Milk in the Northeast and Other Marketing Areas; Final Decision on Proposed Amendments to Marketing Agreements and Orders, 33534-33553 [2010-12771]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 75, Number 113 (Monday, June 14, 2010)]
[Proposed Rules]
[Pages 33534-33553]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-12771]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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Federal Register / Vol. 75, No. 113 / Monday, June 14, 2010 / 
Proposed Rules

[[Page 33534]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1000

[Doc. No. AMS-DA-09-0062; AO-14-A73, et al.; DA-03-10]


Milk in the Northeast and Other Marketing Areas; Final Decision 
on Proposed Amendments to Marketing Agreements and Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This final decision maintains the current fluid milk product 
definition's compositional standard of 6.5 percent nonfat milk solids 
criterion and incorporates an equivalent 2.25 percent true milk protein 
criterion for determining if a product meets the compositional 
standard. The decision also determines how milk and milk-derived 
ingredients should be priced under all Federal milk marketing orders 
when used in products meeting the fluid milk product definition. The 
decision provides exemptions for drinkable yogurt products containing 
at least 20 percent yogurt (by weight), kefir, and products intended to 
be meal replacements from the fluid milk product definition. The orders 
as amended are subject to producer approval by referendum before they 
can be implemented.

FOR FURTHER INFORMATION CONTACT: Henry H. Schaefer, Economist, USDA/
AMS/Dairy Programs, Upper Midwest Milk Market Administrators Office, 
Suite 200, 1600 West 82nd Street, Minneapolis, Minnesota 55431-1420, 
(952) 831-5292, e-mail address: hschaefer@fmma30.com; or William 
Francis, Associate Deputy Administrator, USDA/AMS/Dairy Programs, Order 
Formulation and Enforcement, Stop 0231-Room 2971-S, 1400 Independence 
Avenue, SW., Washington, DC 20250-0231, (202) 720-6274, e-mail address: 
william.francis@ams.usda.gov.

SUPPLEMENTARY INFORMATION: This final decision maintains the current 
fluid milk product definition's compositional standard of 6.5 percent 
nonfat milk solids and incorporates an equivalent 2.25 percent true 
milk protein criterion for determining if a product meets the 
compositional standard. The decision also determines how milk and milk-
derived ingredients should be priced under all Federal milk marketing 
orders when used in products meeting the fluid milk product definition. 
The decision exempts drinkable yogurt products containing at least 20 
percent yogurt (by weight), kefir, infant formulas, dietary products 
(meal replacements) and other products that may contain milk-derived 
ingredients from the fluid milk product definition.
    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 proposed amendments to the rules herein have been reviewed under 
Executive Order 12988, Civil Justice Reform. They are not intended to 
have a retroactive effect. The Agricultural Marketing Agreement Act of 
1937 (Act), as amended (7 U.S.C. 604-674), 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 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 a habitant, or has its 
principal place of business, has jurisdiction in equity to review the 
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 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.
    For the month of June 2005, the month the hearing was held, 52,425 
dairy farmers were pooled on the Federal order system. Of the total, 
49,160, or 94 percent were considered small businesses. During the same 
month, 1,530 plants were regulated by or reported their milk receipts 
to their respective Market Administrator. Of the total, 847, or 55 
percent were considered small businesses.
    The fluid milk product definition sets out the criteria for 
determining if the use of producer milk and milk-derived ingredients in 
such products should be priced at the Class I price. The established 
criteria for the classification of producer milk are applied in an 
identical fashion to both large and small businesses and will not have 
any different impact on those businesses producing fluid milk products 
thus assuring that similarly situated handlers have the same minimum 
price as required by Section 608(c)5 of the Act. Therefore, the 
amendments will not have a significant economic impact on a substantial 
number of small entities. The impact of the proposed amendments on 
large and small entities would be negligible. In fact, the amendment 
proposing to change the

[[Page 33535]]

classification of kefir and drinkable yogurt is estimated to affect 
blend prices by no more than $ 0.0026 per cwt based on record evidence.
    The Agricultural Marketing Service 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 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 are necessary.
    This notice does not require additional information collection that 
needs 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. The forms require only a minimal amount of information 
that can be supplied without data processing equipment or a trained 
statistical staff. Thus, the information collection and reporting 
burden is relatively small. Requiring the same reports for all handlers 
does not significantly disadvantage any handler that is smaller than 
the industry average.

Prior Documents in This Proceeding

    Notice of Hearing: Issued April 6, 2005; published April 12, 2005 
(70 FR 19012).
    Recommended Decision: Issued May 12, 2006; published May 17, 2006 
(71 FR 28590).

Preliminary Statement

    Notice is hereby given of the filing with the Hearing Clerk of this 
final decision with respect to the proposed amendments to the marketing 
agreements and the orders regulating the handling of milk in the 
Northeast and other marketing areas. This notice is issued pursuant to 
the provisions of the Agricultural Marketing Agreement Act and 
applicable rules of practice and procedure governing the formulation of 
marketing agreements and marketing orders (7 CFR Part 900).
    A public hearing was held upon proposed amendments to the marketing 
agreements and the orders regulating the handling of milk in all 
Federal milk marketing areas. 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 Pittsburgh, Pennsylvania, on June 20-23, 2005, 
pursuant to a notice of hearing issued April 6, 2005 and published 
April 12, 2005 (70 FR 19012); and a recommended decision issued May 12, 
2006 and published May 17, 2006 (71 FR 28590).
    The material issues on the record of the hearing relate to:
    1. Amending the fluid milk product definition.

Findings and Conclusions

    This final decision maintains the current fluid milk product 
definition's compositional standard of 6.5 percent nonfat milk solids 
and incorporates an equivalent 2.25 percent true milk protein criterion 
for determining whether a product meets the compositional standard. The 
decision also determines how milk and milk-derived ingredients should 
be priced under all orders when used in products meeting the fluid milk 
product definition. The decision exempts drinkable yogurt products 
containing at least 20 percent yogurt (by weight), kefir, infant 
formulas, dietary products (meal replacements) and other products that 
may contain milk-derived ingredients from the fluid milk product 
definition.
    All Federal milk orders currently state that ``fluid milk product 
means any milk products in fluid or frozen form containing less than 9 
percent butterfat that are intended to be used as beverages.'' The 
fluid milk product definition also contains a non-definitive list of 
dairy products that are named fluid milk products. In addition to the 
compositional butterfat standard fluid milk products shall not include, 
among other products, ``* * * any product that contains by weight less 
than 6.5 percent nonfat milk solids * * *'' Dairy products that do not 
fall within these limits are not considered fluid milk products and the 
milk used to produce these products is classified in Class II, Class 
III or Class IV, depending on the form or purpose for which the 
products are to be used.
    Eleven proposals were published in the hearing notice for this 
proceeding. Proposals 1, 3, 4 and 6 were abandoned at the hearing by 
their proponents in support of other noticed proposals. No further 
reference to these proposals will be made.
    A proposal published in the hearing notice as Proposal 2, offered 
by Dairy Farmers of America, Inc. (DFA), seeks to amend the fluid milk 
product definition to include any dairy ingredient, including whey, 
when calculating the milk contained in a product on a protein-
equivalent or nonfat solids equivalent basis. DFA is a dairy farmer-
member owned cooperative and at the time of the hearing had 12,800 
member farms located in 49 states whose members' milk is pooled 
throughout the Federal order system.
    H.P. Hood LLC (H.P. Hood) owns and operates milk processing and 
manufacturing plants in the Eastern and Midwest United States and is 
the proponent of a proposal published in the hearing notice as Proposal 
5 that was modified at the hearing. As modified, Proposal 5 seeks to 
amend the fluid milk product definition to include any product that, 
based upon substantial evidence as determined by the Department, 
directly competes with other fluid milk products and that the 
Department must make a written determination before any product can be 
classified as a fluid milk product.
    A proposal published in the hearing notice as Proposal 7 was 
offered by the National Milk Producers Federation (NMPF). At the time 
of the hearing NMPF consisted of 33 dairy-farmer member cooperatives 
that represented more than 75 percent of U.S. dairy farmers. Proposal 7 
seeks to amend the fluid milk product definition by removing the 
reference ``6.5 percent nonfat solids standard and whey,'' and adopting 
a 2.25 percent true milk protein criterion. During the hearing, DFA 
offered a modification to Proposal 7 by seeking to authorize the 
Department to make an interim classification determination for new 
products that result from new technology. The Department would then 
convene a hearing to address the use of the new technology in 
classification decisions and make a final classification determination 
for the new product within one year.
    Proposal 8 seeks to amend the fluid milk product definition by 
excluding yogurt-containing beverages from the fluid milk product 
definition. This proposal was offered by The Dannon Company, Inc. 
(Dannon), a wholly owned subsidiary of The Danone Group that produces 
yogurt and fresh dairy products in 40 countries, including the United 
States.
    Proposal 9 also seeks to amend the fluid milk product definition by 
excluding drinkable food products with

[[Page 33536]]

no more than 2.2 percent skim milk protein provided the product 
contains at least 20 percent yogurt (nonfat yogurt, lowfat yogurt or 
yogurt) by weight from the fluid milk product definition. Proposal 9 
was offered by General Mills, Inc. (General Mills), a food manufacturer 
that markets such products as Yoplait yogurt and yogurt-containing 
products in over 100 countries, including the United States.
    A proposal published in the hearing notice as Proposal 10 was 
offered by the Novartis Nutrition Corporation (Novartis). Novartis 
develops and manufactures a variety of products, including milk-based 
products, designed to meet specific nutritional needs. Proposal 10 
seeks to amend the fluid milk product definition by excluding formulas 
prepared for dietary use by removing the words ``(meal replacement) 
that are packaged in hermetically-sealed containers.'' The proposal 
would remove the 6.5 percent nonfat milk solids standard.
    A proposal published in the hearing notice as Proposal 11 seeks to 
amend the fluid milk product definition by excluding health care 
beverages distributed to the health care industry. Proposal 11 was 
offered by Hormel Foods, LLC (Hormel), a wholly owned subsidiary of 
Hormel Foods Corporation and manufacturer of a variety of food products 
primarily for the health care industry.
    A witness appearing on behalf of NMPF testified in support of 
Proposal 7. The witness testified that Proposal 7 would close loopholes 
in the current fluid milk product definition that have allowed products 
developed as a result of new technology to avoid classification as 
fluid milk products. The witness said that the 6.5 percent nonfat 
solids standard should be eliminated and replaced with a 2.25 percent 
protein standard that would also include whey proteins in determining 
if the product meets the protein standard. The witness stressed that 
whey proteins should be specifically defined as whey proteins that are 
a by-product of the cheese making process. The witness was of the 
opinion that adoption of Proposal 7 would not alter the classification 
of any product currently being marketed.
    The NMPF witness stressed that Federal order regulations have 
always adapted to marketing conditions and that the current fluid milk 
product definition should be amended to reflect changes in market 
conditions brought about by changes in technology. The witness 
testified that technology has evolved such that milk can now be 
separated into numerous components that can be recombined to create a 
vast number of new milk products. The witness argued that new 
technology has enabled manufacturers to manipulate milk components, 
such as removing lactose or substituting whey for other milk solids, to 
create new products that contain less than 6.5 percent nonfat milk 
solids. This enables manufacturers of the new products to avoid 
classification of the new product as a fluid milk product even though 
the form and use does not differ from what is currently considered a 
fluid milk product.
    The NMPF witness testified that Carb Countdown[supreg], a product 
manufactured by the H.P. Hood Company, contains whey and has a reduced 
lactose content that results in its composition being below the 6.5 
percent nonfat milk solids standard. According to the witness, two 
market research studies suggest that the product is similar in form and 
use to traditional fluid milk. Relying upon a market study conducted by 
IRI, a market research firm, the witness related that 98.4 percent of 
Carb Countdown[supreg] sales are purchased as a substitute for fluid 
milk while only 1 percent of its sales are represented as an expansion 
of the fluid milk market.
    The NMPF witness was of the opinion that classifying a product on 
the basis of protein is appropriate because protein is the highest 
valued skim component in the marketplace. The witness testified that a 
2.25 percent protein standard is the appropriate equivalent of the 
current 6.5 percent nonfat milk solids standard. The witness asserted 
that protein has the most value to producers, processors and consumers 
because it contributes nutrition, flavor and texture to milk. While the 
witness was of the opinion that all dairy-derived ingredients should be 
used in computing the true protein standard of a product, the witness 
did not believe whey and whey product ingredients should be priced at 
the Class I price. The witness maintained that the use of whey and whey 
products should not exclude a product from the fluid milk product 
definition because manufacturers are using whey in their new products 
to avoid a fluid milk product classification. The witness also noted 
that instead of relying upon the Food and Drug Administration (FDA) 
standard, the Department should provide its own definition of whey.
    A post-hearing brief submitted on behalf of NMPF reiterated the 
positions testified to at the hearing. The brief asserted that adoption 
of a milk protein standard would close regulatory loopholes that 
prevent products developed as a result of new technology from avoiding 
classification as a fluid milk product. According to the brief, 
adoption of a true protein standard merely changes the way milk 
proteins are accounted for and would not change the classification of 
any product. However, these changes would capture those products 
currently formulated to avoid being classified as fluid milk products.
    Comments and exceptions to the Recommended Decision filed by NMPF 
supported the proposed adoption of the 2.25 percent milk protein 
standard, the inclusion of all nonfat milk ingredients in determining a 
product's composition, and the Class I pricing of milk protein 
concentrates (MPCs) used in fluid milk products. NMPF strongly opposed 
exemption of casein and caseinates used in fluid milk products from 
Class I pricing. They view such exemptions as differential treatment 
that could cause market disorder and provide incentives for 
manufacturers to use these un-priced ingredients in their fluid milk 
products. NMPF was of the opinion that casein and caseinates are not 
substantially different than MPCs to justify a different pricing 
treatment when used in fluid milk products. However, NMPF maintained 
that only whey resulting from the production of cheese should be 
exempted from Class I pricing when used as an ingredient in fluid milk 
products.
    NMPF comments and exceptions asserted that manufacturers have 
historically relied on the quantitative composition standards contained 
in the fluid milk product definition when making decisions regarding 
new product development. NMPF expressed opposition to the proposed 
reference to ``form and intended use'' in the fluid milk product 
definition because, in NMPF's opinion, it could cause manufacturers to 
decrease their use of dairy ingredients in order to prevent a product 
from being classified and priced as a fluid milk product. NMPF urged 
abandoning the ``form and intended use'' standard and relying solely on 
the protein and nonfat solids compositional standards in making 
classification decisions.
    A witness from DFA, appearing on behalf of DFA and Dairylea 
Cooperative, Inc., (DLC), testified in support of NMPF's Proposal 7 and 
Proposal 2. DLC is a dairy farmer-member owned cooperative with 2,400 
member farms located in 7 states at the time of the hearing.
    The DFA/DLC witness was of the opinion that the purpose of the 
hearing was to refine the fluid milk product definition to reflect 
current market conditions brought about by technological innovations to 
ensure that

[[Page 33537]]

dairy farmers are equitably paid for their milk. The witness testified 
that dairy processing technology, such as ultra filtration and milk 
component fractionalization, has enabled new products to be developed 
that were not foreseen when the current classification definition was 
last considered.
    The DFA/DLC witness testified that the current fluid milk product 
definition does not recognize the value of dairy proteins in the 
development of new products and therefore does not classify and 
subsequently price these new products appropriately. The witness 
claimed that manufacturers formulate their products to contain less 
than 6.5 percent total nonfat milk solids to avoid a Class I use of 
milk classification even though these products compete directly with 
and are substitutes for fluid milk.
    The DFA/DLC witness was of the opinion that the form and use of a 
product should be the primary factor in determining product 
classification. The witness said that secondary criteria used to make 
classification determinations should include such factors as product 
composition, a specific but not exclusive list of included and excluded 
dairy products, product substitutability and enhancement of producer 
revenue. The witness argued that eliminating the current total nonfat 
milk solids standard and replacing it with an equivalent milk protein 
standard would better reflect the demand for dairy proteins in the 
marketplace.
    The DFA/DLC witness offered a modification to Proposal 7 that the 
witness said would provide the Department with latitude for classifying 
future products that are a result of new technology. The witness 
explained that the modification would allow the Department to make an 
interim classification decision for a new product and then have up to 
one year to hold a public hearing to determine the appropriate 
permanent classification.
    The DFA/DLC witness also testified in support of Proposal 2. The 
witness said that its adoption would recognize the importance of dairy 
proteins in the marketplace by including all dairy protein sources, 
including whey and whey products, in computing the product's protein 
content. However, said the witness, while whey and whey products would 
be used in classification determinations, those ingredients should not 
be priced as Class I.
    A post-hearing brief submitted on behalf of DFA/DLC reiterated 
support for adopting a protein standard. The brief reiterated the claim 
that new technology has enabled some products that contain less than 
6.5 percent nonfat milk solids to be classified at a lower use-value 
than competitors in the market. The brief maintained that adoption of a 
protein standard would more adequately identify products that should be 
classified as fluid milk products in light of new fractionation 
technology.
    A witness appearing on behalf of O-AT-KA Milk Products Cooperative, 
Inc. (O-AT-KA) testified in support of Proposals 2 and 7. O-AT-KA, at 
the time of the hearing, was a cooperative owned by the dairy farmer-
members of Upstate Farms Cooperative, Inc., Niagara Milk Cooperative, 
Inc., and Dairylea Cooperative, Inc. The witness was of the opinion 
that the development of new technology necessitates a change to the 
fluid milk product definition. However, the witness cautioned that 
changes should not capture all beverages which contain milk solids as 
fluid milk products because not all milk-containing beverages compete 
with fluid milk.
    The O-AT-KA witness asserted that Proposal 7 should not be thought 
of as a fundamental change to the current standard; rather that the 
proposed true protein standard of 2.25 percent is an equivalent to the 
current 6.5 percent nonfat milk solids standard and should be 
considered as a needed clarification brought about by technological 
advances in milk processing. According to the witness, the proposed 
2.25 percent standard recognizes protein as a highly valued ingredient 
in milk products and those products with less than 2.25 percent protein 
would remain exempt from fluid milk product classification. The witness 
also advocated the adoption of Proposal 2 that would include whey and 
whey products in the computation of the protein percentage of the 
product but would not price the whey ingredients at Class I prices.
    A post-hearing brief, submitted on behalf of O-AT-KA, reiterated 
support for Proposal 7. The brief claimed that the adoption of the 
protein standard would increase the use of dairy ingredients in 
beverages which are not ``in the competitive sphere of the traditional 
milk beverages,'' thus increasing producer revenue. The brief also 
supported DFA/DLC's modification to Proposal 7 giving the Department 
authority to make an interim classification decision if a new product 
is a result of new technology.
    Comments and exceptions to the Recommended Decision submitted on 
behalf of DFA, DLC, O-AT-KA and Upstate Farms Cooperative Inc., 
hereinafter referred to as ``DFA, et al.'', supported the 
recommendation incorporating a 2.25 percent true protein standard as a 
proposal in the Recommended Decision and that inclusion of all milk 
derived ingredients when computing the 6.5 percent nonfat solids or 
2.25 percent true protein criterion. The DFA, et al., comments also 
endorsed the comments and exceptions submitted on behalf of NMPF.
    DFA, et al., expressed opposition to exempting casein and 
caseinates from Class I pricing when used in fluid milk products. The 
comments argued that all proteins in a fluid milk product should be 
priced the same--at the Class I price. DFA, et al., also abandoned 
their position taken at the hearing to not price whey derived from 
cheese making at the Class I price when used in fluid milk products. 
DFA, et al., was of the opinion that providing exemption for 
ingredients will only serve to encourage manufacturers to use price-
exempted ingredients to formulate a finished product that would be 
compositionally identical to fluid milk.
    DFA, et al., took exception to relying on form and intended use as 
the final determinate in classifying fluid milk products. DFA, et al., 
argued that manufacturers rely on the compositional criteria contained 
in the fluid milk product definition to decide how to formulate a new 
product, assess how their new product would be classified, and 
ultimately determine their raw milk ingredient costs. Their exceptions 
asserted if form and intended use criteria supersedes compositional 
standards, manufacturers would develop fewer dairy based products 
because of the perceived uncertainty in how that product's ingredients 
could be classified and priced. DFA, et al., argued that the 2.25 
percent protein standard should be the ultimate determinate of a fluid 
milk product and, if such compositional standard becomes inadequate, a 
hearing could be held to establish updated compositional standards.
    A post-hearing brief submitted on behalf of Select Milk Producers, 
Inc. (Select) and Continental Dairy Products (Continental) expressed 
support for adoption of a protein standard as a component of the fluid 
milk product definition. According to the brief, Select and Continental 
are dairy-farmer owned cooperatives that market milk on various Federal 
orders. The brief argued that adoption of a protein standard is a 
needed change to reflect changed marketing conditions brought about by 
new manufacturing technology without fundamentally altering current 
regulations. The brief stressed that milk proteins are valuable 
ingredients in drinkable products in the market and

[[Page 33538]]

that classification and pricing determinations should be reflective of 
this.
    Comments to the Recommended Decision filed on behalf of Select and 
Continental specifically supported the proposed adoption of a 2.25 
percent true protein standard to the fluid milk product definition and 
pricing of MPCs used in fluid milk products at the Class I price. 
Select and Continental also endorsed the comments and exceptions filed 
by NMPF.
    Select and Continental's exceptions asserted that as a result of 
new milk-processing technology, there is no barrier to using casein as 
a substitute ingredient for MPCs. In this regard, Select and 
Continental took exception to exempting casein and caseinates from 
Class I pricing because it would serve to provide an incentive to 
manufacturers to use them as a substitute for MPCs to avoid Class I 
regulation. The brief said relying on form and intended use to override 
compositional standards in making classification determinations would 
add needless ambiguity and subjectivity.
    A witness appearing on behalf of H.P. Hood testified in opposition 
to any changes to the fluid milk product definition. The witness was of 
the opinion that the fluid milk product definition should not be 
amended in a manner that would classify more dairy products as fluid 
milk products unless data is provided which would conclude that such 
products compete directly with fluid milk and such amendments would 
enhance producer revenue.
    The H.P. Hood witness asserted that if Proposal 7 was adopted and 
resulted in the reclassification of some products as fluid milk 
products, the change would only affect a small number of products and 
the enhancement of producer revenue would be minimal. If ingredient 
substitution for milk occurred as a result of adopting other proposals, 
the witness said, producer revenue could actually decrease. The witness 
was of the opinion that adoption of proposals that broaden the fluid 
milk product definition would stifle product innovation and discourage 
the use of dairy-derived ingredients because of the resulting increased 
costs to the manufacturer. These results, the witness said, should not 
be encouraged by the Federal milk order program.
    A post-hearing brief submitted on behalf of H.P. Hood reiterated 
opposition to Proposal 7. The brief maintained that no disorderly 
marketing conditions exist to warrant a change to the fluid milk 
product definition and that proponents of the protein standard failed 
to meet the burden of proof required by the AMAA to make a regulatory 
change. The H.P. Hood brief reviewed many factors used by the 
Department in previous classification decisions to determine the proper 
classification of Class I products. The list included, but was not 
limited to, demand elasticities, enhancement of producer revenue, and 
product competition. The brief stated that proponents failed to provide 
adequate data addressing these factors or prove that disorderly 
marketing conditions exist to warrant a change, and urged the 
Department to terminate the proceeding.
    Comments and exceptions filed by H.P. Hood took exception to the 
Recommended Decision's proposed adoption of a 2.25 percent protein 
standard and its reliance on form and intended use as a primary factor 
in making classification determinations. H.P. Hood reiterated its 
opinion that the proponents of the protein standard did not provide 
adequate justification for its adoption. Furthermore, H.P. Hood was of 
the opinion that it is not proper to make regulatory changes as 
preventive measures to possible disorderly marketing conditions and is 
a major deviation from historical milk order policy. The exceptions 
stressed that it is only proper to react to marketing conditions once 
they occur. In their exceptions, H.P. Hood also presented a list of 
questions regarding the application of how a product's form and 
intended use would be determined by the Department. H.P. Hood claimed 
that relying on form and intended use would be extremely burdensome and 
serve to inhibit new product development.
    A witness appearing on behalf of Leprino Foods Company (Leprino) 
testified in opposition to the adoption of the 2.25 percent protein 
standard contained in Proposal 7. According to the witness, Leprino 
operates nine plants in the United States that manufacture mozzarella 
cheese and whey products. The witness was of the opinion that a protein 
standard would reclassify products such as sport and protein drinks and 
yogurt smoothie products (formulated with ingredients such as whey and 
whey products) as fluid milk products. The witness stressed that 
broadening the fluid milk product definition to account for all dairy 
derived ingredients could lessen the demand for such ingredients. The 
witness speculated that manufacturers may seek out other less costly 
non-dairy ingredient substitutes which would result in decreased 
producer revenue.
    Exceptions to the Recommended Decision filed by Leprino expressed 
opposition to the adoption of a 2.25 true protein standard in the fluid 
milk product definition. Leprino argued that this standard should not 
be adopted unless it is modified to specifically exclude beverages that 
do not resemble or compete with fluid milk. Leprino was of the opinion, 
that without such exclusion, to classify products based on form and 
intended use could cause many non-traditional products, such as sport 
and nutritional beverages, to be classified as fluid milk products. The 
end result, argued Leprino, would be a lowered demand for dairy 
ingredients that may offset any revenue gains to producers by including 
additional products as fluid milk products.
    A witness appearing on behalf of Dannon Company, Inc. (Dannon) 
testified in opposition to Proposals 2 and 7. Dannon is a wholly owned 
subsidiary of the Dannon Group that produces yogurt and fresh dairy 
products in 40 countries, including the United States. The witness was 
opposed to the adoption of a protein standard and to the inclusion of 
whey when calculating the nonfat milk solids content of a product 
because, the witness said, it was not the original intent of the fluid 
milk product definition to include these milk-derived ingredients. The 
witness believed that adoption of a protein standard would cause more 
products to be classified as fluid milk products even though they do 
not compete with fluid milk. The witness argued that protein is not a 
major component of fluid milk products and therefore using a protein 
standard would not be appropriate for making classification 
determinations. The witness speculated that if a protein standard was 
adopted, it could stifle product innovation or cause food processors to 
use non-dairy ingredients in their food products. The witness said that 
if whey proteins are included, manufacturers may look for less 
expensive non-dairy ingredients to be used as a viable substitute.
    A post-hearing brief submitted on behalf of Dannon reiterated their 
opposition to the adoption of a protein standard claiming that adequate 
justification for such a change was not given by proponents at the 
hearing and that the mere ability to test for milk proteins does not 
justify its adoption.
    A post-hearing brief submitted on behalf of the National Yogurt 
Association (NYA) expressed opposition to Proposal 7. According to the 
brief, NYA is a trade association representing manufacturers of live 
and active culture yogurt products and suppliers of the yogurt 
industry. The brief claimed that proponent testimony was inconsistent 
regarding the proposals' impact on product classification and stated 
that if

[[Page 33539]]

the 2.25 percent protein standard was adopted, at least one yogurt-
containing product would be reclassified as a fluid milk product.
    The NYA brief also asserted that proponents did not provide a clear 
picture of how Proposal 7 would be implemented. Specifically, the brief 
noted that the following were not addressed: (1) How wet and dry whey 
would be handled; (2) how whey from cheese production would be 
differentiated from whey from casein production; and (3) how products 
that meet the proposed 2.25 percent true protein standard and contain 
whey and other proteins would be classified and priced. The NYA brief 
speculated that including whey in the protein calculation would lead to 
more products being classified as fluid milk products and cause 
manufacturers to seek out less costly non-dairy ingredients. The 
potential loss to producer revenue by substitution with non-dairy 
ingredients, concluded the brief, is not supported by the record.
    A post-hearing brief submitted on behalf of the National Cheese 
Institute (NCI) expressed opposition to Proposal 7 and claimed that its 
adoption would suppress the use of dairy-derived ingredients, 
particularly whey proteins. According to the brief, NCI is a trade 
association representing processors, manufacturers, marketers, and 
distributors of cheese and related products. NCI claimed that 
proponents of Proposal 7 did not identify any specific marketplace 
disorder that would be corrected by the adoption of a protein standard 
or list any product that would be reclassified if the fluid milk 
product definition were amended. The brief reviewed previous rulemaking 
decisions where proposals were denied because proponents failed to 
demonstrate that disorderly marketing conditions were present.
    The NCI brief stressed that use of dairy-derived ingredients in a 
product should not automatically qualify a product as a competitor of 
fluid milk or that their classification in a lower-valued use 
negatively affects producer revenue. The brief further maintained that 
proponents did not adequately address why whey proteins should be 
included in determining if the product met the proposed protein 
standard for a fluid milk product and why whey should be priced at the 
Class I price. The brief concluded that whey should be excluded from 
the fluid milk product definition because its inclusion would lead to 
products being classified as fluid milk products even when they do not 
compete with fluid milk.
    A post-hearing brief submitted on behalf of Sorrento Lactalis, Inc. 
(Sorrento) objected to the adoption of a protein standard. According to 
the brief, Sorrento is a manufacturer that operates five cheese plants 
throughout the United States. The brief stated that adoption of a milk 
protein standard as part of the fluid milk product definition would 
reduce the demand for dairy ingredients, especially whey proteins, 
which in turn would result in increased costs to manufacturers and 
reduced producer revenue.
    A witness testifying on behalf of H.P. Hood was of the opinion that 
if the Department found that changing the fluid milk product definition 
was warranted, adoption of a modified Proposal 5 would be appropriate. 
The witness said that adoption of Proposal 5 would provide the 
Department with standards to determine if a dairy product with less 
than 6.5 percent nonfat milk solids competes with and displaces fluid 
milk sales, which would justify classification of the product as a 
fluid milk product. The witness also noted that if Proposal 5 was 
adopted, a new product with less than 6.5 percent nonfat milk solids 
and route distribution in a Federal milk marketing area of less than 3 
million pounds would be exempted from classification as a fluid milk 
product. This distribution criteria, the witness explained, would allow 
manufacturers to test market a new product with the assurance that it 
would not be classified as a fluid milk product until the distribution 
threshold was exceeded.
    A witness appearing on behalf of Leprino testified in support of 
Proposal 5. The witness was of the opinion that fluid milk products 
should only be those products that meet the FDA standard of identity 
for milk and cultured buttermilk and products that compete with milk 
and cultured buttermilk. The witness testified that the fluid milk 
product definition is currently too broad and as a result, has lessened 
the demand for dairy ingredients in new non-traditional dairy products 
because of the possibility of being classified as a fluid milk product. 
The witness argued that many of these new products do not compete for 
sales with fluid milk and their use of dairy-derived ingredients should 
not qualify them to be defined as a fluid milk product.
    The Leprino witness explained that advances in technology have 
allowed the creation of dairy-derived ingredients through milk 
fractionation. According to the witness, dairy manufacturers are 
avoiding investing in some product innovation because of the regulatory 
burden and increased costs that are associated with manufacturing a 
fluid milk product.
    A witness testifying on behalf of DFA/DLC was opposed to the 
adoption of Proposal 5. The witness said that Proposal 5 would place an 
undue burden on the Department in making classification determinations 
and would also extend Class II classification to more products, neither 
of which the witness supported. The post-hearing brief submitted by 
DFA/DLC reiterated their opposition.
    A witness appearing on behalf of Bravo! Foods International 
Corporation; Lifeway Foods, Inc.; PepsiCo; Starbucks Corporation; and 
Unilever United States, Inc.; testified in opposition to all proposals 
that would reduce or eliminate the 6.5 percent minimum nonfat milk 
solids standard, adopt a protein standard, or include whey in 
determining the nonfat milk solids content of a product. Hereinafter, 
these companies are referred to collectively as ``Bravo!, et al.''
    A post-hearing brief submitted on behalf of Bravo!, et al., urged 
the termination of the proceeding except for the portion addressing the 
exemption of yogurt and kefir products from the fluid milk product 
definition. Bravo!, et al., asserted that the hearing record does not 
support adoption of a protein standard. The brief stated that decisions 
to amend Federal order provisions are not made without clear evidence 
of disorderly market conditions, the potential shortage of milk for 
fluid use, or lowering of producer revenue. The brief also discussed 
letters sent to the Department by producers and manufacturers which 
urged that a hearing be postponed because more analysis and market data 
was needed to justify amending the current fluid milk product 
definition. Bravo!, et al., argued that the hearing was held 
prematurely, without allowing for adequate study and market data 
research on the proposals that are under consideration. According to 
the brief, more time was needed to accurately determine the impact of 
new milk products on the marketplace.
    The Bravo!, et al., brief summarized hearing testimony from 
previous Department rulemaking decisions in which no changes were 
recommended due to a lack of evidence to support a regulatory change. 
According to Bravo!, et al., proponents did not provide evidence of 
disorder in the marketplace nor did they substantiate their claims that 
products currently in the market would not be reclassified if a protein 
standard was adopted. On the basis of such conditions, the brief 
concluded

[[Page 33540]]

that the current fluid milk product definition is adequate.
    If the Department did not terminate the proceeding, the Bravo!, et 
al., brief recommended that the 6.5 percent nonfat milk solids 
standards remain, that the computation of nonfat milk solids not be 
made on a milk equivalency basis, and that whey and whey ingredients be 
excluded from the computation.
    Exceptions to the Recommended Decision filed by Bravo!, et al., 
opposed the proposed adoption of the 2.25 percent protein compositional 
standard and reiterated that adoption of a protein standard would have 
a negative effect on dairy product innovation as manufacturers would 
use lower priced non-dairy proteins as substitutes. Bravo!, et al., 
asserted that the Department did not give enough consideration to the 
lowering of producer revenue that could occur due to the predicted 
ingredient substitution.
    Exceptions filed by Bravo!, et al., also opposed the Department's 
use of form and intended use as one of the factors in making 
classification determinations. The comments acknowledged that the AMAA 
authorized the Federal Milk Marketing Order (FMMO) program to rely on 
form and intended use in making classification determinations. However, 
Bravo!, et al., asserted that historically the FMMO program applied the 
form and use criteria by using compositional standards. Bravo!, et al., 
claimed that by specifically including the form and intended use 
criteria in the order language the Department could ignore a product's 
composition and arbitrarily classify products as fluid milk products 
even though they did not compete with fluid milk. Bravo!, et al., 
predicted that the specific inclusion of form and intended use in the 
fluid milk product definition would hamper the development of new 
products and the use of dairy ingredients because of the uncertainty 
manufacturers could face in how the milk components of their products 
would be classified.
    A witness appearing on behalf of Fonterra USA, Inc. (Fonterra) 
testified in opposition to proposals that would include MPCs in 
determining if the product met the protein standard of the fluid milk 
product definition. Fonterra at the time of the hearing was a wholly 
owned subsidiary of Fonterra Co-operative Group Limited, a New Zealand 
based dairy cooperative owned by 12,000 New Zealand dairy farmers. 
Fonterra operates plants within the United States that produce, among 
other things, MPCs. The witness stressed that changes to the fluid milk 
product definition would increase ingredient costs, discourage 
manufacturing companies from using dairy ingredients in their products, 
and force those companies to seek other less costly substitutes such as 
soy and soy products.
    A post-hearing brief submitted on behalf of Fonterra reiterated 
their objection to changing the nonfat milk solids standard and 
predicted that adoption of a protein standard would make classification 
decisions unnecessarily complicated without providing additional 
benefits to producers. The brief asserted that the hearing record did 
not contain a sufficient economic analysis on the possible benefits 
that adopting a protein standard would have on producer revenue or its 
impact on the dairy industry.
    The Fonterra brief speculated that adoption of a milk protein 
standard would decrease the market price for milk proteins, discourage 
new product development, and encourage the substitution of producer 
milk with non-dairy ingredients. The brief noted that the annual growth 
rate of soy and soy products in nutritional products from 1999 to 2003 
was 16.5 percent, while the growth of milk proteins in nutritional 
products only increased 10.1 percent over the same time period. The 
brief predicted that if protein prices rise as a result of the adoption 
of a milk protein standard, the growth of soy proteins will likely 
increase because they could be substituted for more costly milk 
proteins.
    The Fonterra brief also stated that the hearing record does not 
reveal disorder in the market by the application of the current fluid 
milk product definition and therefore concluded that amending the fluid 
milk product definition is not justified. The Fonterra brief argued 
that proponents did not provide adequate reasoning for including whey 
proteins in determining if a product met the protein standard but not 
pricing whey proteins the same as other milk proteins. Furthermore, the 
brief stated that proponents did not propose a method for 
differentiating between whey proteins resulting from cheese production 
and whey proteins from other sources.
    Comments filed on behalf of Fonterra took exception to the 
Recommended Decision's proposed adoption of a 2.25 percent true milk 
protein compositional standard. Fonterra reiterated that proponents did 
not meet the burden of proof needed to substantiate the adoption of a 
protein standard. According to the comments, proponents did not 
indicate if adoption of the standard would remedy any indications of 
market disruption or reclassify some products as fluid milk products.
    Fonterra's comments reviewed numerous rulemaking proceedings in 
which, Fonterra concluded, the Department declined to adopt proposed 
changes to marketing orders because of a lack of evidence that a change 
would promote orderly marketing conditions. Fonterra argued that the 
Recommended Decision did not adequately consider evidence asserting 
that adoption of the milk protein standard would not increase the cost 
for dairy ingredients, encourage the substitution of lower cost non-
dairy ingredients, and ultimately lower producer revenue. Fonterra was 
of the opinion that before making a Final Decision, further analysis of 
the proposals was needed to fully evaluate the possible economic impact 
to producers and manufacturers as a result of adoption of the protein 
standard.
    Fonterra stated that the Department's recommended adoption of an 
``either/or'' use of the protein and nonfat solids standard was not 
contained in any proposal discussed at the hearing and that the 
Department did not adequately explain how the use of both a protein and 
nonfat solids standard would provide for the orderly marketing of milk 
or increase producer revenue.
    The comments filed by Fonterra also argued that the Department uses 
this rulemaking proceeding to justify a change in policy that the 
Department previously attempted to adopt without undertaking the formal 
rulemaking process. Fonterra stated that historical Departmental policy 
has been to exempt such products as casein, sodium caseinate, lactose, 
whey, and MPCs from use in the nonfat milk solids calculation of a 
product. In 2004, Fonterra said, the Department attempted to include 
MPCs and other previously exempted dairy ingredients in the nonfat 
solids calculation; however, that administrative decision was 
overturned by an Administrative Law Judge. Fonterra claimed that 
proposing to include all milk derived protein ingredients in the 
calculation of a product's nonfat solids or protein composition is an 
attempt to change historical policy without adequate analysis or 
justification.
    Fonterra also took exception to having some ingredients included in 
the calculation of a product's composition but would not be priced in a 
final product. Fonterra claimed that whey is used in nearly identical 
products as MPCs and should therefore be priced the same. Fonterra was 
of the opinion that pricing whey and MPCs differently would violate the 
United States' World Trade Organization obligations. Fonterra

[[Page 33541]]

characterized whey production as primarily domestic, but that most MPCs 
are imported. Accordingly, they concluded that excluding whey from 
Class I pricing essentially places an illegal tariff on imported MPCs.
    A witness appearing on behalf of the American Beverage Association 
(ABA) testified in opposition to all proposals seeking to amend the 
fluid milk product definition. ABA is a trade association that 
represents beverage producers, distributors, franchise companies, and 
their supporting industries. The witness was of the opinion that the 
current fluid milk product definition already properly classifies dairy 
products and that there is insufficient evidence to warrant any 
changes. The witness claimed that any change would broaden the fluid 
milk product definition to include products that contain only small 
amounts of milk. The witness argued that many new beverage products 
which contain small amounts of milk or milk ingredients do not compete 
with fluid milk but do compete with soft drinks, juices and bottled 
water. The witness asserted that amending the fluid milk product 
definition to include some dairy ingredients not currently considered 
would increase manufacturers cost of production, result in stifled 
innovation of new products and encourage the use of non-dairy 
ingredients as substitutes for milk-derived ingredients.
    A witness appearing on behalf of Ohio Farmers Union (OFU) testified 
in opposition to any change to the fluid milk product definition. OFU 
is a nonpartisan, grassroots, general farm organization representing 
more than 300,000 family farms nationwide according to their web site. 
The witness testified that the primary purpose of the order program was 
to provide consumers with a reliable supply of safe and wholesome milk. 
The witness asserted that MPCs, caseinates, whey proteins, and other 
similar milk-derived ingredients have functional and nutritional 
characteristics different than fluid milk. Accounting for those 
ingredients in the fluid milk product definition, the witness said, 
would undermine the goal of the order program. The witness stressed 
that if the fluid milk product definition were amended, consumer 
confidence in the long established perception of milk as a fresh, pure 
and wholesome beverage would be diminished and would thus threaten the 
economic viability of domestic producers.
    A witness appearing on behalf of the Milk Industry Foundation (MIF) 
testified in opposition to amending the fluid milk product definition. 
According to the witness, MIF is an organization with over 100 member 
companies that process and market approximately 85 percent of the fluid 
milk and fluid milk products consumed nationwide. The witness stated 
that simply because a beverage contains milk or other dairy-derived 
ingredients does not prove that those products compete with fluid milk 
or that such competition lowers producer revenue.
    The MIF witness asserted that previous Federal milk order 
rulemaking decisions have required data and analysis to prove that an 
amendment was warranted. According to the witness, the proponents of 
proposals for changing the fluid milk product definition did not 
provide such data and analysis. Along this theme, the witness said that 
proponents should have provided data such as the market share held by 
products that do not fall under the current fluid milk product 
definition but would be included under any proposed change, cross price 
elasticity of demand analysis of products which meet the existing fluid 
milk product definition and of products that would be classified as a 
fluid milk product if any of their proposals were adopted, and an own-
price elasticity of demand analysis for products that would be 
reclassified.
    A post-hearing brief submitted on behalf of MIF reiterated their 
opposition to any changes to the current fluid milk product definition. 
The brief urged that if the Department does amend the fluid milk 
product definition, it should exclude all whey-derived protein products 
in determining if a product meets the fluid milk product definition. 
The brief stated that MIF has continuously opposed a hearing to 
consider amending the fluid milk product definition because not enough 
evidence is available to warrant a change. The brief maintained that 
proponents did not offer adequate data at the hearing to demonstrate 
that there is disorder in the marketplace that can be remedied by 
adoption of a protein standard.
    The MIF brief expanded its testimony by citing numerous rulemaking 
decisions that denied proposals on the basis that adequate evidence was 
not presented to warrant amendments to order provisions. MIF stressed 
that the mere existence of beverages containing dairy-derived 
ingredients is not evidence of marketwide disorder.
    Exceptions filed on behalf of International Dairy Foods Association 
(IDFA) asserted that because evidence doesn't demonstrate a need for 
change, no changes to the fluid milk product definition should be made. 
IDFA is a trade organization whose members include MIF, NCI and the 
International Ice Cream Association (IICA). According to their 
exceptions, IDFA represents more than 85 percent of the milk, cultured 
products, cheese and frozen desserts produced and marketed in the 
United States. IDFA reiterated arguments expressed by MIF at the 
hearing and in MIF's post-hearing brief. Their exception claimed that 
the hearing record did not demonstrate that products containing less 
than 6.5 percent nonfat solids and more than 2.25 percent protein are 
causing disorderly marketing conditions because they are not currently 
classified as fluid milk products.
    IDFA's comments also opposed the specific inclusion of the form and 
intended use criteria in the fluid milk product definition and argued 
that the definition should continue to contain only compositional 
criteria. IDFA wrote that manufacturers' product development decisions 
are in part determined by ingredient costs. Subjective criteria such as 
form and intended use, wrote IDFA, could impede new product development 
because a manufacturer would be uncertain of ingredient costs until a 
final product had been classified. IDFA's exceptions opposed the 
inclusion of whey when computing a product's composition because of 
inconsistent justification by proponents as to why whey used to produce 
fluid milk products should not also be priced as Class I. IDFA 
exceptions stated that the proponents of the protein standard did not 
demonstrate that disorderly marketing conditions exist in the absence 
of the protein standard. IDFA exceptions concluded that the adoption of 
amendments proposed in the Recommended Decision would only serve to 
lower producer revenue.
    Comments filed on behalf of Grande Cheese opposed all the proposed 
changes to the fluid milk product definition contained in the 
Recommended Decision. Grande Cheese is a cheese manufacturer located in 
the State of Wisconsin. Grande Cheese expressed support of the opinions 
expressed in the exceptions to the Recommended Decision filed by IDFA.
    A witness appearing on behalf of the National Family Farm Coalition 
testified in opposition to all proposals that would amend the fluid 
milk product definition. The witness testified that MPCs do not meet 
FDA's Generally Recognized as Safe (GRAS) standards as legal food 
ingredients. Furthermore, the witness said, MPCs have not been 
subjected to scientific testing to determine if they are safe for human

[[Page 33542]]

consumption and should not be allowed in milk products.
    A witness appearing on behalf of Public Citizen testified in 
opposition to proposals that seek to amend the fluid milk product 
definition. According to the witness, Public Citizen is a non-profit 
consumer advocacy organization with approximately 150,000 members. The 
witness was opposed to any change in the fluid milk product definition 
that would, in the witness' opinion, encourage the use of MPCs.
    Two Pennsylvania dairy farmers testified in opposition to any 
change to the fluid milk product definition. The producers opposed all 
proposals that would allow the use of caseinates and MPCs in fluid milk 
products. They asserted that MPCs are not allowed in the production of 
standardized cheese and should also not be allowed in the production of 
fluid milk products.
    A post-hearing brief submitted on behalf of the American Dairy 
Products Institute (ADPI), an association representing manufacturers of 
dairy products, offered support for amending the fluid milk product 
definition to include milk beverages that compete directly with fluid 
milk. However, the brief cautioned against developing a fluid milk 
product definition that would include non-traditional beverages and 
smoothie type products (yogurt-containing beverages). The brief 
recommended that an economic study be conducted to determine the 
possible impacts of the proposed changes before action is taken to 
amend the fluid milk product definition.
    A post-hearing brief submitted on behalf of General Mills contended 
that the fluid milk product definition should not be amended because 
proponents did not provide sufficient evidence or data to justify a 
change. The brief maintained that the hearing record is not clear on 
how proposals would be implemented or on the impact to producers, 
manufacturers, and consumers if the protein standard was adopted. 
General Mills contended that before a change is made, the Department 
should conduct an economic analysis to evaluate how protein and dairy 
products are competing in the marketplace and how the adoption of a 
protein standard would impact the marketplace. If a protein standard 
was recommended for adoption, General Mills recommended that whey not 
be included in the protein calculation, or if whey is included, that a 
2.8 percent protein standard be adopted in order to maintain the status 
quo.
    Exceptions to the Recommended Decision filed by General Mills 
opposed the adoption of the true protein compositional standard. 
However, General Mills was of the opinion that if the Department 
continued to support the protein standard, then any whey components 
should be excluded from determining a final product's protein content. 
General Mills purported that the inclusion of whey in the protein 
calculation, even if not priced at Class I, may lead manufacturers to 
increase their use of non-dairy ingredients as substitutes.
    General Mills was also opposed to relying on form and intended use 
in classification determinations. According to their exceptions, the 
form and use criteria would cause manufacturers to be less certain of a 
product's classification which would discourage using dairy ingredients 
in new products. General Mills noted that if the Department decides to 
not alter its Recommended Decision then it should clarify in a Final 
Decision that only products that compete with or are a substitute for 
fluid milk would be classified as a fluid milk product.
    A post-hearing brief submitted on behalf of New York State Dairy 
Foods, Inc. (NYSDF) opposed amending the fluid milk product definition. 
According to their brief, NYSDF is a trade association representing 
dairy product processors, manufacturers, distributors, retailers, and 
producers in the Northeast United States. The brief argued that 
products produced with the use of new fractionation technology are a 
small portion of the milk beverage market. They were of the opinion 
that such products are still too new to determine their impact on Class 
I sales and producer revenue. The brief also asserted that the adoption 
of a protein standard as part of the fluid milk product definition 
would discourage new product development and would increase costs that 
would result in reduced sales of dairy-derived ingredients. The brief 
urged that the proceeding be terminated.
    Comments and exceptions to the Recommended Decision filed on behalf 
of Glanbia Foods (Glanbia) opposed the proposed adoption of the true 
protein compositional standard and the specific inclusion of form and 
intended use as a factor in classification determinations. Glanbia 
operates two cheese plants and two whey plants that collectively 
process nearly 4 billion pounds of milk annually. Glanbia asserted that 
adoption of a true protein standard would lead to stifled innovation of 
milk derived ingredients in new products because the manufacturing