act of 1937 (AMAA), 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 Cincinnati, Ohio, pursuant to a notice of 
hearing issued July 21, 2008.
    The material issues on the record of hearing relate to:

1. Class I Prices--Adjustments and Pricing Surface

Findings and Conclusions

    This decision recommends adoption of a proposal, published in the 
hearing notice as Proposal 1, with one modification. The proposal would 
increase Class I prices in 110 of 303 counties within the Mideast 
marketing area. The minimum Class I prices of the Mideast order are 
determined by adding a location-specific differential, referred to as a 
Class I differential, to the higher of an advance Class III or Class IV 
price announced by USDA. Class I differentials are location-specific by 
county and parish for all States of the 48 contiguous United States. 
Class I differentials for the Mideast order are specified in 7 CFR 
1000.52.
    A witness appeared on behalf of the proponents of Proposal 1, Dairy 
Farmers of America, Michigan Milk Producers, Inc., Foremost Farms USA 
Cooperative, Inc., Dairylea Cooperative, Inc., and National Farmers 
Organization, Inc., hereinafter referred to as ``DFA, et al.,'' in 
support of increasing Class I prices in the southern tier of the 
Mideast milk marketing area. All of these organizations are Capper-
Volstead cooperatives. According to the witness, DFA, et al., markets 
the majority of the milk that is pooled and priced under the terms of 
the Mideast marketing order. The witness testified that DFA, et al., 
members market milk in the Mideast marketing area through MEMMA. The 
witness described MEMMA as a common marketing agency that shares 
customer orders, milk availability, balancing capacity and other 
information to provide for the efficient assembly and transportation of 
milk. The witness stated that DFA, et al., are supporters of Federal 
milk marketing orders and emphasized that the economic livelihood of 
dairy farmers would be diminished in their absence.
    The DFA, et al., witness testified that recent changes to the Class 
I price surface and transportation credit provisions in the 
Appalachian, Southeast and Florida marketing orders \1\ (southeastern 
orders) have caused difficulties in supplying fluid milk processing 
plants in the southern tier of the Mideast marketing area. The witness 
testified that those changes increase the blend prices received by 
farmers whose milk is pooled on the southeastern orders and also 
provide more money to offset transportation costs of supplemental milk 
delivered to southeastern plants. The witness testified that these 
combined changes to the southeastern orders attract milk away from 
Mideast order fluid milk plants and justify the need for a temporary 
increase in the Class I price surface in the southern tier of the 
marketing area.
---------------------------------------------------------------------------

    \1\ See Tentative Partial Decision, Published February 29, 2008 
(73 FR 11194).
---------------------------------------------------------------------------

    The DFA, et al., witness testified regarding the need for making 
regional, temporary changes to the Class I price surface. The witness 
testified that adequate data do not currently exist to revise the Class 
I price surface on a national basis, and that the problem in the 
Mideast order should be addressed now. The witness noted that Proposal 
1 should be considered a temporary adjustment that may be changed in 
the future if a national hearing should occur.
    The DFA, et al., witness asserted that the purpose of Class I 
differentials are to generate adequate revenue to assure that the fluid 
milk market is adequately supplied. The witness testified that 
increases in transportation costs combined with recent changes 
affecting Class I prices to the southeastern orders have made it more 
difficult to service Mideast fluid milk plants. Therefore, the witness 
concluded, a temporary increase in the Class I prices in the southern 
tier of the Mideast marketing area is warranted.
    The DFA, et al., witness relied on data prepared by the Market 
Administrator to compare the volume of milk produced within the 
marketing area boundaries with the volume of milk actually pooled on 
the Mideast order. The data revealed total milk production by state and 
county that is either: Pooled on the Mideast order; usually associated 
with but not pooled on the order during the specified month; or pooled 
on another Federal order. The witness was of the opinion that milk 
produced within the boundaries of the Mideast marketing area but not 
pooled on the Mideast order can be assumed to have been marketed 
elsewhere for a higher return. The witness concluded from these data 
that the milk supply for the Mideast marketing area is concentrated in 
the central to northern regions of the marketing area.
    The DFA, et al., witness described the analysis used to examine the 
milk supply and demand situation in the Mideast marketing area. The 
witness explained how they divided the Mideast marketing area into 
northeast, northwest and southern regions. DFA, et al., then requested 
that the Market Administrator calculate summary statistics for each 
region for January, April, August and November of 2007, and January and 
April of 2008.
    The DFA, et al., witness reviewed market administrator data that 
they had requested prior to the hearing that showed: (1) The volume of 
milk produced on farms located in the defined supply regions either 
pooled on the Mideast order or pooled on another Federal order and 
delivered to a pool distributing plant in the defined supply region; 
(2) The pounds of bulk milk physically received at distributing plants 
located in the defined supply regions; (3) The net of the two figures 
to demonstrate a milk deficit or surplus situation in each of the three 
regions; and (4) The hauling distances of producer milk to distributing 
plants within each of the three regions.
    The DFA, et al., witness described the northwest region of the 
marketing area as Michigan, northern Indiana and northwest Ohio. 
According to the witness, the northwest area has the largest volume of 
milk production and the largest volume of Class I demand when compared 
to the other two areas, while also being subject to the two lowest 
valued Class I differential zones in the Mideast marketing area. The 
witness characterized the northwest region as the reserve supply region 
for the Mideast marketing area since milk

[[Page 1979]]

production is greater than fluid milk demand and milk is frequently 
transported from this region into the other two regions. The witness 
said that the data indicated that the average hauling distance for milk 
delivered to distributing plants in the northwest region is 72 miles.
    The DFA, et al., witness described the northeast region of the 
Mideast marketing area as the northeastern half of Ohio and the western 
portion of Pennsylvania. The witness testified that the northeast 
region is also an area where milk production exceeds fluid milk demand 
and that the average hauling distance for milk delivered to 
distributing plants in the region is 70 miles.
    The DFA, et al., witness described the southern region of the 
marketing area as the southern portion of Indiana, southern portion of 
Ohio, northeast portion of Kentucky and the western half of West 
Virginia. The witness testified that, on average, the local milk supply 
for this region meets only 60 percent of fluid milk demand, making it 
the only deficit region of the marketing area. The southern region of 
the marketing area absorbs all of the local milk supply that is not 
attracted to the Appalachian or Southeast orders and relies on milk 
supplies from the northern tier of the marketing area to balance fluid 
milk needs, the witness said. The witness noted that the average 
hauling distance of milk delivered to distributing plants in the region 
is 133 miles, which in the witness' opinion represents milk produced 
outside the region being delivered to plants within the region. The 
witness added that the average hauling distance in this region is over 
60 miles further than in the other two regions.
    The DFA, et al., witness, relying on Market Administrator data, 
detailed the competition for milk supplies from non-pool plants within 
the marketing area. The witness concluded from the data that there are 
a significant number of non-pool manufacturing plants located near the 
reserve supply regions of the marketing area. The witness was of the 
opinion that the Class I prices in the southern tier of the marketing 
area should be increased to attract milk away from these manufacturing 
operations for higher-valued fluid use by compensating farmers for the 
higher transportation costs they incur to service these fluid plants.
    The DFA, et al., witness testified that Class I differentials have 
only been modified twice in the past 23 years, once as a result of the 
1985 Farm Bill, and another as a result of Federal order reform in 
2000. The witness noted that the changes made to the Class I price 
surface during Federal order reform in 2000 were based on data from the 
mid-1990's. The witness said that there have been significant changes 
in marketing conditions since then, notably the number of dairy farms, 
the increase in size of existing dairy farms, population increases in 
the southern region of the Mideast marketing area and a shift in milk 
production to the northern region of the marketing area. The witness 
was of the opinion that the Class I price surface currently in place in 
the Mideast marketing area is too ``flat,'' and does not encourage the 
movement of milk from the supply region in the north to deficit regions 
in the south. The witness noted that the difference in Class I 
differentials between southern Michigan and Cincinnati, Ohio, for 
example, is $0.40, which according to the DFA, et al., calculation 
represents only 26 percent of the actual transportation cost that a 
milk hauler would incur.
    The DFA, et al., witness relied on two methodologies to illustrate 
the inadequacies of the Class I price surface in the southern tier of 
the Mideast marketing area. The witness said that the first method 
examined milk transportation data provided by MEMMA, and the second 
method paralleled the methodology relied on to implement the 
adjustments to Class I prices in the southeastern orders. The witness 
used Market Administrator data to select eleven high milk production 
counties that, according to the witness, represent ``reserve'' supply 
areas for the Mideast market.
    The DFA, et al., witness described the MEMMA methodology used to 
determine the differences between actual transportation costs and Class 
I differential levels. The witness first presented diesel fuel cost 
data from the Energy Information Agency (EIA) that showed recent 
increases in fuel costs, with an average fuel cost of $4.52 a gallon 
from the beginning of 2008 until the time of the hearing (August 2008). 
The witness described how fuel costs are used to determine milk hauling 
costs and testified that MEMMA utilizes a $2.20 base hauling rate plus 
a monthly fuel surcharge to calculate total hauling rates. The witness 
relied on a 47 percent fuel surcharge for this calculation which is, 
according to the witness, MEMMA's average surcharge from the beginning 
of the year to the time of the hearing. The witness said that this 
results in a hauling rate of $3.23 per loaded mile, or $1.59 per cwt 
for the 235 mile haul from Clinton County, Michigan, (reserve area) to 
Eastside Dairy in Anderson, Indiana (deficit area).
    The DFA, et al., witness then calculated the net dollars provided 
by the differences in the Class I differentials to offset 
transportation costs between the eleven reserve counties they had 
previously selected and the ten fluid plants located in the deficit 
southern region. For example, the differences in the Class I 
differential levels would provide $0.20 per cwt to offset the 
transportation cost of the haul from Clinton County, Michigan, to 
Eastside Dairy in Anderson, Indiana. The witness used these data to 
determine the portion of transportation costs that are not covered by 
the differences in the Class I differential levels. For all of the 
supply counties and plant locations, the average shortfall was $1.76 
per cwt, noted the witness. Accordingly, the witness concluded from the 
MEMMA methodology that the current Class I differential levels in the 
southern region of the Mideast marketing area are inadequate.
    The DFA, et al., witness then examined the methodology used to 
determine temporary increases in the Class I prices in the southeastern 
marketing orders to formulate the proposed Class I price adjustments in 
the southern tier of the Mideast marketing area. The witness noted that 
the basic foundation for deriving the temporary adjustments to the 
Class I price surface in the southeastern orders was the identification 
of potential supply areas. Once identified, the areas were relied upon 
to calculate the least-cost Class I price adjustment based on the 
farthest point of milk demand.
    The DFA, et al., witness testified that this methodology utilized 
the same diesel fuel rate from the EIA as was used in the previously 
discussed MEMMA example. Using the same methodology as in the 
proceeding for the southeastern orders, the witness determined a base 
period for fuel costs (May-June 2003), determined the increase in costs 
from the base period to the present and determined the fuel cost 
adjustor ($0.44) to be added to the $2.20 MEMMA base haul rate. This 
rate was divided by the 480 cwt of milk in a typical tanker load to 
determine that rate per cwt per mile of $0.00521. This rate was then 
used to compare the costs of alternative reserve supplies for the three 
regions of the Mideast marketing area.
    The DFA, et al., witness further explained that they relied on the 
methodology previously used to formulate the Class I price adjustments 
in their proposal. The witness offered the methodology used in the 
southeastern Class I pricing. The witness noted that the record of the 
southeastern proceeding identified five

[[Page 1980]]

potential alternative supply points surrounding the southeastern region 
of the country that could potentially supply the Miami market. The 
witness testified that the distances between the supply points and the 
demand point were multiplied by the mileage rate (described in the 
prior paragraph), and was further reduced by 20 percent to avoid having 
minimum prices set at actual transportation costs. The adjusted haul 
rate was then added to the current Class I differential for the supply 
point, yielding an ``acquisition cost'' as described by the witness. 
The witness explained that the difference between the acquisition cost 
and the actual Class I differential were used to suggest a reasonable 
temporary adjustment to Class I prices.
    The DFA, et al., witness testified that this methodology was 
repeated for six plants in the southern tier of the Mideast marketing 
area. The six plant locations were Indianapolis, IN, Marietta, OH, 
Newark, OH, Cincinnati, OH, Springfield, OH, and Charleston, WV. The 
witness stated that these plant locations represent the geographic 
spread of plants within the southern tier of the marketing area. DFA, 
et al., then chose six potential supply points from the eleven 
previously determined counties which serve as the reserve supply of the 
order. The witness testified that for Indianapolis, IN, Elkhart County, 
IN, the least-cost alternative, was $2.55 per cwt. As compared to the 
current differential of $2.00, the $2.55 per cwt figure suggested an 
adjustment of $0.55 per cwt. The witness conducted the same least-cost 
alternative comparison for each of the five other plant locations.
    The DFA, et al., witness summarized the above conclusions in the 
context of the existing Class I differential levels and Class I price 
adjustments. The witness testified that under Proposal 1 the plants in 
the current $2.00 differential zone would be in a newly proposed zone 
that has a 15-cwt Class I price adjustment which should not 
substantially change existing competitive relationships. Similarly, 
noted the witness, plants in the current $2.20 differential zone, 
except the United Dairy plant in Charleston, WV, would be in a newly 
proposed zone that has a 40-cent Class I price adjustment. The witness 
explained how the location of the United Dairy plant in Charleston, WV, 
justified a greater adjustment to the Class I price than any other 
plant in the southern tier of the marketing area because of its 
distance from reserve supplies. Accordingly, DFA et al., proposed that 
a $0.40 adjustment (increase) in the Class I price at Charleston, WV, 
will better align with the Class I prices applicable to their nearest 
three competitors, Dean Foods, Louisville, KY; Winchester Farms Dairy, 
Winchester, KY; and Flav-O-Rich Inc., London, KY. The witness noted 
that these competitor's Class I price levels include the $0.15 
transportation credit balancing fund assessment for supplemental milk 
needed for Class I use that is administered in the Appalachian order.
    The DFA, et al., witness explained how they analyzed the cost of 
moving packaged milk between reserve supply locations and distributing 
plants (demand points) in the southern tier of the marketing area to 
gauge the expected impacts on the competitive relationships between 
handlers in the southern tier of the Mideast marketing area. The 
witness testified that although they do expect the competitive 
relationships between handlers to be affected by the proposed 
adjustment in Class I prices, they did not find any instance wherein 
the proposed changes exceeded the cost of moving packaged milk between 
handlers. The witness explained that by calculating the total 
acquisition and distribution costs for each supply and demand 
combination as the Class I differential at the supply location plus the 
cost of moving the packaged milk to the demand location, they found no 
instances where the cost of acquiring and moving packaged milk exceeded 
the proposed Class I price levels. Therefore, the witness concluded, 
the proposed Class I price adjustments are reasonable because they do 
not provide an incentive for uneconomic movements of milk.
    The DFA, et al., witness withdrew the proponents' original 
contention that emergency conditions exist to warrant the omission of a 
recommended decision, contingent, the witness said, on this proceeding 
adhering to the deadlines established by the 2008 Farm Bill. The 
witness was of the opinion that a recommended decision issued within 90 
days of the close of the hearing would be reasonable.
    A post-hearing brief filed by DFA, et al., reiterated their 
testimony describing the market conditions for fluid milk in the 
Mideast marketing area. The brief reasserted proponent's claims that: 
the southern region of the marketing area is a deficit market; that the 
Class I differentials are too low to cover the costs of transporting an 
adequate supply of milk from the surplus northern regions to 
distributing plants in the southern region; and that, recent changes to 
the Class I prices in the southeastern orders has made it difficult for 
local distributing plants in the southern region of the Mideast 
marketing area to attract and maintain an adequate supply of fluid 
milk.
    The DFA, et al., brief addressed opposition that existing price 
relationships between plants should not be disturbed by adjusting Class 
I prices. DFA, et al., wrote that the record shows that costs of 
supplying fluid plants have increased and the Class I price adjustments 
for plants in the southeastern orders has changed such that the 
competitive relationships between plants has already been altered. DFA, 
et al., also asserted that the opponents to their proposal claiming 
that the Class I price surface should be changed via a national hearing 
is, in actuality, an attempt aimed at stalling any increase in their 
regulated minimum prices. In this regard, DFA, et al., wrote that the 
proposed Class I price adjustments are justified by local supply and 
demand conditions.
    The DFA, et al., brief also expressed opposition to Dean's proposal 
of decreasing Class I differentials in the northern regions of the 
marketing area (to be discussed later in this decision). DFA, et al., 
found fault with Deans' premise that the appropriate remedy to the 
increased cost of supplying plants in the southern region of the 
marketing area is to lower prices paid to dairy farmers in the northern 
regions.
    A witness testifying on behalf of United Dairy, Inc. (United Dairy) 
opposed the adoption of Proposal 1. United Dairy operates three fluid 
milk processing plants in the Mideast marketing area. The witness was 
of the opinion that Proposal 1 singles out the United Dairy plant in 
Charleston, WV, for an unnecessarily large increase in its Class I 
price of $0.40 per cwt. The witness said that such a large increase 
would put the Charleston plant at a competitive disadvantage to its 
primary competitor, the Dean Foods' Broughton Foods plant in Marietta, 
OH, located 85 miles to the north.
    The United Dairy witness explained that the Charleston, WV, plant 
is located in the $2.20 differential zone (the same as Cincinnati, OH), 
while the Marietta, OH, plant is located in the $2.00 differential 
zone. Proposal 1 seeks to increase the Class I price at the Marietta, 
OH, plant by $0.15, while it proposes a $0.40 Class I price increase 
for the Charleston, WV, plant, stated the witness. The witness 
highlighted that the Charleston plant would be the only regulated 
distributing plant in essentially a new price zone. The witness said 
that despite already paying a higher regulated milk price because of 
the difference in Class I differentials ($2.20 versus $2.00), the 
Charleston,

[[Page 1981]]

WV, plant has been able to compete for sales with the Marietta, OH, 
plant. However, if Proposal 1 is adopted, the witness explained, the 
Charleston, WV, plant will be subject to a $0.45 cost disadvantage 
relative to their Marietta, OH, plant competitor.
    The United Dairy witness testified that despite proponent claims 
that the Charleston, WV, plant is the hardest plant in the marketing 
area to service, United Dairy has had no difficulty in attracting an 
adequate milk supply to meet its demand. The witness also countered 
proponent claims that it is difficult to attract milk supplies to the 
southern region of the marketing area. The witness said that MEMMA 
supplies most of the plants in the region, and is therefore able to 
shift its farm routes between customers to meet demand.
    The United Dairy witness estimated that a 40-cent increase in its 
Class I price equates to a 3.5 cent increase per gallon of milk they 
produce. The witness asserted that competition for sales between plants 
can be won, or lost, over pennies. An increase of 3.5-cents per gallon 
would place the Charleston plant at a severe disadvantage and most 
likely result in lost sales, concluded the witness. While seeing no 
need to increase in the Class I price, the witness said that any 
increase found needed by USDA should assure that the competitive 
relationship between the Charleston, WV, and Marietta, OH, plants be 
maintained.
    A post-hearing brief filed on behalf of United Dairy faulted DFA, 
et al's., reasoning for increasing the Class I prices in the Mideast 
marketing area as being tied to recent changes to the Class I prices in 
the three southeastern orders. United Dairy stated that the changes in 
the southeastern orders were made because the chronic milk deficit 
situation in those orders necessitated higher Class I prices aimed at 
attracting milk from states such as Ohio and Michigan to supply those 
fluid plants. United Dairy asserted that increasing Class I prices in 
the southern tier of the Mideast marketing area would undermine the 
steps taken in the southeastern orders to alleviate the milk supply 
problem.
    United Dairy also argued in brief that proponents did not 
demonstrate that plants in the southern tier of the Mideast market are 
having difficulties attracting an adequate supply of fluid milk. United 
Dairy claimed that at the time of the hearing there was no data 
available to support the proponents claim because the changes in the 
southeastern orders did not become effective until May 1, 2008, and 
data from that month had not yet been released. Regardless, United 
Dairy asserted that the states comprising the Mideast order have 
experienced an increase in milk production while Class I demand has 
decreased 8.8 percent January 1, 2000.
    United Dairy's brief reiterated testimony that its Charleston, WV, 
plant has not had difficulty acquiring an adequate milk supply. The 
brief stated that the Charleston, WV, plant provides a market outlet 
for independent producers in the Mideast order, and serves a vital role 
in supplying milk to school and rural customers in West Virginia. 
United Dairy wrote that increasing the Class I price of that plant by 
$0.40 would put it at a competitive disadvantage to plants located in 
areas where Class I prices are not also increased by $0.40. Lastly, 
United Dairy argued that emergency conditions that would warrant the 
omission of a recommend decision do not exist.
    An Ohio dairy farmer supplier of United Dairy testified in 
opposition to Proposal 1. The witness agreed with proponent testimony 
that transportation costs have increased, but said that adjusting Class 
I prices could financially harm certain plants. The witness stated that 
it is important for plants to remain viable so that farmers have 
numerous market outlets for their milk.
    The witness testified that their farm supplies the United Dairy 
plant in Martins Ferry, OH. The witness said that out of a total $0.92 
per cwt that the milk hauler charges, they pay $0.82 and United Dairy 
pays $0.10. The witness disagreed with the methodology used by 
proponents in determining the proposed Class I price adjustments 
because, in the witness' opinion, the proposed adjustments are not 
equitable across distributing plants.
    A witness testifying on behalf of The Kroger Company Manufacturing 
Group (Kroger) opposed the adoption of Proposal 1. According to the 
witness, Kroger operates three fluid distributing plants regulated by 
the Mideast order. The witness testified that two Kroger plants, 
Crossroad Farms Dairy located in Indianapolis, Indiana, and Tamarack 
Farms Dairy located in Newark, Ohio, are located in the pricing zones 
that would be increased if Proposal 1 was adopted. The witness 
testified that Kroger pays its suppliers over-order premiums and fuel 
surcharges which have increased recently due to higher fuel costs. The 
witness indicated that none of their suppliers have indicated problems 
in supplying any Kroger plants. The witness said that if Proposal 1 is 
adopted the Class I prices at both Kroger plants would increase by 
$0.15 per cwt.
    The Kroger witness asserted that the proposed Class I price 
adjustments would alter plant price relationships that date back to the 
1985 Farm Bill. These proposed differentials would place the Kroger 
plants in a difficult competitive situation, the witness said. 
According to the witness, the Kroger plants compete for sales with 
plants located to the north that, under Proposal 1, would not see a 
price adjustment.
    The Kroger witness argued that much of the milk produced in the 
Mideast marketing area is actually committed to supplying plants 
located in the deficit southeastern orders. The witness concluded that 
if the southern region of the Mideast marketing area was really a 
deficit market, as the proponents purport, then much of the milk that 
currently goes south would instead stay in the Mideast marketing area. 
The witness was of the opinion that current milk supplies in the 
Mideast are more than adequate to meet demand rendering an increase in 
Class I prices unnecessary.
    The Kroger witness indicated that, in the future, if the southern 
region of the marketing area has problems acquiring a milk supply, then 
a hearing to consider the promulgation of a new order in the southern 
region should be held. The witness stated that if such a new order was 
created then the monies generated within the new order would only be 
shared amongst producers serving that market, instead of being shared 
with all the producers in the Mideast market through the blend price. 
The witness also noted that emergency conditions do not exist to 
warrant exclusion of a recommended decision.
    A witness testifying on behalf of Dean Foods (Dean) opposed the 
adoption of Proposal 1. According to the witness, Dean owns and 
operates eleven distributing plants regulated by the Mideast milk 
marketing order. The witness' testimony regarding the opposition to 
Proposal 1 was supported by Prairie Farms. The witness said that if 
Proposal 1 is adopted, three of the eleven Dean plants would see an 
increase in their Class I price.
    The Dean witness was of the opinion that this rulemaking proceeding 
is the result of regulatory changes made to the Class I prices in the 
southeastern orders effective May 1, 2008. The witness stated that the 
Class I pricing changes in those orders and the proposed changes in the 
Mideast order essentially run counter to USDA's policy of a nationally 
coordinated Class I price surface. The witness reviewed the nine key 
criteria used by USDA in establishing the nationally coordinated Class 
I price surface (effective January 1, 2000), in

[[Page 1982]]

the context of the changes proposed in this rulemaking proceeding. The 
witness was of the opinion that the proposed increases would send 
inappropriate market signals to farmers to produce more milk despite 
the overall milk surplus observed in the Mideast order. The witness 
said that adjusting Class I prices not only changes the value of milk 
at that location, but it also changes the relative value of that milk 
at other locations, as was the case in the southeastern orders. The 
witness insisted that this underscores the importance of a nationally 
coordinated Class I price surface. In keeping with this rationale, the 
witness claimed that adjustments to Class I prices on an order-by-order 
basis would lead to disorderly marketing conditions.
    The Dean witness noted that the proposed Class I price increases 
could lead to increased payouts from the Southeast and Appalachian 
transportation credit funds which use the differential in the county 
where milk is produced to compute the payout. The witness said that 
this would lead the transportation credit funds to be drawn down faster 
than otherwise would occur. On cross examination the witness admitted 
that the Southeast and Appalachian order transportation credit funds 
would only be drawn down faster if milk produced in the southern region 
of the Mideast order was pooled in the Southeast or Appalachian orders 
on a seasonal basis.
    The Dean witness was of the opinion that it is too soon to tell if 
Class I price adjustments in the southeastern markets has provided 
handler equity in regards to raw product costs. Until the effect on 
handler equity can be determined in the Southeast, there should be no 
changes in the Class I prices in the Mideast, the witness said. The 
witness also stated that higher Class I prices will alter the 
competitive structure in the region and negatively affect handlers in 
the Mideast.
    The Dean witness argued that the proposed Class I price increases 
would provide more incentive than is necessary to encourage milk to 
move into the southern region of the marketing area. The witness also 
objected to the proponent's attempt to divide the Mideast market into 
three regions. The witness said that the data are insufficient to 
determine whether the regions as proposed by proponents are accurate 
depictions of three separate regions within the marketing area.
    The Dean witness was of the opinion that the marketing conditions 
in the Mideast order are different than the marketing conditions in the 
southeastern orders. Therefore, the witness said, USDA should consider 
a different approach to solving the problem in the Mideast marketing 
area. The witness stated that the easiest way to solve the milk supply 
issues of the Mideast would be for the USDA to reverse the decision to 
increase Class I prices in the southeastern orders and then deny the 
adoption of Proposal 1. Alternatively, the witness said that USDA could 
suspend the current hearing until such time as more data capable of 
documenting the impact southeastern order changes have had on Mideast 
milk movements becomes available. Alternative proposals, including 
those seeking to divide the marketing area into three separate orders, 
could then be made, the witness said. The witness then offered data 
that purported to reveal the marketwide pools that would result, if the 
Mideast order were divided into three separate marketing orders.
    The Dean witness offered an alternative proposal at the hearing to 
lower the Class I differentials (and thus Class I prices) in the 
northern regions of the Mideast marketing area. The witness said that 
proponents have relied on Class I differential relationships between 
the northern surplus area and the southern deficit area to justify the 
proposed Class I price adjustments (increases). The witness insisted 
that decreasing the differentials in the north would also provide 
market signals to encourage milk to move from north to south. The 
witness proposed that the Class I prices in the northern surplus 
regions of the Mideast marketing area be decreased by anywhere between 
$0.05 to $0.15 per cwt.
    The Dean witness stated that emergency conditions warranting the 
omission of a recommended decision do not exist.
    Another Dean witness testified in opposition to the adoption of 
Proposal 1. The witness said that data provided by the proponents 
demonstrate that the milk supply in the Mideast marketing area is, on 
the whole, sufficient to meet in-area demand. The problem, the witness 
said, is the lack of incentives to move milk into the southern deficit 
region. From these data, the witness concluded that the defined 
marketing area is too large for marketwide pooling to properly function 
because Class I revenues from the south are being shared with all 
producers in the marketing area and diluting the incentives to supply 
plants in the deficit region.
    The Dean witness was of the opinion that blend price differences 
between marketing orders encourages milk movements to deficit areas. 
The witness insisted that the proponent's data supports the theory that 
there should be three separate orders within the Mideast marketing 
area. The witness argued that if a separate order were in place for the 
southern region of the Mideast marketing area, the Class I utilization 
would be higher than that of the existing marketing area. The witness 
concluded that separate orders would generate blend price differences 
large enough to encourage milk to move south without the need for 
higher Class I prices.
    A witness testifying on behalf of National Dairy Holdings (NDH) 
also opposed the adoption of Proposal 1. According to the witness, NDH 
is a fluid processor that owns and operates two distributing plants 
regulated by the Mideast order. The witness said that Meyer Dairy is 
the only fluid distributing plant owned and operated by National Dairy 
Holdings (NDH) that would be affected by the proposed Class I price 
increases. The witness stated that Meyer Dairy has not experienced any 
difficulty in acquiring a milk supply. If USDA determines that 
additional incentives are necessary to move milk to the southern region 
of the Mideast marketing area, then the witness is supportive of Dean's 
alternative proposal to lower Class I differentials in the northern 
region of the marketing area. The witness was of the opinion that the 
same desired results could be obtained by lowering differentials in the 
northern region of the marketing area thus making the price 
relationships more attractive so as to move milk south.
    The NDH witness estimated that adoption of Proposal 1 would 
increase their milk costs anywhere from 2 cents to 3.5 cents per gallon 
relative to their competitors. However, the witness said that some of 
their competitors would also see an increase in their Class I 
differentials, albeit at a lesser amount than Meyer Dairy. The witness 
speculated that the proposed cost increases could result in lost 
contracts.
    The NDH witness concurred with proponents that fuel and 
transportation costs have increased since the current Class I price 
surface became effective on January 1, 2000, and that one way of 
combating the resulting milk supply problem is to increase Class I 
prices in the deficit markets. However, the witness argued that the 
best solution would be to lower differentials in the north so that the 
new price relationship would encourage milk to service the deficit 
south. According to the witness, this change would provide the same 
result as Proposal 1, but without raising costs to consumers. The 
witness purported that checkout scanner data

[[Page 1983]]

from retail stores show a correlation between the Class I price 
increases in the southeastern orders and a reduction in fluid milk 
sales. During the months of June and July 2008, fluid milk sales in 
Atlanta and Miami were down 8.5 percent and 7.9 percent, respectively, 
relative to the same period in 2007.
    A post-hearing brief submitted on behalf of Dean, National Dairy 
Holdings and Prairie Farms, hereinafter referred to as ``opponents 
brief,'' expressed continued opposition to the adoption of Proposal 1. 
The brief explained that proponents provided little evidence to prove 
that recent changes to Class I prices in the southeastern orders have 
made obtaining an adequate milk supply difficult for fluid plants 
located in the southern tier of the Mideast order. The brief noted that 
since the changes in the southeastern orders did not become effective 
until May 1, 2008, complete data capable of accounting for the impacts 
of the changes has yet to be compiled and published by the Market 
Administrator offices. To counter proponents claim that more milk is 
moving into the southeastern orders, the opponents brief cited Dairy 
Market News Statistics showing that, for the week ending on October 10, 
2008, fewer loads of milk were shipped into Florida and other 
southeastern States than in the same week in 2007.
    The opponents brief also argued that proponents attempt to divide 
the Mideast marketing area into three sub-regions resulted in arbitrary 
data. Opponents claimed that in defining the available milk supply for 
any of the three sub-regions, proponents did not take into account what 
milk was actually available and whether other near-by milk supplies 
were available.
    The opponent's brief stated that the Mideast marketing area as a 
whole is a reserve supply of milk for the southeastern orders. It 
contended that the purpose of nationally coordinated Class I price 
surface is to bring forth an adequate supply of milk, therefore there 
is no justification for increasing Class I prices in reserve supply 
areas such as the Mideast. The brief further argued that increasing the 
Class I prices in the southern tier of the Mideast marketing area would 
cause disorderly marketing conditions because milk that is ineligible 
for transportation credits in the southeastern orders would seek to 
move to the higher priced zones in the Mideast marketing area. However, 
the opponents brief disagreed with the DFA, et al.'s, use of 
transportation credits in the Appalachian and Southeast orders as a 
factor in determining appropriate Class I price adjustments. Opponents 
stated that transportation credits serve a different economic purpose 
and should not be a factor in considering if Class I prices should be 
increased in the Mideast.
    The opponents brief also argued that Class I prices should be 
addressed on a national, not order-by-order basis, as was done in the 
southeastern orders and as is proposed in the Mideast. According to 
Dean, the proponents provided no justification to abandon past USDA 
precedent for maintaining a nationally coordinated Class I price 
structure.
    The opponents brief summarized the alternative proposal they 
offered at the hearing to decrease Class I differentials in the 
northern surplus areas of the Mideast marketing area. (Prairie Farms 
did not offer support of Dean's alternative proposal.) In brief, Dean 
wrote that in areas of milk surplus, the correct market signal to 
farmers is a lower price to encourage them to produce less. Dean 
concluded that the subsequent decrease in production would, in turn, 
lead to an increase in milk prices.
    In brief, opponents continued to argue that proponents provided no 
evidence demonstrating an emergency situation that would warrant 
omission of a recommended decision. The brief stated that the 
significant period of time between when the proponents first requested 
data for a Mideast Class I price surface hearing (September 2007) and 
their actual hearing request (June 2008) demonstrates that no emergency 
exists. Therefore, Dean wrote, the public should be provided an 
opportunity to comment on USDA's decision before implementation of any 
proposed changes.
    A witness appearing on behalf of Nestle USA (Nestle) testified in 
opposition to Proposal 1. According to the witness, Nestle is a milk 
manufacturer who operates one fluid distributing plant regulated by the 
Mideast order which is located in Anderson, IN, where the proponents 
have proposed a $0.15 adjustment in the Class I price. The witness said 
that Nestle's milk supplier has not indicated any difficulty supplying 
milk to the Nestle plant. The witness stated that the Nestle plant only 
recently opened, but when Nestle was originally considering a location 
for the plant they were approached by multiple suppliers in the Mideast 
marketing area, all of whom indicated that providing a reliable milk 
supply to the plant in Anderson, IN, would not be difficult.
    The Nestle witness referred to proponent data indicating that the 
average cost to supply a plant in Anderson, IN, was $1.60 per cwt more 
than the Class I differential at the location. According to the 
witness, Nestle already pays its supplier, on average, over-order 
premiums in excess of this amount as well as a fuel surcharge for milk 
delivered to the plant.
    The Nestle witness testified that the Anderson plant primarily 
produces flavored milk products that exhibit a great deal of 
sensitivity to price changes. The witness also asserted that the Nestle 
flavored milk products compete more directly with soft drinks, bottled 
water and orange juice, than with milk. Therefore, the witness said, 
any price increase in their products would result in lost sales to 
competing non-dairy products. The witness also testified that products 
produced at the Anderson plant are marketed nationwide and must compete 
with products produced at plants located in counties that are not 
subject to a proposed increase to their Class I price. The witness 
concluded that there is no milk shortage problem in the southern region 
of the Mideast marketing area and as such, Proposal 1 should be denied.
    A post-hearing brief was submitted on behalf of Associated Milk 
Producers Inc., Bongards Creamery, Family Dairies USA, First District 
Association, Manitowoc Milk Producers Association, Mid-West Dairymen's 
Company, Milwaukee Cooperative Milk Producers and the Wisconsin 
Department of Agriculture, Trade and Consumer Protection. The brief 
stated that collectively these organizations are members of the Midwest 
Dairy Coalition (MDC). MDC argued that proponents have not demonstrated 
that there is a milk deficit in the Mideast marketing area and as such, 
they are opposed to the adoption of Proposal 1. MDC stated that if 
there is a milk supply problem in the Mideast as a result of 
effectively changing Class I differential levels in the southeastern 
orders then the proponents have the ability to negotiate higher over-
order premiums to cover any higher supply costs.
    MDC also addressed the broader issue of effectively changing Class 
I differentials on an order-by-order, rather than national basis. They 
argued that such changes not only have local, but also national 
implications and should therefore be addressed in a larger national 
framework.

Discussion and Findings

    At issue in this proceeding is the consideration of proposed 
adjustments to Class I prices in the southern region of the Mideast 
milk marketing area as a means of ensuring an adequate supply of milk 
for fluid use. Adjustments to

[[Page 1984]]

Class I prices in the southern tier of counties in the marketing area 
are recommended for adoption herein and result in a change to the Class 
I pricing surface. The adjustments to Class I prices are specified in 
the order language. Providing for higher Class I prices under the order 
in the counties that make up the southern tier of the marketing area 
will help attract an adequate supply of fluid milk to distributing 
plants and will increase the blend prices to dairy farmers who deliver 
milk to those plant locations.
    The minimum Class I prices of the Mideast order are set by adding a 
location-specific differential, referred to as a Class I differential, 
to the higher of an advance Class III or Class IV price announced by 
USDA. The Class I differentials are location-specific by county, parish 
or city for all States of the 48 contiguous United States. These Class 
I differentials were adopted on January 1, 2000, and are specified in 
CFR section 1000.52.
    The proponents, DFA, et al., who collectively market more than 50 
percent of the producer milk pooled on the Mideast order maintain that 
it has become increasingly costly to supply fluid distributing plants 
located in the southern tier of the Mideast marketing area. Their claim 
is based on two factors: (1) Recent adjustments to Class I prices of 
the southeastern orders have drawn milk, that previously would have 
been utilized by fluid milk plants in the southern region, away from 
the Mideast order; and (2) Transportation costs have increased such 
that the current Class I differentials do not offer sufficient pricing 
incentives to cover the cost of transporting milk from reserve northern 
surplus regions to the deficit southern region of the marketing area.
    Proponents divided the marketing area into three separate regions 
and presented data to examine marketing conditions within the marketing 
area and to explain how the southern region of the marketing area is 
consistently milk deficit. Record evidence demonstrates a significant 
difference in the volume of milk delivered to pool distributing plants 
in the southern region relative to the volume of milk produced in the 
region and either pooled on the Mideast order, or pooled on another 
order and delivered to a pool distributing plant located in the 
southern region of the Mideast marketing area. For example, during 
April 2008, 189.8 million pounds of producer milk was received at 
distributing plants located in the southern region. However, during 
that month only 74.6 million pounds were produced in and delivered to 
pool distributing plants in the same region, indicating a net deficit 
of 115.2 million pounds. The data does not reflect the amount of milk 
produced in the southern region that is then pooled and delivered to 
plants in another order. However, it is reasonable to conclude that if 
additional milk supplies are produced in, but not delivered to southern 
region plants, then such milk has found a higher priced alternative 
outlet.
    Record evidence indicates that milk delivered to distributing 
plants in the southern tier of the marketing area must travel further 
distances than milk delivered to other plants in the marketing area. 
The record contains hauling data for the months of January, April, 
August and November 2007, and January and April 2008. The data reveal 
that during these six months, milk delivered to plants in the southern 
region traveled an average of 133 miles from farm to plant. In 
comparison, the average distance for milk delivered to the Northwest 
and Northeast regions during that same time period was 72 miles and 70 
miles, respectively. Proponents contend that this data demonstrates 
that the local milk supply in the southern region of the marketing area 
is not adequate to meet the demand of the local plants.
    DFA, et al., utilized two different methodologies to derive their 
proposed adjustments to Class I prices to compensate for greater 
transportation costs. These methods demonstrate that that the cost of 
transporting milk from surplus to deficit regions in the marketing area 
far exceed the differences in Class I differential levels.
    The first methodology uses a transportation model derived from 
transportation cost data supplied by MEMMA. The data indicate that 
MEMMA's cost of moving milk within the Mideast marketing area (at the 
time of the hearing) was $3.23 per loaded mile. Using this cost basis, 
a per cwt cost of moving milk from 11 predetermined alternative supply 
points to each of the fluid distributing plants in the marketing area's 
southern region was established. Record evidence compares how much of 
the estimated hauling cost is covered by the differences in Class I 
differential levels between supply points and each of the southern 
fluid distributing plants (demand points). The average difference for 
the supply/demand point combinations was $1.76 per cwt, with a range of 
$0.45 to $3.25 per cwt. This transportation cost model demonstrates 
that the current differential levels in the southern region of the 
marketing area fall significantly short of the cost of transporting 
needed milk to those distributing plants.
    The second transportation cost model proponents relied upon was 
utilized in a recent three market southeastern order hearing that 
adjusted the Class I prices in those orders (73 FR 11194). Utilizing 
the same methodology, the model established a fuel adjusted 
transportation rate of $2.64 per mile, or $0.0055 per cwt per mile. 
This model compared the acquisition cost (Class I differential of 
alternative supply area plus transportation cost) of delivering milk 
from 6 of the 11 potential alternative supply locations to 6 fluid 
distributing plants in the southern region of the Mideast marketing 
area. The model then compared the least-cost supply alternative for 
each distributing plant with the current Class I differential of that 
plant. For example, the least cost alternative for the Charleston, WV, 
plant was Wayne County, OH, with an acquisition cost of $2.89 per cwt. 
The Class I differential at Charleston, WV, is $2.20, suggesting that a 
Class I price adjustment of $0.69 would be appropriate.
    Opponents to the proposed changes claimed that DFA, et al., 
provided inadequate data to support their claim that changes in the 
Class I prices for the southeastern orders has made it more costly to 
supply plants in the southern region of the Mideast marketing area. 
This criticism is misplaced. As cooperative producer-member 
organizations that supply the majority of the marketing areas Class I 
needs, they clearly demonstrated the higher costs associated with 
supplying plants in the southern region of the marketing area. Almost 
all opposition witnesses for providing Class I price increases at the 
hearing agreed that differences in blend prices between orders moves 
milk. Thus it can be concluded that higher blend prices, through higher 
Class I prices, attract milk to plants in those orders by providing the 
economic incentive to supply milk to plants located in the southeastern 
order marketing areas.
    Monthly data recently released by the Appalachian Market 
Administrator reveals that there has been a significant increase in the 
amount of producer milk being received from Ohio at plants regulated by 
the Appalachian order since May 1, 2008, when the Class I prices were 
increased.\2\ The data reveal that producer milk deliveries from Ohio 
from May through August 2006 averaged 17.7 million pounds per

[[Page 1985]]

month and 16.5 million pounds per month for the same time period in 
2007. From May through August 2008, monthly Ohio producer milk 
deliveries averaged 44.6 million pounds--an increase of 161 percent 
from the average of the previous two years. Average monthly deliveries 
from Ohio from January through August were 21.3 million pounds, 18.2 
million pounds and 35.1 million pounds in 2006, 2007 and 2008, 
respectively. This represents an increase in deliveries from Ohio of 61 
percent from 2006 to 2008, and a 92 percent increase from 2007 to 2008.
---------------------------------------------------------------------------

    \2\ Official notice is taken of Appalachian Marketing Order 
Statistics: Producer Milk Pounds by States 2006-2008, found at 
https://www.malouisville.com.
---------------------------------------------------------------------------

    Recently released data from the Appalachian order supports the 
proponents' claim that higher Class I prices brought about by providing 
Class I price adjustments in the southeastern orders have resulted in 
more milk servicing those orders from farms located in the Mideast 
marketing area. It is reasonable to conclude from this record evidence, 
that when coupled with evidence of increased transportation costs, the 
Class I prices in the southern region of the marketing area provide 
inadequate incentives to farmers to supply the fluid milk needs of 
those plants. The recommended adjustments to the Class I prices will 
provide, under the order, the economic incentives to supply fluid 
distributing plants located in the southern tier of counties of the 
Mideast marketing area.
    DFA, et al's., proposed Class I price adjustments differ from those 
calculated in the transportation models. The proposed Class I 
adjustments as presented align with the differentials in the northern 
regions of the marketing area, as well as with neighboring marketing 
areas. These adjustments also ensure that similarly situated Class I 
handlers in the southern region of the marketing area have similar 
minimum regulated Class I prices. Providing similar regulated prices 
for similarly situated handlers is consistent with the requirements of 
the AMAA.
    The proposed Class I price adjustments provide a steeper price 
surface and reasonable alignment with the current Class I price surface 
of the marketing areas beyond the geographical boundaries of the 
Mideast order. The