Milk in the Appalachian, Florida, and Southeast Marketing Areas; Recommended Decision on Proposed Amendments to Marketing Agreements and to Orders, 46016-46042 [2023-15086]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 88, Number 136 (Tuesday, July 18, 2023)]
[Proposed Rules]
[Pages 46016-46042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15086]



[[Page 46015]]

Vol. 88

Tuesday,

No. 136

July 18, 2023

Part III





 Department of Agriculture





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 Agricultural Marketing Service





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7 CFR Parts 1005, 1006, and 1007





Milk in the Appalachian, Florida, and Southeast Marketing Areas; 
Recommended Decision on Proposed Amendments to Marketing Agreements and 
to Orders; Proposed Rule

Federal Register / Vol. 88 , No. 136 / Tuesday, July 18, 2023 / 
Proposed Rules

[[Page 46016]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1005, 1006, and 1007

[Doc. No. AMS-DA-23-0003; 23-J-0019]


Milk in the Appalachian, Florida, and Southeast Marketing Areas; 
Recommended Decision on Proposed Amendments to Marketing Agreements and 
to Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This decision proposes to amend the transportation credit 
balancing fund provisions for the Appalachian and Southeast Federal 
milk marketing orders, and establish distributing plant delivery 
credits in the Appalachian, Florida, and Southeast Federal milk 
marketing orders.

DATES: Written exceptions and comments to this proposed rule must be 
submitted on or before September 18, 2023.

FOR FURTHER INFORMATION CONTACT: Erin Taylor, USDA/AMS/Dairy Programs, 
Order Formulation and Enforcement Branch, STOP 0231--Room 2530, 1400 
Independence Avenue SW, Washington, DC 20250-0231, (202) 720-7183, 
email address: [email protected].

SUPPLEMENTARY INFORMATION: This recommended decision proposes 
amendments to the transportation credit balancing fund (TCBF) 
provisions in the Appalachian and Southeast Federal milk marketing 
orders (FMMOs) that would: (1) update the components of the mileage 
rate calculation; (2) revise the months of mandatory and discretionary 
payment; (3) revise the non-reimbursed mileage factor; and (4) increase 
the maximum assessment rate on Class I milk. This recommended decision 
also proposes establishing distributing plant delivery credit (DPDC) 
provisions in the Appalachian, Florida, and Southeast FMMOs that would 
make marketwide service payments to qualifying handlers and 
cooperatives for milk shipments to pool distributing plants from farms 
that are year-round, consistent suppliers.
    This administrative action is governed by sections 556 and 557 of 
Title 5 of the United States Code and, therefore, is excluded from the 
requirements of Executive Order 12866, 13563, and 13175.
    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) (AMAA), provides that administrative proceedings must 
be exhausted before parties may file suit in court. Under section 
608c(15)(A) of the AMAA, any handler subject to an order may request 
modification or exemption from such order by filing a petition with the 
United States Department of Agriculture (USDA) 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 AMAA 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 (RFA) (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 this 
proposed rule will not have a significant economic impact on a 
substantial number of small entities. The purpose of the RFA is to fit 
regulatory actions to the scale of businesses subject to such actions 
so that small businesses will not be unduly or disproportionately 
burdened. Marketing orders and amendments thereto are unique in that 
they are normally brought about through group action of essentially 
small entities for their own benefit. A small dairy farm as defined by 
the Small Business Administration (SBA) (13 CFR 121.201) is one that 
has an annual gross revenue of $3.75 million or less, and a small dairy 
products manufacturer is one that has no more than the number of 
employees listed in the chart below:

----------------------------------------------------------------------------------------------------------------
                                                                                                 Size standards
                  NAICS code                              NAICS U.S. industry title               in number of
                                                                                                    employees
----------------------------------------------------------------------------------------------------------------
311511.......................................  Fluid Milk Manufacturing.......................             1,000
311512.......................................  Creamery Butter Manufacturing..................               750
311513.......................................  Cheese Manufacturing...........................             1,250
311514.......................................  Dry, Condensed, and Evaporated Dairy Product                  750
                                                Manufacturing.
----------------------------------------------------------------------------------------------------------------

    To determine which dairy farms are ``small businesses,'' the $3.75 
million per year income limit was used to establish a milk marketing 
threshold of 1,220,703 pounds per month. Although this threshold does 
not factor in additional monies that may be received by dairy 
producers, it should be an accurate standard for most ``small'' dairy 
farmers. To determine a handler's size, if the plant is part of a 
larger company operating multiple plants that collectively exceed the 
750-employee limit for creamery butter or dry, condensed, and 
evaporated dairy product manufacturing, the 1,000-employee limit for 
fluid milk manufacturing, or the 1,250-employee limit for cheese 
manufacturing, the plant was considered a large business even if the 
local plant does not exceed the 750, 1,000, or 1,250-employee limit, 
respectively.
    During January 2023, the milk of 2,522 dairy farms was pooled on 
the Appalachian (1,578), Florida (113), and Southeast (831) FMMOs. Of 
the total, 1,491 farms on the Appalachian FMMO (94 percent), 69 on the 
Florida FMMO (61 percent), and 787 on the Southeast FMMO (95 percent) 
were considered small businesses.
    During January 2023, there were a total of 17 plants associated 
with the Appalachian FMMO (16 fully regulated plants and 1 partially 
regulated plant), 7 plants associated with the Florida FMMO (all fully 
regulated), and 16 plants associated with the Southeast FMMO (15 fully 
regulated plants and 1 partially regulated plant). The number of plants 
meeting the small business criteria under the Appalachian, Florida, and 
Southeast FMMOs were 2 (12

[[Page 46017]]

percent), 2 (29 percent), and 2 (13 percent), respectively.
    Currently, the Appalachian and Southeast orders provide 
transportation credit balancing fund (TCBF) payments on supplemental 
shipments of milk for Class I use provided the milk was from producers 
located outside of the marketing areas who are not regular suppliers to 
the market. Producer milk received at a pool distributing plant 
eligible for a transportation credit under the orders is defined as 
bulk milk received directly from a dairy farmer who: (1) not more than 
50 percent of the dairy farmer's milk production, in aggregate, is 
received as producer milk during the immediately preceding months of 
March through May of each order; and (2) produced milk on a farm not 
located within the specified marketing areas of either order. Milk 
deliveries from producers located outside the marketing area who are 
consistent suppliers to the market, or from producers located inside 
the marketing areas are not eligible to receive transportation credits.
    This decision proposes to amend the Appalachian and Southeast TCBF 
provisions. Specifically, the proposed amendments would amend the non-
reimbursed mileage level from 85 miles to 15 percent of total miles and 
update components of the mileage rate factor to reflect more current 
market transportation costs.
    The proposed amendments also would increase the maximum TCBF 
assessment rates for the Appalachian and Southeast orders. 
Specifically, the maximum transportation credit assessment rate for the 
Appalachian and Southeast orders would increase to $0.30 and $0.60 per 
hundredweight (cwt), respectively. The increases are intended to 
minimize the proration and depletion of each Order's TCBF to provide 
more adequate TCBF payments. This decision finds these assessment 
levels necessary because of escalating transportation costs coupled 
with the continued decline in milk production in the southeastern 
region necessitating longer hauls to procure supplemental milk to meet 
the Class I needs of the region.
    This decision also proposes to adopt DPDCs in the Appalachian, 
Florida, and Southeast FMMOs to provide transportation assistance to 
handlers and cooperatives procuring year-round, consistent milk 
supplies for the region. Currently, there are no provisions in any of 
the three southeastern FMMOs to provide transportation assistance to 
handlers and cooperatives for these types of milk deliveries.
    The proposed DPDCs would operate similar to the TCBF program: (1) 
funded through an assessment on Class I producer milk; (2) payable to 
handlers and cooperatives for procuring year-round milk supplies as 
determined by location and delivery criteria; (3) payment provisions 
identical to TCBF payments; and (4) contain provisions designed to 
safeguard against excess assessment collections and prevent persistent 
and pervasive uneconomic milk movements for the purpose of receiving a 
DPDC payment.
    The proposed TCBF and DPDC provisions would be applied identically 
to large and small handlers and cooperatives regulated by the 
Appalachian, Florida, and Southeast FMMOs. Since the proposed 
amendments would apply to all regulated cooperatives and handlers 
regardless of their size, the proposed amendments should not have a 
significant economic impact on a substantial number of small entities.
    A review of reporting requirements was completed under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was 
determined that these proposed amendments would have no impact on 
reporting, 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 notice does not require additional information collection that 
requires clearance by the Office of Management and Budget (OMB) beyond 
currently approved information collection. The primary sources of data 
used to complete the forms are routinely used in most business 
transactions. Forms require only a minimal amount of information which 
can be supplied without data processing equipment or a trained 
statistical staff. Thus, since the information is already provided, no 
new information collection requirements are needed, and the current 
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.
    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.
    No other burdens are expected to fall on the dairy industry as a 
result of overlapping Federal rules. This rulemaking proceeding does 
not duplicate, overlap, or conflict with any existing Federal rules.

Prior Documents in This Proceeding

    Notice of Hearing: Published January 30, 2023 (88 FR 5800).

Preliminary Statement

    A public hearing was held upon proposed amendments to the marketing 
agreement and the orders regulating the handling of milk in the 
Appalachian, Florida, and Southeast marketing areas. The hearing was 
held, pursuant to the provisions of the 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 Franklin, TN, from February 28-March 2, 2023, 
pursuant to a notice of hearing published January 30, 2023 (88 FR 
5800).
    The material issues on the record of hearing relate to:

1. Transportation Credit Balancing Fund Provisions
2. Distributing Plant Delivery Credits

Findings and Conclusions

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

Summary of Testimony and Post-Hearing Briefs

    Several witnesses testified on behalf of the Dairy Cooperative 
Marketing Association (DCMA). DCMA is a common marketing agency 
operating in the southeast region of the United States (U.S.). Members 
of DCMA include Appalachian Dairy Farmers Cooperative; Cobblestone Milk 
Cooperative; Cooperative Milk Producers Association; Dairy Farmers of 
America, Inc.; Lanco-Pennland Milk Producers; Lone Star Milk Producers 
Association; Maryland & Virginia Milk Producers Association; Select 
Milk Producers, Inc.; and Southeast Milk, Inc. According to DCMA, its 
members market approximately 80 percent of the milk pooled in the three 
southeastern orders and process and distribute a substantial percentage 
of the region's Class I fluid milk products through cooperative-owned 
distributing plants.
    Several witnesses testified in support of Proposals 1 and 2 to 
update the components of the TCBF and mileage rate factor (MRF) 
contained in the

[[Page 46018]]

Appalachian and Southeast FMMOs. A consultant witness for DCMA 
testified milk production in the southeastern region of the U.S. 
continues to decline as population increases. As a result, the witness 
stated, the Appalachian and Southeast marketing areas must continually 
seek supplemental supplies of milk from outside their normal milksheds. 
The witness stressed that DCMA members must travel farther distances to 
obtain supplemental milk while at the same time, diesel and non-fuel 
costs for shipping supplemental milk have risen sharply. The witness 
explained these marketing conditions result in milk suppliers absorbing 
a larger percentage of the transportation costs, diminishing the 
effectiveness of TCBF credits.
    The DCMA witness presented a comparison of current and proposed MRF 
components: base fuel rates; average truck miles-per-gallon (MPG); base 
haul rates; and average tank sizes. From 2006 to 2020, the witness 
stated input costs/factors increased by the following: 59 percent for 
the base fuel rate, 13 percent for average MPG for transport equipment, 
92 percent for the base haul rate (costs other than fuel), and 4 
percent for the average tank load weight.
    The DCMA witness testified that while both population and milk 
consumption in the region are increasing, dairy farm numbers are 
declining, necessitating milk traveling farther distances to serve the 
market. The DCMA witness testified that over the 5-year period 2017-
2021, the USDA National Agricultural Statistics Service (NASS) total 
farm count in the southeast decreased by 719 farms (declining 38 
percent, 45 percent, and 56 percent in the Appalachian, Florida, and 
Southeast FMMOs, respectively). Looking back from 2000 to 2022, DCMA 
noted in its post-hearing brief that the Appalachian order lost 77 
percent of its farms (2,813 to 650 farms), the Florida order lost 75 
percent (194 to 49 farms), and the Southeast order lost 86 percent 
(3,504 to 489 farms).
    Regional milk production showed a similar decline of 12.8 percent 
from 2017 to 2021, according to the DCMA witness. The witness noted 
every state in the region experienced decreased production over the 
five-year period; only North Carolina and Georgia had an annual milk 
production increase from 2020 to 2021.
    The DCMA witness used USDA data to describe sources of milk for 
each of the southeastern Orders. According to the DCMA witness, USDA 
data reveals in 2021, 46 percent of milk pooled on the Appalachian FMMO 
was sourced from outside the marketing area. The witness calculated 
that during the low production month of October, approximately 99 loads 
of supplemental milk per day, on average for 2019-2021, were needed to 
meet the pool distributing plant demand of the Appalachian FMMO. For 
the Southeast and Florida FMMOs, the witness stated that during that 
same time period, 56 and 18 percent, respectively, of pool distributing 
plant demand was met from farms outside the marketing area. The witness 
noted the supplemental milk meeting Florida demand primarily comes from 
farms located in Georgia.
    The DCMA witness testified the closure of fluid milk distributing 
plants has increased marketing costs for the remaining dairy farms in 
the southeast region. Citing USDA data, the DCMA witness said the 
number of pool distributing plants regulated by the southeastern FMMOs 
was down significantly when comparing 2000 to 2022; a reduction of 39 
percent (26 to 16 plants), 33 percent (12 to 8 plants), and 54 percent 
(32 to 15 plants) on the Appalachian, Florida, and Southeast FMMOs, 
respectively. The witness argued fewer plants mean longer distances and 
higher hauling costs to the dairy farms and cooperative handlers 
delivering milk to the region. DCMA asserted in its post-hearing brief 
the average miles to procure a load of supplemental milk in October 
2020 was 774 miles; a 51 percent increase from 2003.
    The DCMA witness presented data showing milk supply deficits in 
Class I and Class II use in December 2020 and May 2021. Only in one 
month (May 2021) did a southeastern order (Florida) have enough in-area 
production to meet Class I milk needs of pool distributing plants. In 
the other five monthly comparisons, in-area production ranged from 67 
to 97 percent of demand. When DCMA accounted for Class II usage, the 
witness testified, the ability for in-area production to meet the 
additional demand was further diminished. The witness emphasized that 
when demand is greater than in-area supply, the southeastern orders 
must acquire milk from other FMMO areas to meet the demand.
    Milk deficits, in addition to longer distances traveled, according 
to the witness, causes the TCBF to be depleted at a rate faster than 
the funds are replenished. The DCMA witness reviewed TCBF data on 
supplemental milk being delivered to Appalachian and Southeast pool 
distributing plants from 2020-2022. The witness said TCBF eligible 
loads increased from 5,374 in 2020 to 6,642 loads in 2022 on the 
Appalachian FMMO and from 15,869 loads in 2020 to 18,217 loads in 2022 
for the Southeast FMMO. According to the witness, this import of large 
volumes of supplemental milk into the two marketing areas would not 
occur unless necessary to fill pool distributing plant demand.
    In addition to longer hauling distances, explained the witness, the 
TCBF factors have not been updated since 2006, and consequently fall 
short of providing a reasonable partial reimbursement of current, 
actual transportation costs. The DCMA witness described four supply and 
demand scenarios, representative of actual arrangements, to demonstrate 
the gap between the existing TCBF provisions and those proposed by 
DCMA, using 2021 data. In the four scenarios outlined, the current TCBF 
payment accounted for 25 to 58 percent of the amount calculated using 
the DCMA proposed changes.
    The DCMA witness presented recent data to support the proposed 
changes contained in Proposals 1 and 2. Regarding the base diesel fuel 
price, the witness stated DCMA supports continued use of the Energy 
Information Administration of the United States Department of Energy 
(EIA) data--specifically, the Lower Atlantic and Gulf Coast EIA 
regions. The witness reviewed EIA diesel fuel prices and found that May 
4 through November 9, 2020, as a 28-week period of relatively stable 
diesel prices, averaged $2.262 per gallon. The current MRF calculation 
uses a base diesel price of $1.42 per gallon. According to the witness, 
the price difference illustrates the need to update the factors, and 
DCMA supports adopting $2.26 as the base diesel fuel price.
    The DCMA witness next evaluated the MPG of combination trucks and 
supported using U.S. Department of Transportation MPG fuel efficiency 
data. The most recently published data (2019) showed an MPG rate of 
6.0478. The DCMA witness estimated a calculation for 2022 using the 
five-year change in MPG from 2014-2019 of 0.0430 per year. The witness 
added this amount annually to the 2019 published rate of 6.0478, 
yielding a per gallon estimate of 6.1770 in 2022, which DCMA rounded to 
6.2. The witness testified DCMA members supported a 6.2 MPG assumption 
as a reasonable fleet average across operations with varying transport 
tanks and varying ages of equipment. Additionally, the witness said a 
higher MPG assumption would lower a TCBF payment and therefore guard 
against handlers engaging in

[[Page 46019]]

uneconomic milk shipments to qualify for higher TCBF payments.
    The DCMA witness entered data substantiating their proposed base 
haul rate of $3.67 per loaded mile. According to the witness, DCMA 
surveyed member haul rates during September and October 2020, 
representing months of heavy supplemental milk purchases which are 
included in the May to November 2020 time period used to determine the 
proposed average diesel fuel price. The witness said the aggregated 
survey results represented 2,951 supplemental milk hauls from nine 
states considered traditional sources of supplemental milk to pool 
distributing plants geographically spread across the three southeastern 
FMMOs. According to the DCMA witness, the average rate per loaded mile 
was $3.67, representing an average distance of 818 miles, an average 
tanker load size of 49,700 pounds, and an average total haul bill of 
$3,003. The survey results, said the witness, support the DCMA-proposed 
base haul rate of $3.67 per loaded mile. The surveyed tank size of 
49,700 pounds was used to justify increasing the reference load in the 
MRF calculation. DCMA noted in its post-hearing brief that costs have 
increased from its calculated 2020 rate, up to as much as $5.10 to 
$5.25 per loaded mile.
    Using the proposed TCBF provisions, DCMA estimated TCBF payments 
from 2020 through 2022 using USDA data and compared the results with 
what TCBF payments would have been under current provisions, assuming 
all claims could have been paid in full. According to the witness, 
under those assumptions, current TCBF payments represent 59 percent, on 
average, of what payments would have been using DCMA's proposed updated 
factors. The witness emphasized the analysis demonstrates how current 
TCBF provisions are not representative of current transportation costs 
and should be updated.
    Using actual TCBF pounds from 2020-2022, the witness offered an 
analysis to determine necessary assessment levels under the proposed 
TCBF provisions. To do so, the witness provided data of TCBF 
assessments and payments from 2020-2022, including proration. The 
witness used USDA data to show the impact of various scenarios on the 
levels of assessment and payments based on two alternative DCMA-
proposed MRFs, in comparison to actual TCBF claims and payments. The 
analysis showed assessment rates needed to fully pay all claims in 2020 
could be up to $0.18 and $0.88 per cwt in the Appalachian and Southeast 
FMMOs, respectively. Based on the analysis, the witness testified DCMA 
proposes to double the maximum assessment rate in each order, to $0.30 
and $0.60 per cwt in the Appalachian and Southeast FMMOs, respectively. 
DCMA noted in its post-hearing brief a maximum rate of $0.30 per cwt in 
the Appalachian FMMO would cover full claims immediately and allow room 
for increases in claims without necessitating proration for some time. 
Also, according to the brief, a maximum of $0.60 per cwt in the 
Southeast FMMO will allow for most of the current supplemental milk 
transportation credits to be paid, with reduced occurrences of 
proration.
    The DCMA witness also elaborated on the proposal to make February 
an optional, not mandatory, payment month. Since less supplemental milk 
is needed in February, the witness said it was appropriate for February 
to no longer be a mandatory payment month so those funds could instead 
be used in later months when supplemental milk needs are greater. The 
witness presented data to demonstrate the possible benefits of 
converting February from a mandatory to an optional payment month. The 
witness stated the impact of including February as a mandatory payment 
month is only apparent when payments are prorated, which is not 
projected to occur in the Appalachian order. For the Southeast FMMO, 
the witness entered data that showed more dollars would have been 
directed to the months it was needed in 2020 and 2021, resulting in 
fewer prorated payment months, had February been an optional payment 
month rather than a mandatory payment month. The witness reiterated 
that under DCMA's proposal, a handler could petition the Market 
Administrator to request February TCBF payments by providing supporting 
data and rationale.
    Last, the DCMA witness explained the flat mileage deduction of 85 
miles for loads delivered directly from farms to distributing plants 
should be changed to a percentage basis, initially set at 15 percent. 
DCMA argued the change would more equitably reimburse short and long 
hauls, thus reducing the potential disorderly incentive to import 
supplemental milk from greater distances. The witness noted the current 
85-mile deduction represented 10.4 percent of the 818-mile average haul 
observed in the DCMA survey and concluded that a 15-percent deduction 
is an appropriate initial rate.
    In its post-hearing brief, DCMA noted there was only nominal 
opposition from industry participants to its proposals to amend the 
transportation credit balancing funds. DCMA reiterated testimony by 
witnesses supporting its proposals: a decreased supply of milk, fewer 
plants to process local milk, increased distances to bring in milk, and 
an increased population in the region. Compounding market disruptions, 
DCMA argues in its brief, is the increase in the cost of moving milk 
since the TCBF reimbursement rates were implemented in 2006.
    The post-hearing brief touched on changes in the movement of milk 
as a result of these factors, including movements that often lose value 
going ``against the grain,'' from south to west or south to north. 
These movements, the proponents argue, are prime examples of disorderly 
marketing since the Federal Order Class I price grid is intended to 
reflect lower prices at supply areas and higher prices at demand 
points. The region's loss of plants, the proponents argue, has caused 
the Federal order provisions to be out of sync with the marketplace.
    The DCMA witness also offered testimony supporting adoption of 
Proposals 3, 4, and 5, to establish a distributing plant delivery 
credit (DPDC) in the Appalachian, Florida, and Southeast FMMOs for 
marketwide service payments to handlers acquiring consistent, year-
round milk supplies for pool distributing plants. The DCMA witness 
reviewed data for each of the southeastern orders showing 54 percent, 
82 percent, and 44 percent of Class I demand is met with in-area milk 
production from the Appalachian, Florida, and Southeast orders 
respectively. According to the witness, in-area milk supplies face the 
same cost factors as supplemental supplies. However, because there is 
no transportation compensation for obtaining in-area milk supplies, the 
cost burden falls on the handlers supplying Class I demand, primarily 
DCMA cooperatives and their members. The witness asserted that local 
milk production should be on equal footing for transportation 
assistance as supplemental milk supplies, as local deliveries promote 
transportation efficiency. The witness reiterated earlier market 
statistics showing declines of in-area milk production, farms, and pool 
distributing plants throughout the southeastern region as justification 
for adopting DPDC for year-round, consistent milk supplies.
    The DCMA witness described the situation in the Florida order, 
which currently has no transportation credit assistance. According to 
the witness, a significant amount of milk production is located in 
central Florida, which is typically delivered to a plant in Miami over 
200 miles away. Because Miami-

[[Page 46020]]

Dade County has the highest Class I differential zone in the country, 
the Class I differential provides some financial incentive to move milk 
in that direction. However, when demand at the Miami plant is met, the 
central Florida milk must move north to a lower Class I differential 
zone. While the distances may be similar, there is no transportation 
assistance provided through the differentials to cover the 
transportation cost. Therefore, the witness said, a DPDC in the Florida 
FMMO is warranted.
    The witness explained the compounding transportation situation in 
the southeastern Orders by presenting a map of pool distributing plants 
in 2000 vs. 2022, which showed a decrease from 73 plants in January 
2000 to 39 in 2022, a 47 percent reduction. The witness said the 
decline in farms and plants in the region will continue to lead to 
increased delivery miles and costs and will put availability of local 
milk supplies at risk.
    The DCMA witness explained the DPDC funds would be separate from 
the producer settlement fund, be payable to handlers providing the 
marketwide service of meeting Class I demand with consistent, year-
round milk supplies, and not impact the Federal order minimum announced 
producer blend prices. According to the witness, the proposed 
provisions establish maximum allowable assessments on Class I milk 
specific to each Order and guidelines for the Market Administrator on 
how to set or waive the rate and investigate misuse, for example, if a 
handler consistently moves milk uneconomically to collect payment.
    The DCMA witness outlined proposed DPDC eligibility criteria. 
According to the witness, with fewer farms and pool distributing 
plants, milk regularly crosses state and Federal order borders of the 
three southeastern orders; therefore, milk from one Order should 
qualify for payments when delivered to another Order. For the 
Appalachian and Florida orders, the witness proposed producer milk 
originating in certain counties outside of the respective Federal order 
boundaries that are considered part of the milksheds be eligible for a 
DPDC payment. For the Appalachian order, DCMA included select 
unregulated counties in Virginia and West Virginia that provide milk to 
a fully regulated Appalachian order pool distributing plant in the same 
unregulated area. The counties are also, according to DCMA, the regular 
source of milk to Appalachian order pool distributing plants in North 
and South Carolina. Under these circumstances, DCMA argues, the 
counties are parts of the regular procurement area for the Appalachian 
order, and the handlers obtaining milk supplies from these counties 
should be entitled to receive DPDC for those shipments.
    The provisions proposed by DCMA also permit milk from an order pool 
supply plant to qualify for DPDCs in all three orders. According to 
DCMA, a pool supply plant located in the Appalachian marketing area 
assembles milk delivered in farm pick-up trucks from smaller producers. 
The milk is then shipped in larger transports to Appalachian order pool 
distributing plants. Transporting via supply plant is a necessary 
method for these producers whose milk is a consistent supply to the 
market. According to DCMA's proposal, DPDCs would apply only on the 
mileage from the supply plant to the order's distributing plant.
    The Georgia counties included in the DCMA Proposal 4, according to 
testimony by its witnesses, are a year-round integral part of the 
supply for the Florida order; therefore, DCMA believes handlers 
acquiring milk from those areas should be eligible for DPDCs.
    According to the DCMA witness, its members, who supply a majority 
of the milk on the three Orders, face similar cost factors for both 
regular and supplemental supplies. Therefore, the witness said, it is 
appropriate for the DPDC payment provisions to be the same as the TCBF 
provisions.
    The DCMA witness estimated the maximum assessment rates needed to 
fund DPDC payments in each of the three Orders. DCMA's analysis 
concluded maximum assessment rates of $0.60, $0.85, and $0.50 per cwt 
on Class I milk pooled on the Appalachian, Florida, and Southeast 
FMMOs, respectively, were warranted. The DCMA witness explained the 
assessment rates should initially be set $0.05 lower than the maximum 
rates to be initially conservative when implementing this new fund. The 
proposed provisions allow for the Market Administrator to review and 
adjust assessment rates in each FMMO, if necessary, after a year of 
operation.
    The witness next discussed the impact changes to the TCBF 
provisions and establishment of DPDC could have on plant 
competitiveness in the region. Ultimately, the witness argued, an 
analysis shows the DCMA proposed assessment levels do not put in-area 
pool distributing plants at a competitive disadvantage compared to out-
of-area plants.
    The witness concluded by emphasizing the need for emergency hearing 
procedures, especially due to the current inflationary economic 
environment, the fact that transportation costs have not been updated 
for 15 years, and the changing market structure in the southeastern 
region. The consequence of not using emergency hearing procedures, the 
witness claimed, would be more farms going out of business.
    A witness from Dairy Farmers of America (DFA), one of the nine 
cooperative members of DCMA, testified in support of DCMA Proposals 1 
through 5. DFA's Southeast Council encompasses the Appalachian, 
Florida, and Southeast FMMOs, where they have 830 dairy farm members. 
The witness offered testimony regarding the impact adopting Proposals 1 
through 5 could have on the competitiveness of packaged milk delivered 
into the southeastern marketing areas. The witness analyzed 
transportation rates for 60 routes both within the southeast FMMOs and 
the surrounding areas to determine how the cost of transporting 
packaged fluid milk into the marketing areas compared to the proposed 
TCBF and DCDP assessments contained in Proposals 1 through 5. According 
to the witness, the results indicate that even with the proposed 
assessments on Class I milk, packaged fluid milk moving into the 
marketing areas would not have a cost advantage over Class I products 
produced by plants regulated by the three FMMOs and subject to the 
proposed assessments.
    Another witness appearing on behalf of DFA offered testimony on 
diesel fuel price volatility. To highlight diesel fuel price 
volatility, the DFA witness charted U.S. EIA monthly retail on-highway 
diesel fuel prices, both for the U.S. and states comprising the 
southeast region since 2006 alongside the projection for February 2023 
to December 2025. According to the data, since January 2, 2006, diesel 
fuel prices in the southeast region have averaged $3.19 per gallon, 
ranging from $1.96 gallon (February 2016) to $5.73 per gallon (June 
2022). The witness explained that record low U.S. oil supplies, reduced 
oil refining capacity, and geopolitical events are all factors driving 
diesel fuel price volatility and large price ranges. On the demand 
side, the witness said variability in fuel consumption, the overall 
health of the U.S. economy and China's rebound from COVID-19 have all 
contributed.
    A witness appearing on behalf of Maryland and Virginia Milk 
Producers Cooperative (MDVA), a dairy cooperative with approximately 
930 dairy farmer members located in 10 states and a member of DCMA, 
testified in support of Proposals 1 through 5, and specifically on the 
marketing conditions

[[Page 46021]]

within the Appalachian marketing area. The witness testified their 
members' milk is marketed on the Appalachian, Southeast, Northeast, and 
Mideast orders. MDVA owns and operates two fluid processing facilities 
within the Appalachian order and supplies milk to several other 
processors in the region.
    The witness testified milk production has sharply declined in the 
southeast region, down 32 percent over the last 15 years. MDVA 
therefore relies on supplemental milk from other regions to meet its 
year-round obligations. The witness testified that during peak demand 
in late summer and early fall, MDVA requires approximately 25 loads per 
day of supplemental milk to fulfill demand. The witness stated the MDVA 
average distance to the market for supplemental supplies from the 
northeast is 450 miles, and current transportation cost is $4.90 to 
$5.25 per loaded mile, which equates to roughly $4.43 per cwt of milk. 
The witness testified that roughly $2.93 per cwt of its cost to 
transport supplemental milk to the market is not covered by the gain in 
Class I differential between the supply and demand zones.
    In recent years, according to the witness, equipment parts, oil, 
labor, insurance, and fuel costs have increased. Since TCBF factors 
have not been updated since 2006, the percentage of the transportation 
cost covered by the TCBF has decreased. As hauling bills must be paid, 
the witness said the cooperative relies on either deductions from dairy 
farmer milk checks or over-order premiums to cover the additional cost. 
The witness testified regarding MDVA's difficult experience in 
obtaining and maintaining over order premiums. The witness spoke to the 
concern of Class I handlers maintaining raw product cost equity with 
their competitors. The witness said Class I handlers are reluctant to 
pay over order premiums in the current market environment because they 
are not assured competitors are also incurring the same cost. In the 
witness's experience, Class I handlers are more willing to pay for 
additional transportation costs if it is announced by the FMMO and 
enforced uniformly on all Class I handlers.
    The witness testified Proposals 1 and 2 would align MRF components 
with current freight rates and adopting those proposals is imperative 
to maintaining supplemental milk supplies needed to meet Class I 
demand. Without these updates, the witness stated, handlers will be 
less willing to provide supplemental milk supplies to the Appalachian 
order during periods of large deficits, which would negatively impact 
the region's processing capacity. The witness noted that since the 
early 2000s, 11 pool distributing plants have closed within MDVA's core 
area of the Appalachian order. The result is increased distances to the 
next closest plant, and with it, increased costs to balance Class I 
demand.
    The MDVA witness testified raw milk loads are shuffled based on 
customer orders to ensure adequate available supplies without exceeding 
silo capacity. With fewer plants in the network, there are fewer 
opportunities to use the next plant's silo capacity; this makes the 
ability to ``stair step'' milk through the region to align supply with 
demand more difficult and more costly. The witness stated sometimes 
milk must travel north to find a balancing plant, typically a more 
costly option.
    According to the witness, Class I differentials are not adequately 
compensating dairy farmers for milk movements within the Appalachian 
marketing area, which Proposal 3 would address. For example, the 
witness said, when producer milk is delivered to a plant 200 miles away 
in a 30 cent-higher differential zone, the change in Class I 
differential zone only covers about 15 percent of the cost of moving 
the milk within the market. The witness stated Proposal 3 provides 
additional compensation and incentives to move milk within the Order 
and offsets some of the deficiencies in the current Class I 
differentials.
    The witness discussed the challenges of providing supplemental milk 
to the Appalachian order, such as filling the school milk pipeline and 
weather-related events such as a snowstorm, which stress already 
complicated milk marketing and transportation systems. The witness 
testified to MDVA's efforts last year in meeting increased school 
demand by assembling, reloading, and then transferring to Class I 
plants approximately 80 loads of milk from its pool supply plant in 
Strasburg, Virginia, at great expense to the cooperative. The witness 
testified that based on their knowledge the MDVA's plant in Strasburg, 
Virginia, is the only pool supply plant currently operating in this 
manner in the southeast for the Appalachian, Florida, and Southeast 
orders. The plant is sourced primarily by small farms in Maryland and 
Pennsylvania, and much of the milk collected at Strasburg is then 
reshipped to Appalachian and Southeast FMMO pool distributing plants. 
The witness opined these deliveries meet the region's Class I demand 
and should be eligible for DPDC.
    The witness also testified in support of extending DPDC eligibility 
to include unregulated counties in Virginia that supply its plant in 
Newport News, Virginia, a year-round pool distributing plant on the 
Appalachian FMMO.
    The witness testified that if a handler does not bring in enough 
supplemental milk, the plant will not have milk for consumers, and 
consumers will see empty shelves. Consequently, the region's processors 
face pressure because retailers could go outside of the Order to 
purchase packaged milk and handlers could lose customers.
    The witness stressed that the proposals should be considered on an 
emergency basis so cooperatives and their dairy farmer-members 
supplying the region's Class I demand can begin to receive cost 
recovery that they have been unable to obtain on their own. Without 
this assistance, the witness opined, more producers in the region would 
exit the business, further reducing local milk supplies, and negatively 
impacting local Class I processors.
    A witness appearing on behalf of Southeast Milk, Inc. (SMI), a 
member of DCMA, testified in support of Proposals 1 through 5, and 
their adoption on an emergency basis. SMI is a dairy cooperative with 
approximately 135 dairy farmer members pooled on all three southeastern 
orders.
    The SMI witness testified specifically in support of Proposal 4 to 
adopt DPDCs for the Florida FMMO. Milk produced in and pooled on the 
Florida FMMO has steadily declined since 2016, according to the 
witness. The witness cited USDA data showing 87 percent of the Order's 
milk in 2019 was produced in Florida, compared to 76 percent in 2022. 
The witness noted that of 24 states in NASS's monthly milk production 
report, Florida had the largest year-over-year milk production decline 
in 2022, a decrease of 10.9 percent. In 2022, the state of Florida 
reported its lowest milk volume since 1984.
    According to the witness, reasons for declining milk production in 
Florida include higher freight costs (a high percent of dairy feed, 
supplies, and fertilizer are imported into the state), environmental 
challenges, opportunity costs, urbanization, and lower margins. The 
witness argued the implementation of Proposal 4 would ease the 
transportation burden cooperatives face in supplying the Class I market 
and help slow the decline of Florida milk production.
    The SMI witness stressed that less milk produced in Florida means 
more milk from outside the state is needed to supply the Order's fluid 
milk needs. The witness testified, based on SMI marketings and personal 
industry

[[Page 46022]]

knowledge, a significant portion of milk sourced from outside the 
marketing area comes from the 49 South Georgia counties included in 
Proposal 4. While South Georgia historically served as the reserve milk 
supply for the Florida market, as production has declined in Florida 
and increased in Georgia, South Georgia is now a regular milk supplier 
to Florida pool distributing plants. The witness said that at a 
minimum, South Georgia milk must travel 225 miles from the Florida-
Georgia border to the closest pool distributing plant. As these South 
Georgia counties now serve as a regular source of producer milk for the 
Florida order, the SMI witness testified, Proposal 4 is needed to 
provide some level of reimbursement of hauling expense for the distance 
the milk travels to Florida pool distributing plants.
    Similar to other witnesses, the SMI witness discussed the common 
occurrence of milk moving against the Class I differential surface 
because there are fewer pool distributing plants. According to the 
witness, in January 2023 all of SMI's Appalachian order milk moved from 
a higher ($4.00) to a lower ($3.60) zone. Of the cooperative's milk 
pooled on the Southeast and Florida FMMOs, 44 percent and 14 percent, 
respectively, moved from higher to lower Class I differential zones, 
the witness said. The SMI witness concluded that implementation of 
Proposal 4 will assist the cooperative in recouping transportation 
costs for milk, especially for milk that receives no additional 
assistance through changes in Class I differential zones.
    The SMI witness entered transportation costs it has experienced, as 
SMI owns and operates its own milk hauling fleet. Cost data included 
average annual diesel fuel prices (up 129 percent from 2020 to 2022), 
average annual milk hauler wages (up 38 percent from CY2018 to CY2023 
YTD), and other increases to purchase new trucking equipment. The 
witness also spoke to other increases such as, but not limited to, 
employee benefits, insurance premiums, and equipment maintenance. For 
January 2023, the witness stated, SMI hauling costs are nearly double 
what would have been covered by the TCBF under the proposed provisions 
in Proposals 4, 5, and 6. SMI, the witness testified, attempts to 
improve efficiency of milk hauling and to control expenses, but those 
efforts only offset a portion of the higher milk hauling expenses. The 
cost to haul milk from SMI member farms to pool distributing plants 
greatly exceeds the proposed DPDC.
    This witness also addressed the cooperative's efforts to recover 
some of the increased costs through over-order premiums. While SMI does 
collect some over-order premiums, the witness said they do not cover 
all the costs of servicing the fluid market. Buyers are concerned about 
competitors and seek to ensure equal raw product cost which, according 
to the witness, is the key to orderly milk marketing. The witness 
testified processors prefer to pay through the Federal order system 
because it provides assurance of equal footing with competitors.
    The witness noted that Proposal 4 does not change diversion 
requirements. Diverted milk would not be eligible to receive the DPDC; 
only milk delivered to a pool distributing plant could receive the 
credit.
    Finally, regarding the request to consider the proposals on an 
emergency basis, the SMI witness testified that adopting DPDCs would 
provide cooperatives, handlers, and subsequently their dairy farmer-
members, with much needed cost assistance to continue serving the 
Florida market.
    A third DFA witness testified regarding the marketing conditions in 
the Southeast FMMO. The witness said the volume of Class I milk pooled 
on the Southeast order has been declining, but at a slower pace than 
the in-area milk production decline. This results in increasing volumes 
of milk being delivered to Southeast order pool distributing plants 
from outside the marketing area at greater expense, a cost primarily 
borne by the farmers that supply the market.
    The DFA witness stated the cost of milk hauling has increased over 
the last several years, and clearly has increased since Class I 
differentials were last updated. The witness said the location of 
supplemental milk sources varies based on the location of the plant and 
the distance to the plant. The witness testified there are currently 15 
pool distributing plants regulated on the Southeast order, 13 of which 
likely receive substantial quantities of supplemental milk. According 
to the witness, the distance to move milk to most of these plants is 
considerable. The witness said the Southeast order plants in Georgia 
are generally most-practically served with supplemental milk supplies 
from the north, and occasionally with milk from the Central and 
Southwest marketing areas.
    The witness testified that hauling costs for moving milk from the 
Southwest to Southeast order are between roughly $4.85 and $5.10 per 
loaded mile. In a sample milk haul, incorporating the Class I 
differential and location value impacts, a blend price gain moving milk 
into the Southeast order would cover about 45 percent of the cost of 
hauling. The witness concluded that the expected TCBF payment would 
cover approximately 16 percent of the real cost of hauling.
    The witness emphasized that while the TCBF payment only covers a 
portion of the cost of hauling, handlers and cooperatives are 
guaranteed to receive it. Since over-order prices are rarely sufficient 
to cover the large differences in hauling costs, dairy farmers are left 
to pay the remainder, the witness stressed. The witness spoke of the 
difficulty in negotiating and maintaining over-order premiums with a 
Class I plant. Factors like the location of the receiving plant and the 
distance the plant is to a viable supplemental milk source, the plant's 
relative access to local supplies, and its net need for supplemental 
milk cause additional costs to vary by plant. The witness emphasized 
that unequal costs of milk is a recognized source of market disorder.
    The witness also testified on hauling capacity challenges faced by 
supplemental suppliers. Challenges include supply chain shortages for 
trucks and trailers, lack of qualified and willing truck drivers, rules 
on allowable hours for trucks to run each day, and truck scheduling 
challenges. Hauling schedules are so tight, the witness noted, even the 
smallest variation in the daily delivery schedule can disrupt logistics 
for several days and create additional costs that are borne by the 
cooperative suppliers.
    The DFA witness concluded that Proposals 1 and 2 would benefit 
consumers with an unimpeded and orderly flow of milk into the region 
and regulated Class I processors with a continued supply and orderly 
pricing of milk. Without a properly functioning transportation credit 
system, the witness argued, the region's milk supply would be 
threatened.
    The third DFA witness also testified in support of Proposals 3, 4, 
and 5, specifically, why raw milk produced in the state of Georgia and 
transported throughout the southeastern orders should be eligible for 
the proposed DPDCs. The witness referenced a map comparing U.S. milk 
production in 2021 and 2022 showing that of the southeastern states, 
Georgia was the only state with significant milk production growth. 
Yet, the witness said, the growth of milk production in Georgia does 
not compensate for the decline in milk production in Florida alone. 
Meanwhile, Florida and Georgia are experiencing record population 
growth, according to the witness, which increases demand for fluid 
milk.

[[Page 46023]]

    The DFA witness said the DFA milk supply in Georgia's southern 
counties delivers daily to Florida pool distributing plants, serving 
the market's Class I demand. In 2022, the witness testified, 31 percent 
of the DFA milk in the southern Georgia counties shipped to Florida 
pool distributing plants.
    In addition to Florida, the DFA witness said, Georgia milk 
production regularly serves the Class I demand and reduces the need for 
additional milk to serve the region from longer distances and at higher 
costs. Unfortunately, the witness explained, many of these Georgia milk 
movements have no Class I differential value gain and cause the 
cooperative to incur substantial transportation costs. DPDCs, the 
witness testified, would provide much-needed relief to cooperatives and 
their local dairy farmer-members who provide consistent milk supplies. 
The witness noted Proposals 3, 4, and 5 would not change pooling 
provisions on any of the three FMMOs and would continue to allow 
diversions on pounds on which a DPDC is requested. The witness 
supported this provision because there are times during the week, 
month, and year when milk production is not delivered to pool 
distributing plants within the local milkshed. However, milk still 
needs to be marketed, and it is sometimes necessary to divert 
production to a non-pool plant, according to the witness, and those 
producers still expect to receive the FMMO blend price.
    This DFA witness spoke to the difficulty in recovering 
transportation costs through over-order premiums as opposed to the FMMO 
system. The witness testified that for transparency and fairness, 
buyers prefer to have costs come through the FMMO system and FMMO price 
announcements.
    Finally, the DFA witness testified to the urgency of a decision on 
the proposals to provide cost recovery to cooperatives handlers and 
their dairy farmer-members. According to the witness, dairy farmers are 
going out of business every day, even with higher milk prices in 2022. 
The witness expects there will be as many going out of business in 2023 
as there were in 2022. Many farms are relying on the possibility of 
additional transportation assistance in the form of TCBF and DPDC 
payments to their cooperatives. The witness concluded that any delay 
would cause closure of more businesses, which would place more burden 
on the remaining local farms.
    A Georgia DFA producer-member testified on current dairy market 
conditions in the region. The witnessed expressed support of updating 
the Appalachian and Southeast FMMOs' TCBF provisions and implementing a 
similar program (DPDCs) for locally produced milk in the Appalachian, 
Florida, and Southeast FMMOs.
    The witness further elaborated on the rise in on-farm input costs 
that farms in the region face. According to the witness, the largest 
cost increases from 2021 to 2022 included nitrogen fertilizer (289 
percent), diesel fuel (89 percent), corn (93 percent), interest (80 
percent), and medicine and supplies (70 percent). The dairy farmer 
witness went on to explain that not only have the dairy farm's input 
costs risen, but so have the cost to haul milk. The witness explained 
the two plants closest to their dairy farm closed and now the milk must 
travel nearly 6 times as far, 292 miles, to a plant in Orlando, FL. The 
witness said that the cost to haul milk went from $1.32 per cwt in 2021 
to between $2.37 and $2.45 per cwt in 2022. The witness claimed these 
cost increases have tightened margins and impeded the dairy farm's 
ability to grow.
    The witness said the southeastern U.S. has the most significant 
milk deficit in the country, and it is exacerbated with the 
simultaneous rise in population and decline in dairy farm and milk 
production numbers. The witness testified the financial costs of 
importing supplemental milk and increasing hauls to fluid milk plants 
(due to plant closures) are primarily the burden of the region's dairy 
farmers, through their cooperatives, to ensure the market's Class I 
demand is met. According to the witness, adoption of Proposals 1 
through 5 would help correct this imbalance by providing transportation 
assistance reflective of current market conditions.
    Finally, the witness closed by urging USDA to implement updates to 
the transportation credit programs expediently. The witness cited 
weakening projected price relative to rising input costs as the primary 
driver for expediting the process.
    A Missouri DFA dairy farmer member testified in support of 
Proposals 1 through 5. The witness said because their farm is located 
within the Southeast FMMO marketing area, it is not eligible for TCBF 
payments. The witness explained that dairy farmers (mostly small 
businesses) in the state have struggled in recent years. The witness 
shared data showing how milk production in Missouri declined nearly 50 
percent, and the number of dairy herds decreased nearly 70 percent from 
2006 to 2022.
    The witness claims that with fewer dairy farms, there is a bigger 
burden on those still in business to supply the market. As a result of 
plant closings, the witness said their milk must travel further to find 
a market. The witness testified their annual hauling costs increased, 
on average, $9,000 in the most recent two-year period. With input costs 
rising across the board--feed, fuel, fertilizer, crop inputs, and 
labor--the witness testified to a financial strain faced on their farm 
and other similar operations in the region. The witness opined the 
proposals should be considered on an expedited basis, as this issue is 
of immediate importance.
    A North Carolina dairy farmer representing MDVA testified in 
support of Proposals 1 through 5. The witness said their hauling costs 
have increased roughly 50 percent in the past decade and their local 
market has shifted farther away from Charleston, South Carolina, to 
Asheville, North Carolina.
    The witness explained there are times their milk and other MDVA 
members' milk is not delivered to its closet plant because the 
cooperative is managing the milk movements of both the members' local 
supply and the supplemental supply it procures to ensure the region's 
Class I demand is met. In these instances, the extra hauling cost is 
borne by all cooperative members through a hauling subsidy paid for by 
all members. The witness asserted that adoption of the DPDC would 
provide financial help to the cooperatives and their members.
    The witness claimed that the current Class I differentials and 
current TCBF provisions do not generate enough dollars to cover the 
true cost of moving milk. According to the witness, dairy farmers in 
the southeastern region, many of whom are not eligible for a TCBF 
payment, are doubly burdened. Members not only pay the higher 
transportation costs to ship their milk to a plant, said the witness, 
but they also share the transportation costs of procuring needed 
supplemental milk. The witness urged the rulemaking be conducted on an 
emergency basis to provide much needed cost relief to the region's 
cooperative handlers and their dairy farmer members.
    A Tennessee dairy farmer-member representing the Appalachian Dairy 
Farmers Cooperative (ADFC), a member of DCMA, testified in support of 
Proposals 3, 4, and 5. The witness testified 97 percent of the 71 dairy 
farmer-members of ADFC producers are small dairies, as are nearly all 
other dairies in the area. The witness said the area has lost 80 
percent of its dairies in the past 20 years, including 70 members of 
ADFC in the past 5 years.
    The witness stated that, while not only having to pay to transport 
their

[[Page 46024]]

own milk, ADFC dairy farmer-members also bear the transportation cost 
of bringing in supplemental milk to ensure Class I demand is met. These 
costs have significantly increased in part, the witness said, because 
it is difficult to find haulers. The witness estimated the cost to 
produce milk represents about 80 percent of their milk check, and 
hauling costs (which have doubled in the last five years) account for 
an additional 8 percent.
    The witness testified USDA should treat the issues before it is 
urgent, and use expedited emergency hearing procedures.
    In its post hearing brief, DCMA summarized its arguments supporting 
Proposals 3, 4, and 5 implementing DPDCs in the Appalachian, Florida, 
and Southeast orders, to reimburse handlers for a portion of the cost 
of delivering in-area and nearby milk. DCMA reiterated in its post-
hearing brief that, for the Appalachian and Southeast orders, the 
respective marketing areas are considered in-area sources of milk. DCMA 
argued in its brief that those sources are not eligible for TCBF but 
should be eligible for DPDC.
    In its post hearing brief, DCMA argued it is not possible to obtain 
transportation relief in the southeast area without adoption of the 
proposed DPDC. DCMA synthesized points made in its and other witness' 
testimonies that cooperatives are unable to obtain reimbursement from 
the market. According to the brief, the main alternative, over-order 
premiums, are difficult to maintain and challenging to increase. On the 
other hand, DCMA argued, incorporating a program for transportation 
costs within FMMO provisions would treat all suppliers and buyers 
equitably. Their brief indicated cooperatives and handlers are 
generally more able to pass through Class I costs to buyers that are 
specifically outlined on FMMO price announcements as would be the case 
under their proposals.
    DCMA concluded in its brief that adoption of DPDCs would provide 
their customers with the price transparency they prefer through rates 
published on FMMO price announcements, assuring them of uniform raw 
milk costs with competing Class I handlers while enabling cooperatives 
that provide the market with Class I milk to receive transportation 
cost reimbursement reflective of current market conditions.
    In its post-hearing brief, Select Milk Producers, Inc. (Select), a 
DCMA member cooperative, emphasized support for the FMMO system and its 
role in promoting efficient milk movements, producer operations, and 
milk procurement. The brief reiterated support of the transportation 
credit system in the Southeast due to unique conditions and that 
program provisions should be updated. Select indicated support for 
considering the regulatory changes on an emergency basis, and therefore 
omitting a recommended decision, as transportation credit regulations 
do not directly impact milk prices. While Proposals 3, 4, and 5 would 
include additions to their respective Orders, they are operationally 
and methodologically similar to existing transportation credit 
provisions and therefore have little economic and regulatory impact, 
according to the brief.
    The dairy farmer proponent of Proposal 11 submitted a post-hearing 
brief opposing Proposals 1 through 5. In the brief, the farmer opined 
that doing nothing would lead to a better outcome than adopting the 
proposals. The dairy farmer argued the distance milk travels should not 
be treated as a performance standard and receive special treatment. If 
changes are to be made, however, the farmer insisted on the uniform 
treatment of all milk.
    A witness from Prairie Farms testified in opposition to the 
proposed DPDC because payments would only apply to out-of-area milk 
from a select list of counties, instead of all out-of-area counties 
that regularly deliver to pool distributing plants. The witness claimed 
giving privilege to a few counties in Georgia, Virginia, and West 
Virginia, as written in Proposals 3 through 5, is not fair and 
equitable, especially when year-round deliveries of out-of-area milk is 
necessary to meet the fluid milk needs of the southeastern FMMOs.
    In its post-hearing brief, Prairie Farms summarized its opposition 
to Proposals 3, 4, and 5 and maintained the record contains abundant 
evidence showing a growing milk deficit persisting in the southeastern 
U.S. The record demonstrates that pool distributing plants in the 
southeastern FMMOs need out-of-area milk on a year-round basis, but 
Proposals 3, 4, and 5 do not offer any assistance in obtaining year-
round transportation assistance on out-of-area milk. They believe 
qualifying some out-of-area counties to participate in DPDC, but not 
others, even if they consistently supply milk to pool distributing 
plants in the region, is discriminatory.
    A Prairie Farms witness testified in support of Proposals 6 through 
10. According to the witness, Prairie Farms is a Capper-Volstead 
cooperative with 682 dairy farmer members in Illinois, Indiana, Iowa, 
Kentucky, Michigan, Minnesota, Missouri, Ohio, and Wisconsin, and also 
markets milk for non-cooperative members in Texas. Prairie Farms 
operates Class I, II and III plants throughout the central U.S., 
including nine plants regulated on the Appalachian and Southeast FMMOs.
    The witness asserted the milk supply in the southeast region has 
been declining for many years, while population has increased, 
resulting in milk being imported from outside the region to meet 
demand. The witness explained this region was historically short in 
certain seasons, but now faces a year-round shortfall. Describing the 
lack of flexibility of the current TCBF program, the witness emphasized 
the importance of simplicity to allow the system to better adjust to 
future supply and demand changes.
    The witness cited USDA data on milk production in the southeastern 
states in 1997 and 2021, showing that production has declined in 
greater proportion compared to the decline in consumption. The witness 
concluded that the data shows the 11 Southeastern states currently 
produce 73.3 percent of their fluid milk needs, down significantly from 
1997.
    The witness continued by showing the shortfall of milk in the 
region that currently exists in the spring flush months of March, 
April, and May. However, as the current system exists, the witness 
said, if a handler pools too much of a producer's milk on the 
Appalachian and Southeast orders in the spring, they are not eligible 
to claim a TCBF payment on that producer's milk in the fall, despite 
the market's need for the milk in the spring. The witness supported 
eliminating the location and delivery criteria in the current TCBF 
provisions, as contained in Proposals 6 and 7, that currently prevent 
handlers from qualifying for a fall TCBF payment for producers whose 
milk is pooled in the spring. The change proposed by Prairie Farms 
would allow handlers to receive a TCBF payment on milk shipments from 
these producers.
    The witness provided examples of origin to destination locations 
milk travels as incentivized (or disincentivized) by the existing 
transportation credit system. One example showed a delivery traveling 
21 miles further than necessary, to receive approximately $300 more in 
a TCBF payment. A second example showed milk traveling 21 miles farther 
increased the TCBF payment by nearly $700. The witness contended that 
without the current pool qualification provisions, there would not be 
financial incentive for these inefficient movements to occur.
    According to the witness, removing the current TCBF location 
qualification provisions would allow producer milk

[[Page 46025]]

located in the marketing area to be eligible for TCBF payments using 
the same calculations as milk from outside the marketing area. The 
witness testified transportation credits available only on milk 
produced outside the Appalachian and Southeast FMMOS does not 
incentivize efficient in-area milk movements. Rather, the witness said 
it would be more equitable and incentivize efficient milk movements for 
all milk delivered to pool distributing plants, regardless of where it 
originated, to be eligible for TCBF payments. This, the witness stated, 
is especially true as the milk supply shrinks in the Southeast and the 
population increases.
    Regarding Proposals 8, 9, and 10, the Prairie Farms witness 
explained the proposed Assembly Performance Credits (APC) would 
compensate handlers for assembly, dispatch, and delivery costs incurred 
on all producer milk received at pool distributing plants. According to 
the witness, the proposed $0.50 APC assessment is based on the 
proponents' internal data on the costs of supplying milk to the 
Appalachian, Southeast, and Central FMMO pool distributing plants, and 
could be adjusted at the discretion of the Market Administrator. 
According to the witness, the APC is fair and equitable for both 
handlers and producers since a uniform assessment rate is applied for 
the Class I milk, and a uniform credit is received on the producer milk 
delivered to the distributing plants, regardless of origin.
    The witness explained how the APC would offset some milk dispatch 
costs, which include day-to-day variations in storage capacity and 
demand on the plant side. As APC payments would not change depending on 
mileage, the witness said there would not be an incentive to maximize 
distance.
    The witness also addressed the impact of rising costs on Prairie 
Farms' members. According to the witness, Prairie Farms pays it members 
FMMO blend prices; therefore, rising costs that are decoupled from FMMO 
pricing ultimately reduce the cooperative earnings and, consequently, 
the patronage to their member producers and other cooperative members 
that supply Prairie Farms plants. The witness spoke to the difficulty 
in recouping these additional costs through the marketplace, largely 
because customers claim a lack of visibility and confidence in over-
order premiums.
    In closing, the witness testified that the combination of the year-
round uniformly applied APCs and seasonal TCBF payments applied to all 
in-area and out-of-area milk will promote efficient producer milk 
deliveries. The Prairie Farms witness said the APC should be viewed as 
a marketwide benefit because it would increase returns to cooperatives 
and their members, which will assist in maintaining and growing the 
local milk supply, thus resulting in less reliance on supplemental milk 
supplies to meet Class I demand.
    The witness stated that Prairie Farms' preference is for USDA to 
adopt APCs instead of DPDCs. However, the witness testified that an 
acceptable alternative would be expanding the list of out-of-area 
counties eligible for DPDCs to address their concern for handlers 
acquiring out-of-area milk on a year-round basis to supply the Class I 
market. In testimony, the witness supported including the same 
restrictions on diversions for in-area milk as those contained in the 
TCBF provisions, or removing diversion restrictions in both programs. 
Prairie Farms requested the rulemaking be conducted on an expedited 
basis as the milk supply issues of the southeastern FMMOs are critical.
    In its post-hearing brief, DCMA argued in opposition to Proposals 6 
through 10, stating the proposals would not address the marketing 
challenges in the Southeastern FMMOs and are not supported by a 
substantial number of producers in the Southeastern marketing areas. 
DCMA argued the record does not contain cost justification or analysis 
supporting any of the changes contained in Proposals 6 through 10. DCMA 
stated that if location and delivery eligibility provisions were 
eliminated, as contained in Proposals 6 and 7, TCBF payments would be 
drastically reduced due to lack of funds. According to DCMA, adoption 
of Proposals 6 and 7 would double the volume of eligible pounds and 
would likely result in a payment of less than 10 percent of actual 
costs. DCMA continued in its brief that even if Proposals 6 and 7 
incorporated the new assessment rate and updated the MRF as proposed, 
the pro rata percentage would result in a very low payment. DCMA argued 
the proponent of Proposals 6 and 7 had not analyzed the impact of the 
proposals, and, as a result, the record lacks support for their 
adoption.
    DCMA's post-hearing brief similarly opposed Proposals 8 through 10, 
arguing the proponent provided no substantial cost-justification for 
the proposed $0.50 assessment rate. DCMA wrote that the proponent's 
testimony regarding wide variances in assembly, dispatch, and delivery 
costs was not supported by any detailed costs. Further, DCMA wrote the 
record lacks analysis and justification for the proposed assessment and 
APC payment calculation credit. DCMA argued that by directing new 
revenues to all producer milk irrespective of its location, the APC 
proposals continue the disparate treatment of in-area versus out-of-
area milk supplies, and do not recognize the unique costs and 
challenges of in-area milk deliveries. DCMA argued a substantial 
proportion of the new revenues generated by the APC credit would be 
allocated to out-of-area producers and not toward supporting the 
delivery of local in-area producer milk.
    A Tennessee dairy farmer testified in support of Proposal 11 which 
would prohibit milk diverted from a pool distributing plant from 
receiving any form of transportation credit. The witness discussed milk 
diversions as milk associated with a pool plant, but not received at a 
pool distributing plant on a particular day. According to the witness, 
in the deficit market of the Southeast, diversions are another revenue-
source for the cost of moving milk, similar to transportation credits. 
The witness opined a handler's ability to divert milk should be as 
limited as possible.
    The witness testified changes should be made to the Southeast order 
to make the value of milk at the plant more transparent and reflective 
of the true cost. To achieve this, the witness proposed an aggregated, 
audited publication of the price plants pay for milk in the region. The 
witness advocated for publication of over-order premiums so dairy 
farmers could use that information when negotiating with handlers.
    According to the witness, when transportation credits were adopted 
in 1996, they were intended to be used for supplemental milk; however, 
now they are used to regularly supply the market. The witness said that 
while a handler can collect transportation credits to haul milk, 
payments do not reflect the full cost of the haul. The remainder of the 
cost, according to the witness, is deducted from the local producer's 
milk check which ultimately leads to less local milk production and 
greater reliance on more costly supplemental milk deliveries.
    A witness representing the Milk Innovation Group (MIG), a group 
consisting of fluid processors and producers (Anderson Erickson Dairy, 
Aurora Organic Dairy, Danone North America, Fairlife, HP Hood, Organic 
Valley/CROPP Cooperative, and Shamrock Foods), testified regarding the 
proposed APCs. The witness said MIG members support allocating more 
Class I dollars to producers that are supplying

[[Page 46026]]

the Class I plants to keep a local milk supply for their plants.
    The MIG witness expressed concern over efforts to increase minimum 
regulated Class I prices through any transportation cost-related 
assessment on Class I milk as fluid milk sales continue to rapidly 
decline. While the witness opposed the APC $0.50 per cwt assessment on 
Class I milk, they were supportive of the APC concept which they 
believe would better align the Class I supply chain since it is funded 
out of the pool, not an additional payment on top of the pool that 
would artificially raise Class I prices. The witness cited current 
Upper Midwest FMMO assembly credit provisions as a possible 
alternative.
    MIG's post-hearing brief reiterated its opposition to Proposals 6, 
7, and 8 due to the price-enhancing nature of the provisions while 
fluid milk sales continue to decline. MIG maintained FMMOs do not and 
cannot serve to enhance producer prices, but rather operate to set the 
minimum price necessary to avoid disorderly marketing and ensure a 
sufficient supply of fluid milk. MIG concluded that proponents of 
Proposals 6 through 8 fail to consider consumers when they seek to 
increase Class I prices without justification, especially during a time 
of rapid inflation.
    In its post-hearing brief, DCMA rejected MIG's argument to fund a 
transportation assistance program out of existing marketwide pool 
revenues. DCMA argued that type of funding mechanism would not support 
the costs to produce milk for or move milk to the region's pool 
distributing plants. According to DCMA, re-shuffling existing pool 
revenues would have no effect and provide no actual cost assistance. 
DCMA concluded that new revenues are needed to target to the cost of 
delivering milk to the demand points in the marketing areas, as offered 
in DCMA's proposals.

Discussion and Findings

    The purpose of this proceeding is consideration of changes to the 
transportation credit provisions of the Appalachian and Southeast FMMOs 
for supplemental milk, and adoption of distributing plant delivery 
credits (DPDC) or assembly performance credits (APCs) for milk 
deliveries to pool distributing plants in the Appalachian, Florida, and 
Southeast FMMOs.
    The Appalachian and Southeast FMMOs currently contain 
transportation credit provisions for supplemental Class I milk 
deliveries. The provisions were first adopted through a 1996 proceeding 
(62 FR 39738) to address the need for supplemental milk to meet the 
Class I needs of the two FMMOs. These transportation credit provisions 
provide payments to handlers to cover a portion of the cost of hauling 
supplemental milk supplies into the Appalachian and Southeast marketing 
areas during months when these deliveries are most needed to ensure 
Class I demand is met (January, February, and July through December). 
The provisions were amended in 2006 (71 FR 62377) and 2008 (73 FR 
14153) to, among other things, adopt a mileage rate factor. The MRF is 
adjusted monthly by changes in the price of diesel fuel to ensure 
current fuels costs are reflected in payments on eligible shipments, 
amend the qualification requirements for supplemental milk and increase 
the maximum TCBF assessment rates. The Florida FMMO currently has no 
transportation credit provisions.
    The current transportation credit provisions are tailored to 
distinguish between producers who regularly supply the market and those 
primarily delivering milk when the market is most at deficit 
(considered supplemental suppliers). Under the current provisions, only 
milk from producers who are located outside of the marketing areas and 
are not regular suppliers to the market are eligible to receive 
transportation credits. Producer milk received at a pool distributing 
plant eligible for a transportation credit under the orders is defined 
as bulk milk received directly from a dairy farmer who: (1) not more 
than 50 percent of the dairy farmer's milk production, in aggregate, is 
received as producer milk during the immediately preceding months of 
March through May of each order; and (2) produced milk on a farm not 
located within the specified marketing areas of either order. Milk 
deliveries from producers located outside the marketing area who are 
consistent suppliers to the market or from producers located inside the 
marketing areas are not eligible to receive transportation credits.
    The policy objective of the AMAA is ``. . . to establish and 
maintain such orderly marketing conditions for agricultural commodities 
in interstate commerce . . . '' (7 U.S.C. 602(1)). The AMAA further 
instructs the Secretary to maintain ``. . . an orderly flow of the 
supply thereof to market throughout its normal marketing season to 
avoid unreasonable fluctuations in supplies and prices.'' (7 U.S.C. 
602(4)). In the Appalachian and Southeast FMMOs, this policy objective 
is achieved, in part, through transportation credit provisions that 
ensure an adequate fluid (Class I) milk supply.
    The record reveals that all three orders (Appalachian, Florida, and 
Southeast) lack in-area milk production to meet the region's Class I 
demand. Record evidence illustrates this long-standing regional issue 
which the current transportation credits aim to address through 
economic incentives for supplemental milk deliveries to the region's 
pool distributing plants when most needed. While the current 
transportation credit provisions have been successful in ensuring Class 
I demand is met, the record reveals the reimbursement levels do not 
reflect the current transportation cost environment. As a result, 
handlers and cooperatives who provide the marketwide service of 
delivering milk to the Class I market incur transportation costs that 
they cannot recover.
    The 2006 Final Decision (79 FR 12985) details the region's milk 
deficit at that time and recommended changes to existing transportation 
credit provisions to account for reasonable transportation cost 
reimbursement for supplemental milk deliveries to Class I plants in the 
region. Record evidence from the current proceeding reveals the 
region's milk deficit has continued to worsen. According to the record, 
the number of licensed dairy farms located within the Appalachian, 
Florida and Southeast FMMOs have declined approximately 38, 50, and 57 
percent, respectively, from 2017 to 2022. Data shows 2021 in-area milk 
production in the Appalachian, Florida, and Southeast FMMOs represented 
54, 82, and 44 percent of their respective milksheds. Put another way, 
in 2021, 54 percent of the milk pooled on the Appalachian FMMO was 
produced within the geographic boundaries of the order. Consequently, a 
significant volume, 46 percent, of the Order's needs had to be met from 
milk produced outside the marketing area.
    An objective of the FMMO system is meeting Class I demand, and the 
record reveals a consistent lack of in-area milk production to meet 
demand. In the Appalachian FMMO, from 2019 to 2021, the average daily 
in-area milk production deficit ranged from 3.3 to 4.9 million pounds 
below pool distributing plant demand. In other words, on an average 
day, pool distributing plants needed anywhere from 3.3 to 4.9 million 
pounds of milk (67 to 99 tanker loads) from outside the marketing area 
to meet pool distributing plant demand. The same daily deficit in the 
Florida FMMO ranged from 100,000 pounds to 1.4 million pounds (2 to 28 
tankerloads), and 3.8 to 6.5 million

[[Page 46027]]

pounds (77 to 131 tankerloads) in the Southeast FMMO.\1\
---------------------------------------------------------------------------

    \1\ Assuming 49,700-pound tanker.
---------------------------------------------------------------------------

    The record also reveals that while handlers and cooperatives are 
delivering supplemental milk to meet pool distributing plant demand, 
they are not able to recoup a significant portion of the transportation 
costs incurred. Cooperative witnesses testified they perform this 
service despite the financial loss because the consequences of not 
fulfilling the market's Class I needs outweigh the loss from 
transportation costs. They spoke of the importance of meeting pool 
distributing plant demand to ensure these plants remain an open and 
available market outlet for local producers.
    Cooperative handler witnesses testified that their efforts to 
ensure Class I market needs are met come at a cost to the cooperative 
and its members. The inability to recover the additional transportation 
costs through negotiations with milk buyers was a common theme of the 
testimony. The record shows that not only are local producers paying 
directly for the increased transportation costs of their milk, but the 
cooperative often charges a hauling fee to offset the additional cost 
of bringing in supplemental supplies, which is not covered by either 
the current transportation credit provisions nor the differences in 
Class I differential zones between the supply and demand counties.
    The record reveals a significant reduction in the number of Class I 
plants in each of the Southeastern orders and an increase in the 
distance milk travels to a Class I plant. According to record data, in 
January 2000, there were 73 Class I plants located in the 3 marketing 
areas (pool distributing plants and partially regulated distributing 
plants). By December 2022, the record reveals only 39 plants, a 
reduction of 46 percent. Consequently, as testified to by several 
cooperatives and in-area producer witnesses, the average miles traveled 
and transportation costs for both in-area and supplemental milk 
movements have increased.
    As highlighted above, the record evidence clearly demonstrates the 
continued milk deficit problem in the three Southeastern orders and its 
impact on producers, cooperatives, and handlers serving the markets. 
The overarching issue in this proceeding, which all the proposals seek 
to tackle, is how to best address the chronic milk deficit problem. 
Under consideration in this proceeding are two different approaches. 
The first, offered by DCMA, would amend the current TCBF provisions of 
the Appalachian and Southeast FMMOs for supplemental milk to reflect 
current cost factors (Proposals 1 and 2) and simultaneously adopt DPDCs 
in all three Southeastern orders to aid in moving year-round, 
consistent milk supplies located within and nearby the marketing areas 
to meet Class I demand (Proposals 3 through 5). Taken together, these 
proposals would offer partial transportation cost reimbursement for 
most milk deliveries to pool distributing plants in the region.
    The second approach, offered by Prairie Farms, Inc., would adopt 
new year-round APCs in all three southeastern orders (Proposals 6 
through 8) for all milk deliveries to pool distributing plants in the 
region, while also making changes to the current TCBF provisions to 
remove location and delivery eligibility criteria (Proposals 9 and 10). 
In practice, this would make the same milk deliveries eligible for both 
APC and TCBF payments.
    As explained in the summary of testimony, all milk deliveries to a 
pool distributing plant would be eligible to receive an APC. The 
payment rate would be determined by the assessments collected on all 
Class I milk pooled during the month (proposed to be $0.50 per cwt), 
divided by all milk deliveries to pool distributing plants. The 
resulting per cwt payment would not be tied to mileage but would offer 
partial reimbursement to handlers and cooperatives for the assembly, 
dispatch, and delivery costs of moving milk to meet Class I demand.
    Proponents argued the APC is a better method of cost reimbursement 
compared to DPDC because it would not encourage inefficient milk 
movements that could occur with mileage-based cost reimbursement. They 
also likened the proposed APCs to assembly credits currently in the 
Upper Midwest (UMW) FMMO, which they contended are sufficient to 
attract milk away from pool supply plants to pool distributing plants.
    The record of this proceeding does not contain adequate evidence to 
support adoption of an APC. The hearing evidence does not contain data 
demonstrating how the $0.50 per cwt proposed assessment rate is 
representative of any of the costs (assembly, dispatch, and delivery) 
the APC is purported to offset. Furthermore, while proponents 
referenced use of an assembly credit in the UMW order, marketing 
conditions in the three southeastern orders are vastly different. The 
UMW order has abundant milk supplies locally to meet Class I demand, 
with a 2022 average Class I utilization rate of 7 percent.\2\ In 
contrast, the average 2022 Class I utilization rates of producer milk 
were 70 percent, 83 percent, and 72 percent, in the Appalachian, 
Florida, and Southeast orders, respectively. While the UMW assembly 
credit provisions offer financial incentives for milk movements from 
pool supply plants to pool distributing plants, the abundance of milk 
produced, and relatively low percentage of Class I use in the marketing 
area, does not necessitate long hauls like those regularly occurring in 
the three orders at issue in this proceeding.
---------------------------------------------------------------------------

    \2\ Upper Midwest Federal Milk Marketing Order Statistics.
---------------------------------------------------------------------------

    As documented in this hearing record, the market conditions in the 
southeastern region are vastly different than other regions of the 
country. Local milk supplies cannot meet Class I demand, necessitating 
the procurement of significant supplemental supplies from outside the 
marketing areas. While proponents assert the APC would provide full 
cost reimbursement for the first 50-60 miles traveled, the proposal 
does not address the reality that supplemental milk supplies travel 
over 700 miles, on average, to meet Class I demand. The record does not 
indicate that a non-mileage-based reimbursement mechanism, such as 
proposed through the APC, would ensure Class I demand would be met. 
Accordingly, Proposals 6, 7 and 8 are not recommended for adoption.
    Regarding the current TCBF provisions, it is appropriate from time 
to time to evaluate whether the provisions continue to meet their 
purpose, and if so, reflect the current transportation cost 
environment. The TCBF provisions have existed for over 25 years to 
assist with moving milk to pool distributing plants in the milk deficit 
Southeastern FMMOs. This decision finds the milk supply/demand 
imbalance in the Appalachian and Southeast orders continues to persist 
and the TCBF provisions of those two orders continue to provide 
necessary transportation cost assistance to ensure Class I needs are 
met.
    Witnesses from multiple DCMA member cooperatives testified that 
while TCBF payments help offset some of the cost to procure 
supplemental milk supplies, they have been unable to recoup the 
remaining transportation cost from the market and are therefore 
incurring significant financial losses. Hearing evidence indicates 
current transportation credits cover approximately 58 percent of actual 
costs, assuming assessments collected

[[Page 46028]]

do not necessitate prorating claims. However, in the Southeast FMMO 
where payments are often prorated, hearing evidence suggests costs 
covered were as low as 40 percent in 2021. The cooperative witnesses 
questioned their ability to continue to provide adequate supplemental 
milk supplies in the future without some financial relief in the form 
of updated provisions to better reflect actual costs.
    Ensuring Class I demand is met is essential to the FMMO system in 
meeting its objective of maintaining orderly marketing conditions. The 
record reveals a significant decrease in the number of pool-
distributing plants operating in the region that provide market access 
to local producers. Provisions that do not encourage sufficient milk 
supplies to meet Class I needs may hasten more plant closures, 
jeopardizing the delicate balance of orderly marketing in the region.
    Therefore, given the continued demonstrated need for supplemental 
supplies in the Appalachian and Southeast orders, this decision finds 
it appropriate for handlers providing the marketwide service of 
obtaining supplemental milk to receive adequate transportation cost 
reimbursement, reflective of current market conditions. Accordingly, 
this decision proposes to amend the TCBF provisions to reflect current 
transportation cost factors and increase the assessment rates charged 
in order to generate funds needed, as described in Proposals 1 and 2.
    TCBF provisions using a MRF with a fuel cost adjustor were adopted 
in 2006 and have not been updated since their adoption. Hearing 
evidence shows that in the 16 subsequent years, transportation costs 
have increased and are no longer adequately reflected in the 
provisions. The three main components that determine a transportation 
credit payment are: mileage rate factor, reimbursable miles, and 
eligible milk. This decision proposes changes to the mileage rate and 
reimbursable miles components, as well as the mandatory payment months 
and maximum assessment rates.

Mileage Rate Factor

    The MRF contains five components, four of which this decision 
recommends be amended: reference diesel fuel price, reference haul 
cost, reference truck fuel use, and reference load size. The average 
diesel fuel cost factor was not proposed to be amended in this 
proceeding and will remain the simple average for the most recent four 
weeks of diesel prices for the Lower Atlantic and Gulf Coast Districts, 
as announced by the U.S. Department of Energy, Energy Information 
Administration.

Reference Diesel Fuel Price

    The current transportation credit provisions contain a reference 
diesel fuel price of $1.42 per gallon, which was adopted in 2006 and 
represented relatively stable EIA-announced regional diesel fuel prices 
between October and November 2003 (79 FR 12995). Since that time, the 
record indicates diesel fuel prices have increased. In the three most 
recent years (2020-2022), the annual average price of diesel in the 
Lower Atlantic region was $2.480, $3.174, and $4.920 per gallon.\3\ 
Similar cost increases were also seen in the Gulf Coast region. 
Proponents advanced a reference diesel fuel price of $2.26 per gallon, 
representing the EIA average of the two regions during May through 
early November 2020. EIA-announced diesel fuel prices were relatively 
stable during this time and corresponds to the DCMA-surveyed 
supplemental hauling costs entered into evidence and used to justify 
the proposed base haul rate.
---------------------------------------------------------------------------

    \3\ Official Notice https://www.eia.gov/petroleum/gasdiesel/.
---------------------------------------------------------------------------

    This decision proposes a reference diesel fuel price of $2.26 per 
gallon. As the milage rate calculation accounts for current fuel costs 
through the average fuel cost calculation, it is appropriate to update 
the reference diesel fuel price to reflect more current marketing 
conditions. Moreover, as will be discussed, this time period 
corresponds to the non-fuel related costs that would be reimbursed 
through the proposed base haul rate.

Reference Haul Cost

    Evidence reveals non-fuel costs, such as, but not limited to, 
purchasing and maintaining equipment, labor, benefits, and overhead, 
which are represented in the reference haul cost (currently $1.91 per 
loaded mile), have increased substantially. While monthly variability 
in diesel fuel prices is captured in the mileage rate factor, changes 
in non-fuel related costs are not captured and have not been updated 
since 2006, which was based on 2003 data (79 FR 12995). The proponents 
propose increasing the base haul rate to $3.67 per loaded mile. DCMA 
member costs were entered into the record based on a survey of costs 
for 2,951 supplemental loads that were charged to its cooperative 
members from September through October 2020. During that time, the 
survey average base haul rate per loaded mile was $3.67, representing 
an average distance of 818 miles and an average load size was 49,700. 
Several witnesses testified to the increases in transportation costs, a 
large portion being non-fuel related costs.
    Based on record evidence this decision proposes to adopt a base 
haul rate of $3.67 per loaded mile. This rate more accurately reflects 
current costs incurred to deliver supplemental milk to the southeastern 
region. Ensuring adequate transportation cost relief is appropriate to 
ensure Class I demand of the region continues to be met.

Reference Truck Fuel Use

    The reference truck fuel use assumption (adopted in 2006), which 
represents the average number of miles traveled per gallon of fuel use 
in transporting milk, is currently 5.5. Record evidence indicates truck 
fuel economy has improved. Evidence indicates the most current 
published Department of Transportation combination truck fuel economy 
data (2019) shows an average MPG fuel use of 6.0478. Proponents entered 
additional information on fuel economy gains through 2022 to estimate a 
current fuel economy rate of 6.1770 MPG and proposed a rate of 6.2 MPG. 
This decision proposes to adopt a 6.2 MPG fuel consumption rate. This 
slightly higher rate would result in a lower TCBF payment, promoting 
efficiencies and discouraging uneconomic movements of milk.

Reference Load Size

    The current TCBF reference load size is 48,000 pounds. However, 
data entered into the record indicates tanker load sizes have 
increased. DCMA survey data indicate an average load size on 
supplemental milk supplies was 49,700 pounds. This decision finds 
49,700 pounds a reasonable reference load size. Slightly higher 
reference truck fuel use (6.2 MPG) and reference load size (49,700 
pounds) assumptions would serve as precautionary measures to decrease 
the likelihood TCBF payments would be in excess of actual costs 
incurred.

Reimbursable Miles

    Also under consideration in this proceeding is amending the miles 
eligible to receive a TCBF payment. Currently, the first 85 miles of a 
supplemental milk shipment is not eligible for a TCBF payment. 
Proponents seek to change the ineligibility to a percentage basis, 15 
percent of the miles shipped, making 85 percent of miles eligible for a 
TCBF payment. DCMA survey data indicate an average haul on its 
supplemental milk shipments of 818 miles. Under current TCBF 
provisions,

[[Page 46029]]

the first 85 miles did not receive a TCBF payment, meaning those 
average supplemental loads received payment on 733 miles, or 89.6 
percent of miles traveled. A closer haul, for example 409 miles, would 
receive payment on 324 miles (79 percent of miles traveled). Under the 
proposed changes, both scenarios would receive payment on 85 percent of 
miles traveled.
    The analysis indicates a flat 85-mile exemption penalizes shorter 
milk hauls, which should instead be encouraged as the more efficient 
movement. Moving to a percentage exemption would establish more 
equitable treatment of long and short hauls, and consequently encourage 
more efficient supplemental milk deliveries. Therefore, this decision 
proposes to adopt a 15 percent mileage exemption, which could be 
adjusted by the market administrator if requested and found appropriate 
after an investigation.
    Below is an example of the TCBF MRF calculation given the 
recommended provisions discussed above:
BILLING CODE P

[[Page 46030]]

[GRAPHIC] [TIFF OMITTED] TP18JY23.004

BILLING CODE C

[[Page 46031]]

Payment Months

    Testimony was received regarding a proposal to change February from 
a mandatory to a discretionary TCBF payment month. Under current 
provisions, TCBF payments are mandatory for the months of January, 
February, and July through December. Payments may be made for the month 
of June, if requested by stakeholders and found appropriate by the 
market administrator to ensure an adequate supply of milk for fluid 
use. Proponents contend making February a discretionary payment month 
would allow TCBF monies to be used when supplemental milk supplies are 
most needed. Data entered into the record demonstrate how payments from 
the TCBF in the Southeast FMMO often exceed assessments, resulting in 
payment proration for a significant number of payment months. This 
decision proposes to change February to a discretionary payment month 
to allow funds that would have been paid during the month to instead be 
available to pay in later months, thus lowering the frequency and/or 
degree of prorated payments. Stakeholders would have the ability to 
petition the market administrator to make February a payment month if 
determined TCBF monies were needed to ensure an adequate Class I 
supply.

TCBF Assessment Rates

    If there are often insufficient funds to pay TCBF claims, the 
provisions fall short of providing for more orderly milk supplies to 
meet Class I needs. The maximum allowable TCBF assessment rates in the 
Appalachian and Southeast FMMOs are $0.15 and $0.30 per cwt, 
respectively. The assessments are collected every month on Class I 
pooled milk. Both FMMOs use the same formulas for determining payments.
    The record reveals under the current TCBF provisions, the 
assessments collected in the Southeast FMMO are routinely prorated 
because of the larger volumes and greater distances supplemental milk 
travels to supply its Class I demand. The lowest proration in the past 
14 years was in October 2022, when Southeast FMMO TCBF payments were 
prorated to 25.9 percent of claims because of lack of funds, despite 
the assessment level being set at its maximum, $0.30 per cwt.
    Conversely, in the Appalachian FMMO, where in-area production 
supplies a higher percentage of Class I demand and less supplemental 
milk is needed, the current assessment level is $0.07 per cwt, which is 
less than the maximum allowable rate of $0.15 per cwt. This rate has 
been adequate to make full payment on eligible milk shipments in recent 
years.
    Analysis of the proposed provisions indicate adoption would result 
in higher payments from the TCBF. The record indicates the assessment 
levels needed to pay claims based on the proposed TCBF provisions could 
be as high as $0.18 per cwt and $0.88 per cwt in the Appalachian and 
Southeast FMMOs, respectively. Therefore, this decision proposes to 
increase the maximum allowable TCBF assessment rates to ensure adequate 
funds and reduce the need to prorate payments. Specifically, this 
decision proposes to adopt maximum TCBF assessment rates of $0.30 per 
cwt and $0.60 per cwt in the Appalachian and Southeast FMMOs, 
respectively. The rates should ensure adequate funds to make full 
payments on eligible shipments, or lessen the instances of prorated 
payments, particularly in the regularly short Southeast. There was no 
opposition at the hearing to the proposed assessments rates; further 
data supports these maximum rates as reasonable starting points. The 
market administrator maintains the authority to evaluate collections 
and lower assessment rates if warranted.

Distributing Plant Delivery Credits

    Promoting efficient, orderly milk movements to make certain Class I 
demand is met is an objective of the FMMO program. The hearing record 
details the unique marketing conditions of the southeastern region and 
the difficulty in obtaining supplies to meet Class I demand. As 
detailed above, the situation is not new; the region has used 
transportation assistance provisions for supplemental milk supplies to 
ensure Class I demand is met for decades. Just as handlers delivering 
supplemental milk to meet Class I demand provide a marketwide service, 
the same is true of handlers ensuring regular milk supplies are 
delivered to Class I plants in the milk deficit southeastern region.
    Currently, no provisions within the Appalachian, Florida or 
Southeast FMMOs provide transportation assistance for the region's 
regular supply, even though this supply is a vital piece of meeting 
Class I demand. As discussed in detail previously, plant closures, the 
reduction of in-area milk production, and higher transportation costs 
which have impacted the region's supplemental milk supplies have also 
impacted its regular milk supplies. Without some transportation cost 
assistance, the record indicates the milk supply deficit in the region 
will continue, most likely at an accelerated rate, putting more 
pressure on supplemental supplies to meet Class I demand. This is not 
only costly but puts increased pressure and strain on local dairy 
farmers, as revealed in the hearing record. Finding available 
supplemental supplies depends on many factors, such as the availability 
of milk in other markets, driver and truck availability for longer, 
supplemental hauls, and transportation costs.
    Cooperative handler witnesses testified regarding the difficulty of 
obtaining and maintaining over-order premiums to recoup increased 
transportation costs. Consequently, as described in the hearing record, 
cooperative producer-members whose milk is a regular supply to the 
market are bearing the cost burden of the marketwide service provided 
by their cooperative through an additional deduction on their milk 
check.
    Both cooperative handlers and independent Class I handlers 
testified the most efficient deliveries to meet Class I demand are from 
more local milk supplies. As the FMMOs seek to provide for efficient 
milk movements, such deliveries should be encouraged. The entire market 
benefits from ensuring Class I demand is met and the responsibility for 
bearing the cost should not fall solely to the handlers, primarily 
cooperative handlers, who provide this marketwide service.
    The hearing record clearly demonstrates the unique supply/demand 
imbalance in the southeast region. Similar market conditions do not 
exist in the eight FMMOs outside the region. Consequently, the 
marketing conditions of the southeastern region warrant unique 
provisions to ensure Class I demand is met.
    The record reveals that milk from both within and nearby the 
marketing areas is considered part of the region's consistent, regular 
supply. Accordingly, this decision recommends transportation assistance 
for milk that serves the region's Class I demand year-round basis on 
the Appalachian, Florida and Southeast FMMOs. Therefore, this decision 
proposes to adopt Proposals 3 and 5, with slight modification, and 
Proposal 4.
    There are four main components of the proposed DPDC provisions, 
which will be addressed below: eligibility, payment rates, assessment 
levels, and allowance for market administrator discretion. Taken 
together, these provisions should assist in efficient, more orderly 
deliveries of year-round Class I milk supplies of the marketing areas.
    Proposals 3, 4 and 5, as proposed by DCMA, would allow DPDC 
payments on

[[Page 46032]]

milk deliveries from counties where DCMA members procure year-round 
milk supplies. For the Appalachian FMMO, this would be counties 
comprising the marketing areas of the Appalachian and Southeast FMMOs, 
plus specified counties in Virginia and West Virginia. For the Florida 
FMMO, DPDC eligible milk shipments could come from the counties 
comprising the Florida FMMO and specified counties in Georgia. In the 
Southeast FMMO, DPDC eligible milk shipments could come from the 
counties comprising the Southeast and Appalachian marketing areas.
    As raised by Prairie Farms in testimony and post-hearing brief, 
there are additional nearby counties from which the cooperative 
procures year-round Class I milk supplies for the Southeast FMMO that 
would not be eligible for DPDC payments under the DCMA proposals. While 
Prairie Farms offered APCs as an alternative, they indicated the DPDC 
provisions would be acceptable if they were modified to include 
deliveries from adjacent states.
    The record of this proceeding supports extending eligibility to 
some additional counties to provide equitable transportation cost 
assistance for milk shipments that are part of the year-round supply. 
However, the need for equitable treatment must be balanced with 
preventing milk further from the marketing area from becoming eligible 
for DPDC payments as it would undermine the transportation assistance 
the provisions are attempting to provide for local, more efficient milk 
deliveries.
    While this decision recommends elimination of the TCBF 85-mile 
exemption and moving to a percentage deduction, the record indicates 85 
miles has been accepted by the industry as representing the local haul 
that is the producer's responsibility. Based on evidence in the record, 
this decision finds it reasonable that milk deliveries serving the 
Class I needs of the Appalachian and Southeast FMMOs from counties 
within 85 miles of the respective marketing area boundaries be eligible 
for DPDC payments. The additional counties eligible under this expanded 
mileage range should increase the producer milk receipts eligible to 
receive a DPDC payment to include a majority of the year-round milk 
supplies of the two marketing areas, address the concern raised by 
Prairie Farms, and promote more orderly, efficient marketing of those 
deliveries.
    Under the DPDC provisions originally proposed by DCMA, an analysis 
indicates approximately 76, 99, and 44 percent of the producer milk 
receipts delivered to pool plants would be eligible to receive DPDCs in 
the Appalachian, Florida and Southeast FMMOs. The DPDC provisions 
recommended in this decision, including the additional counties for the 
Appalachian and Southeast FMMOs, would increase the eligible producer 
milk receipts to 86 and 56 percent, respectively.
    Specifically, for the Appalachian FMMO, milk from counties within 
the Appalachian and Southeast marketing areas, plus specified counties 
generally within 85 miles of the marketing area boundary would be 
eligible to receive a DPDC. Therefore, this decision recommends a 
modified Proposal 3 to extend eligibility to milk shipments originating 
from the following counties and cities:
    Illinois: Alexander, Bond, Champaign, Christian, Clark, Clay, 
Clinton, Coles, Crawford, Cumberland, Douglas, Edgar, Edwards, 
Effingham, Fayette, Franklin, Gallatin, Hamilton, Hardin, Jackson, 
Jasper, Jefferson, Johnson, Lawrence, Macon, Marion, Massac, Monroe, 
Montgomery, Moultrie, Perry, Piatt, Pope, Pulaski, Randolph, Richland, 
St. Clair, Saline, Shelby, Union, Vermilion, Wabash, Washington, Wayne, 
White, and Williamson.
    Indiana: Bartholomew, Boone, Brown, Clay, Clinton, Dearborn, 
Decatur, Delaware, Fayette, Fountain, Franklin, Hamilton, Hancock, 
Hendricks, Henry, Jackson, Jefferson, Jennings, Johnson, Lawrence, 
Madison, Marion, Monroe, Montgomery, Morgan, Ohio, Owen, Parke, Putnam, 
Randolph, Ripley, Rush, Shelby, Switzerland, Tippecanoe, Tipton, Union, 
Vermillion, Vigo, Warren, and Wayne.
    Kentucky: Boone, Boyd, Bracken, Campbell, Floyd, Grant, Greenup, 
Harrison, Johnson, Kenton, Lawrence, Lewis, Magoffin, Martin, Mason, 
Pendleton, Pike, and Robertson.
    Maryland: Allegany, Frederick, Garrett, Montgomery, and Washington.
    Ohio: Adams, Athens, Brown, Butler, Clark, Clermont, Clinton, 
Darke, Fairfield, Fayette, Franklin, Gallia, Greene, Hamilton, 
Highland, Hocking, Jackson, Lawrence, Madison, Meigs, Miami, 
Montgomery, Morgan, Perry, Pickaway, Pike, Preble, Ross, Scioto, 
Vinton, Warren, and Washington.
    Pennsylvania: Bedford, Fayette, Franklin, Fulton, Greene, and 
Somerset.
    Virginia counties: Albemarle, Amelia, Appomattox, Arlington, 
Brunswick, Buckingham, Caroline, Charles City, Charlotte, Chesterfield, 
Clarke, Culpeper, Cumberland, Dinwiddie, Essex, Fairfax, Fauquier, 
Fluvanna, Frederick, Gloucester, Goochland, Greene, Greensville, 
Halifax, Hanover, Henrico, Isle Of Wight, James City, King And Queen, 
King George, King William, Lancaster, Loudoun, Louisa, Lunenburg, 
Madison, Mathews, Mecklenburg, Middlesex, Nelson, New Kent, 
Northumberland, Nottoway, Orange, Page, Powhatan, Prince Edward, Prince 
George, Prince William, Rappahannock, Richmond, Shenandoah, 
Southampton, Spotsylvania, Stafford, Surry, Sussex, Warren, 
Westmoreland, and York.
    Virginia cities: Alexandria City, Charlottesville City, Chesapeake 
City, Colonial Heights City, Emporia City, Fairfax City, Falls Church 
City, Franklin City, Fredericksburg City, Hampton City, Hopewell City, 
Manassas City, Manassas Park City, Newport News City, Norfolk City, 
Petersburg City, Poquoson City, Portsmouth City, Richmond City, Suffolk 
City, Virginia Beach City, Williamsburg City, and Winchester City.
    West Virginia: Barbour, Berkeley, Boone, Braxton, Cabell, Calhoun, 
Clay, Doddridge, Fayette, Gilmer, Grant, Greenbrier, Hampshire, Hardy, 
Harrison, Jackson, Jefferson, Kanawha, Lewis, Lincoln, Logan, Marion, 
Mason, Mineral, Mingo, Monongalia, Monroe, Morgan, Nicholas, Pendleton, 
Pleasants, Pocahontas, Preston, Putnam, Raleigh, Randolph, Ritchie, 
Roane, Summers, Taylor, Tucker, Tyler, Upshur, Wayne, Webster, Wetzel, 
Wirt, Wood, and Wyoming
    For the Southeast FMMO, milk from counties within the Southeast and 
Appalachian marketing areas, plus specified counties generally within 
85 miles of the marketing area boundary would be eligible to receive a 
DPDC. Therefore, this decision recommends a modified Proposal 5 to 
extend eligibility to milk shipments originating from the following 
counties and cities:
    Illinois: Alexander, Bond, Clay, Clinton, Crawford, Edwards, 
Effingham, Fayette, Franklin, Gallatin, Hamilton, Hardin, Jackson, 
Jasper, Jefferson, Johnson, Lawrence, Marion, Massac, Monroe, 
Montgomery, Perry, Pope, Pulaski, Randolph, Richland, St. Clair, 
Saline, Union, Washington, Wayne, White, Williamson, Calhoun, Greene, 
Jersey, Macoupin, Madison, and Wabash.
    Kansas: Allen, Anderson, Bourbon, Chautauqua, Cherokee, Coffey, 
Crawford, Douglas, Elk, Franklin, Greenwood, Jefferson, Johnson, 
Labette, Leavenworth, Linn, Lyon, Miami, Montgomery, Neosho, Osage, 
Shawnee, Wabaunsee, Wilson, Woodson, and Wyandotte.
    Missouri: Audrain, Bates, Benton, Boone, Callaway, Camden, Cass, 
Clay, Cole, Cooper, Franklin, Gasconade, Henry, Hickory, Howard, 
Jackson, Jefferson, Johnson, Lafayette, Lincoln,

[[Page 46033]]

Maries, Miller, Moniteau, Montgomery, Morgan, Osage, Pettis, Phelps, 
Pike, Platte, Pulaski, Ray, St Charles, St Clair, Ste Genevieve, St 
Louis, St. Louis City, Saline, and Warren.
    Oklahoma: Adair, Atoka, Bryan, Cherokee, Choctaw, Coal, Craig, 
Creek, Delaware, Haskell, Hughes, Latimer, Le Flore, McCurtain, 
Mcintosh, Mayes, Muskogee, Nowata, Okfuskee, Okmulgee, Osage, Ottawa, 
Pawnee, Pittsburg, Pushmataha, Rogers, Sequoyah, Tulsa, Wagoner, and 
Washington.
    Texas: Anderson, Angelina, Bowie, Camp, Cass, Chambers, Cherokee, 
Delta, Fannin, Franklin, Galveston, Gregg, Hardin, Harris, Harrison, 
Henderson, Hopkins, Houston, Hunt, Jasper, Jefferson, Kaufman, Lamar, 
Liberty, Marion, Montgomery, Morris, Nacogdoches, Newton, Orange, 
Panola, Polk, Rains, Red River, Rusk, Sabine, San Augustine, San 
Jacinto, Shelby, Smith, Titus, Trinity, Tyler, Upshur, Van Zandt, 
Walker, and Wood.
    The record does not reflect there are additional counties that 
supply year-round Class I milk to the Florida marketing area, other 
than the Georgia counties DCMA proposed be included. Therefore, this 
decision proposes to adopt Proposal 4 without modification.
    This decision also recommends that handlers and cooperatives 
sourcing year-round milk supplies to meet Class I needs from additional 
counties in the states listed above could request eligibility for DPDC. 
If the market administrator finds those counties provide milk to the 
Class I market on a year-round basis, they would be eligible to receive 
a DPDC. Accounting for the eligibility expansion to the counties listed 
above and providing flexibility for additional counties within those 
states to be eligible, if requested and approved, should address the 
objections presented by Prairie Farms.
    DCMA witnesses testified that it was not the intention of its 
proposals to allow the milk outside the marketing area that is eligible 
for the DPDC to also receive payment from the TCBF. This decision 
recommends limitations in the eligibility requirements for the TCBF so 
producer milk originating from the counties listed above that are 
outside of the Appalachian and Southeast FMMO are only eligible to 
receive either a DPDC or TCBF payment.
    Proposals 3, 4 and 5 also contain a provision allowing milk 
shipments from pool supply plants to pool distributing plants to be 
eligible for DPDC payments. The record reflects that a pool supply 
plant on the Appalachian order assembles milk from smaller farms at the 
plant and then ships the assembled larger tanker load of milk to pool 
distributing plants regulated by the order. This supply plant provides 
milk shipments to meet the demands of the Appalachian order's pool 
distributing plants and should be eligible for a DPDC for the 
transportation cost incurred between the two plants. While testimony 
was only offered regarding a pool supply plant on the Appalachian FMMO, 
the DCMA proposals contain the same provision for the Southeast and 
Florida FMMOs. As this decision seeks to provide transportation 
assistance to handlers providing the marketwide service of meeting 
Class I demand in all three FMMOs, it is appropriate to allow these 
deliveries from pool supply plants to pool distributing plants to be 
eligible for DPDC payments.
    Not unlike the recommended TCBF provisions, this decision 
recommends DPDCs provide reimbursement on 85 percent of the delivery 
mileage. The proposed regulations would allow the market administrator 
to adjust the mileage range to between 75 and 95 percent if requested 
by stakeholders and warranted by market conditions. Such an adjustment 
could be warranted, for example, if the combination of Class I 
differential adjustments and DPDC payments were found to be reimbursing 
in excess of transportation costs. Granting the market administrator 
authority to adjust the mileage rate would provide a safeguard against 
payments in excess of costs.
    This decision proposes to adopt DPDC payment rates identical to the 
TCBF, which have been detailed above. The record indicates the 
similarity in transportation cost factors between supplemental and 
year-round supplies. Therefore, this decision finds it appropriate to 
recommend identical payment provisions.
    The record contains information regarding the funding needed to 
make DPDC payments on eligible year-round milk supplies. Establishing 
maximum assessment rates and allowing the market administrator 
flexibility to lower those rates is an efficient way to administer the 
provisions, as has been demonstrated in the administration of the 
current Appalachian TCBF. As such, this decision proposes to adopt DPDC 
maximum assessments of $0.60, $0.85, and $0.50 per cwt, in the 
Appalachian, Florida, and Southeast FMMOs, respectively. Proponents 
provided data on the record for initial assessment levels. Should the 
DPDC be adopted, the market administrator will evaluate market data to 
determine an adequate initial assessment rate which would be announced 
on or before the 23rd of the month preceding implementation.
    Finally, this decision proposes to include DPDC provisions to 
authorize the market administrator to monitor milk movements and DPDC 
claims to disqualify shipments from eligibility if, after an 
investigation, it was determined the shipments indicate persistent and 
pervasive uneconomic milk movements. Uneconomic milk movements run 
counter to the program's objectives to provide for more orderly 
marketing and encourage efficient milk movements. Such movements should 
be discouraged and should not receive the benefit of transportation 
cost assistance offered through DPDCs. Therefore, this decision 
recommends the proposed oversight provisions.
    In summary, the chronic milk supply problem in the Appalachian, 
Florida, and Southeast orders is well documented and this decision 
recommends adoption of a series of amendments and new provisions to 
provide transportation assistance to handlers who provide the 
marketwide service of meeting the markets' Class I demand. Through 
these recommendations, most milk delivered to a pool distributing plant 
(both supplemental and year-round supplies) would be eligible for one 
type of transportation payment. This decision does not support adoption 
of Proposal 9 and 10 that would remove the location and delivery 
eligibility requirements of the current TCBF provisions, thus making 
milk eligible to receive both credits. Accordingly, Proposals 9 and 10 
are not recommended for adoption.
    This decision does not recommend adoption of Proposal 11 which 
would prohibit diversions on milk receiving any form of transportation 
assistance from the Appalachian, Florida, and Southeast FMMOs. The 
Appalachian and Southeast FMMOs already contain this prohibition on 
milk receiving TCBF payments. This rulemaking is considering whether to 
extend the prohibition to milk receiving DPDCs.
    The record indicates that while a vast majority of the milk 
regulated by the three Southeastern FMMOs is delivered to pool plants, 
there are instances, even given the region's chronic milk shortage, 
when milk is not needed by pool distributing plants and is instead 
delivered to nonpool plants. Witnesses for cooperatives who would be 
eligible to receive DPDC payments testified that the ability to pool 
diversions provides for the orderly disposition of year-round milk 
supplies regulated by the Orders.
    The record reveals that pool distributing plants' demand fluctuates 
on a weekly, monthly, and annual basis

[[Page 46034]]

for many reasons, such as weekends, holidays, or the closing of schools 
for the summer. Previous FMMO rulemakings that have amended or 
established diversion limits discuss the appropriateness of allowing 
for the milk of producers who are consistent and reliable suppliers 
serving the Class I needs of the market to be pooled and priced even 
when that milk is not immediately needed for Class I use. FMMOs allow 
milk diverted to nonpool plants to be pooled and priced by the Order, 
to ensure its orderly and efficient disposition.
    By design, the recommended DPDC provisions establish criteria for 
identifying consistent, year-round milk supplies eligible to receive a 
payment. This decision has discussed at length the need for 
transportation assistance in the region to ensure an adequate supply of 
Class I milk. Diversion limits are one feature that provides for the 
orderly disposition of this consistent supply of Class I milk. 
Prohibiting the diversion of milk receiving a DPDC would not provide 
for more orderly marketing and would interfere with the orderly 
disposition of the region's consistent Class I milk supplies. 
Accordingly, this decision does not recommend adoption of Proposal 11.
    This decision does not find that adoption of Proposals 1, 2, 3, 4 
and 5 would have a negative competitive impact on pool distributing 
plant handlers in the three Southeastern Orders. If adopted, the 
proposed maximum assessment rates for the TCBF and DPDC combined would 
be $0.90, $1.10, and $0.85 per cwt, in the Appalachian, Florida and 
Southeast FMMOs, respectively. Evidence shows packaged milk coming into 
the region from common supply points would incur costs--a combination 
of applicable Class I differentials and transportation costs--in excess 
of the combined TCBF and DPDC assessments on Class I milk. Thus, 
adoption of the maximum assessment rates would not impact competitive 
relationships among handlers who supply the region with fluid milk 
products.
    To compare how the proposed assessments could impact the wholesale 
price of milk used in Class I products, the proposed change in 
assessment levels was analyzed. The difference in current assessment 
levels and the maximum assessment levels proposed in this decision is 
$0.83, $1.10, and $0.55 per cwt, in the Appalachian, Florida and 
Southeast FMMOs, respectively. The differences per cwt converted to 
gallons are $0.071, $0.095, and $0.047 per cwt, in the Appalachian, 
Florida and Southeast FMMOs, respectively. The extent to which the 
increased Class I assessments would pass through to retail milk prices 
is unknown. Compared to average regional retail prices for conventional 
whole milk in 2022, retail prices would increase by 1 to 3 percent if 
the total increase were fully passed through.
    Some witness testimony and post-hearing briefs argued that because 
of declining fluid milk sales, FMMOs should not be amended in a way 
that would raise consumer prices. While impact on consumers is 
important to consider, it must be balanced with the reality that 
supplying the southeastern U.S. with milk to meet consumer Class I 
demand is costly. This record details how transportation costs have 
increased and handlers and cooperatives supplying the Class I market 
have been unable to recoup those costs in the marketplace. FMMOs are 
not providing for orderly marketing if supplies of the Class I market--
in this case cooperatives who supply more than 80 percent of the 
region's milk--are asked to continue to serve the Class I market 
without any practical way to cover costs of moving milk to service the 
Class I market. Such a chronic situation, as documented by this hearing 
record, does not serve producers or consumers, if in the long run 
cooperative producers no longer service the Class I market and 
consumers are ultimately faced with increased costs due to the 
necessity of out-of-area milk being hauled longer distances to supply 
fluid milk in the grocery store.

Emergency Procedures

    DCMA requested this rulemaking be conducted on an emergency basis, 
warranting omission of a recommended decision. Numerous witnesses 
testified regarding why the unique marketing conditions of the 
southeastern region, necessitating supplemental milk supplies from 
further distances in order to fill the gap between the region's 
increasing Class I demand and declining in-area milk production, are 
cause for emergency rulemaking measures. As discussed previously this 
decision, the record indicates transportation costs for Class I milk 
deliveries in the southeastern region of the U.S. have risen 
significantly and are being borne primarily by the cooperatives that 
supply the market.
    The overarching issue in this proceeding is determining what 
combination of current and possibly new transportation assistance 
provisions would best address the chronic milk deficit problem in the 
region. In doing so, this decision recommends modifications to the 
current TCBF provisions of the Appalachian and Southeast FMMOs to 
reflect the current transportation cost conditions for supplemental 
Class I milk deliveries into the marketing areas. This decision also 
finds it appropriate to establish new DPDCs in the Appalachian, 
Florida, and Southeast FMMOs to provide transportation cost assistance 
for milk deliveries within and nearby the marketing areas. In making 
this recommendation, the decision recommends modifications to what was 
originally proposed by DCMA. The decision also denies adoption of four 
alternative proposals submitted by industry stakeholders. As such, it 
is appropriate to issue a recommended decision and allow public 
comments on the recommended amendments before a producer vote on the 
proposed amended orders.

Rulings on Proposed Findings and Conclusions

    Briefs, proposed findings, and conclusions were filed on behalf of 
certain interested parties. These briefs, proposed findings, 
conclusions, and the evidence in the record were considered in making 
the findings and conclusions set forth above. To the extent that the 
suggested findings and conclusions filed by interested parties are 
inconsistent with the findings and conclusions set forth herein, the 
claims to make such findings or reach such conclusions are denied for 
the reasons previously stated in this decision.

General Findings

    The findings and determinations hereinafter set forth supplement 
those that were made when the Appalachian, Florida, and Southeast 
orders were first issued and when they were amended. The previous 
findings and determinations are hereby ratified and confirmed, except 
where they may conflict with those set forth herein.
    The following findings are hereby made with respect to the 
aforenamed marketing agreements and orders:
    a. The tentative marketing agreements and the orders, as hereby 
proposed to be amended, and all of the terms and conditions thereof, 
will tend to effectuate the declared policy of the Act;
    b. The parity prices of milk as determined pursuant to section 2 of 
the Act are not reasonable with respect to the price of feeds, 
available supplies of feeds, and other economic conditions that affect 
market supply and demand for milk in the marketing area, and the 
minimum prices specified in the proposed marketing agreements and the 
orders are such prices as will reflect the aforesaid factors, ensure a 
sufficient

[[Page 46035]]

quantity of pure and wholesome milk, and be in the public interest; and
    c. The proposed marketing agreements and the orders will regulate 
the handling of milk in the same manner as, and will be applicable only 
to persons in the respective classes of industrial and commercial 
activity specified in, the marketing agreements upon which a hearing 
have been held.
    d. All milk and milk products handled by handlers, as defined in 
the marketing agreements and the orders as hereby proposed to be 
amended, are in the current of interstate commerce or directly burden, 
obstruct, or affect interstate commerce in milk or its products.

Recommended Marketing Agreements and Orders

    The recommended marketing agreements are not included in this 
decision because the regulatory provisions thereof would be the same as 
those contained in the orders, as hereby proposed to be amended. The 
following orders regulating the handling of milk in Appalachian, 
Florida, and Southeast marketing areas are recommended as the detailed 
and appropriate means by which the foregoing conclusions may be carried 
out.

List of Subjects in 7 CFR Parts 1005, 1006, and 1007

    Milk marketing orders.

PART 1005--MILK IN THE APPALACHIAN MARKETING AREA

0
1. The authority citation for part 1005 continues to read as follows:

    Authority:  7 U.S.C. 601-674, and 7253.

0
2. Amend Sec.  1005.30 by:
0
a. Redesignating paragraphs (a)(5) through (9) as paragraphs (a)(7) 
through (11);
0
b. Adding new paragraphs (a)(5) and (6);
0
c. Redesignating paragraph (c)(3) as (c)(4) and revising it; and
0
d. Adding new paragraph (c)(3).
    The additions and revision read as follows:


Sec.  1005.30  Reports of receipts and utilization.

    (a) * * *
    (5) Receipts of producer milk described in Sec.  1005.84(e), 
including the identity of the individual producers whose milk is 
eligible for the distributing plant delivery credit pursuant to that 
paragraph and the date that such milk was received;
    (6) For handlers submitting distributing plant delivery credit 
requests, transfers of bulk unconcentrated milk to nonpool plants, 
including the dates that such milk was transferred;
* * * * *
    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a distributing plant delivery credit pursuant to Sec.  
1005.84, all of the information required in paragraphs (a)(5) and (6) 
of this section.
    (4) With respect to milk for which a cooperative association is 
requesting a transportation credit pursuant to Sec.  1005.82, all of 
the information required in paragraphs (a)(7) through (9) of this 
section.
* * * * *
0
3. Amend Sec.  1005.32 by revising paragraph (a) to read as follows:


Sec.  1005.32  Other reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec.  1000.9(a) and (c) of this chapter shall 
report to the market administrator any adjustments to distributing 
plant delivery credit requests as reported pursuant to Sec.  
1005.30(a)(5) and (6), and any adjustments to transportation credit 
requests as reported pursuant to Sec.  1005.30(a)(7) through (9).
* * * * *
0
4. Amend Sec.  1005.81 by revising the first sentence of paragraph (a) 
to read as follows:


Sec.  1005.81  Payments to the transportation credit balancing fund.

    (a) On or before the 12th day after the end of the month (except as 
provided in Sec.  1000.90 of this chapter), each handler operating a 
pool plant and each handler specified in Sec.  1000.9(c) of this 
chapter shall pay to the market administrator a transportation credit 
balancing fund assessment determined by multiplying the pounds of Class 
I producer milk assigned pursuant to Sec.  1005.44 by $0.30 per 
hundredweight or such lesser amount as the market administrator deems 
necessary to maintain a balance in the fund equal to the total 
transportation credits disbursed during the prior June-February period. 
* * *
* * * * *
0
5. Amend Sec.  1005.82 by:
0
a. Revising the first sentence of paragraph (a)(1), the first sentence 
of paragraph (b), and paragraph (d)(3)(iii); and
0
b. Adding paragraph (d)(3)(viii).
    The revisions and addition read as follows:


Sec.  1005.82  Payments from the transportation credit balancing fund.

    (a) * * *
    (1) On or before the 13th day (except as provided in Sec.  1000.90 
of this chapter) after the end of each of the months of January and 
July through December and any other month in which transportation 
credits are in effect pursuant to paragraph (b) of this section, the 
market administrator shall pay to each handler that received, and 
reported pursuant to Sec.  1005.30(a)(7), bulk milk transferred from a 
plant fully regulated under another Federal order as described in 
paragraph (c)(1) of this section or that received, and reported 
pursuant to Sec.  1005.30(a)(8), milk directly from producers' farms as 
specified in paragraph (c)(2) of this section, a preliminary amount 
determined pursuant to paragraph (d) of this section to the extent that 
funds are available in the transportation credit balancing fund. * * *
* * * * *
    (b) The market administrator may extend the period during which 
transportation credits are in effect (i.e., the transportation credit 
period) to the month of February or June if a written request to do so 
is received fifteen (15) days prior to the beginning of the month for 
which the request is made and, after conducting an independent 
investigation, finds that such extension is necessary to assure the 
market of an adequate supply of milk for fluid use. * * *
* * * * *
    (d) * * *
    (3) * * *
    (iii) Subtract 15 percent (15%) of the miles from the mileage so 
determined;
* * * * *
    (viii) The market administrator may revise the factor described in 
paragraph (d)(3)(iii) of this section (the mileage adjustment factor) 
if a written request to do so is received fifteen (15) days prior to 
the beginning of the month for which the request is made and, after 
conducting an independent investigation, finds that such revision is 
necessary to assure orderly marketing, efficient handling of milk in 
the marketing area, and an adequate supply of milk for fluid use. The 
market administrator may increase the mileage adjustment factor by as 
much as ten percentage points, up to twenty-five percent (25%) or 
decrease it by as much as ten percentage points, to a minimum of five 
percent (5%). Before making such a finding, the market administrator 
shall notify all handlers in the market that a revision is being 
considered and invite written data, comments, and arguments. Any 
decision to revise the mileage rate factor must be issued in writing 
prior to the first day of the

[[Page 46036]]

month for which the revision is to be effective.
0
6. Amend Sec.  1005.83 by revising paragraphs (a)(2) through (5) to 
read as follows:


Sec.  1005.83  Mileage rate for the transportation credit balancing 
fund.

    (a) * * *
    (2) From the result in paragraph (a)(1) in this section subtract 
$2.26 per gallon;
    (3) Divide the result in paragraph (a)(2) of this section by 6.2, 
and round down to three decimal places to compute the fuel cost 
adjustment factor;
    (4) Add the result in paragraph (a)(3) of this section to $3.67;
    (5) Divide the result in paragraph (a)(4) of this section by 497;
* * * * *
0
7. Add Sec.  1005.84 before the undesignated center heading 
``Administrative Assessment and Marketing Service Deduction'' to read 
as follows:


Sec.  1005.84  Distributing plant delivery credits.

    (a) Distributing Plant Delivery Credit Fund. The market 
administrator shall maintain a separate fund known as the Distributing 
Plant Delivery Credit Fund into which shall be deposited the payments 
made by handlers pursuant to paragraph (b) of this section and out of 
which shall be made the payments due handlers pursuant to paragraph (d) 
of this section. Payments due a handler shall be offset against 
payments due from the handler.
    (b) Payments to the distributing plant delivery credit fund. On or 
before the 12th day after the end of the month (except as provided in 
Sec.  1000.90 of this chapter), each handler operating a pool plant and 
each handler specified in Sec.  1000.9(c) of this chapter shall pay to 
the market administrator a distributing plant delivery credit fund 
assessment determined by multiplying the pounds of Class I producer 
milk assigned pursuant to Sec.  1005.44 by a per hundredweight 
assessment rate of $0.55 and thereafter not greater than $0.60 or such 
lesser amount as the market administrator deems necessary to maintain a 
balance in the fund equal to the total distributing plant delivery 
credit disbursed during the prior calendar year. If the distributing 
plant delivery credit fund is in an overfunded position, the market 
administrator may completely waive the distributing plant delivery 
credit assessment for one or more months. In determining the 
distributing plant delivery credit assessment rate, in the event that 
during any month of that previous calendar year the fund balance was 
insufficient to cover the amount of credits that were due, the 
assessment should be based upon the amount of credits that would have 
been disbursed had the fund balance been sufficient.
    (c) Assessment rate announcement. The market administrator shall 
announce publicly on or before the 23rd day of the month (except as 
provided in Sec.  1000.90 of this chapter), the assessment rate per 
hundredweight pursuant to paragraph (b) of this section for the 
following month.
    (d) Payments from the distributing plant delivery credit fund. 
Payments from the distributing plant delivery credit fund to handlers 
and cooperative associations requesting distributing plant delivery 
credits shall be made as follows:
    (1) On or before the 13th day (except as provided in Sec.  1000.90 
of this chapter) after the end of each month, the market administrator 
shall pay to each handler that received, and reported pursuant to Sec.  
1005.30(a)(5), bulk unconcentrated milk directly from producers' farms, 
or receipts of bulk unconcentrated milk by transfer from a pool supply 
plant as defined in Sec.  1005.7(c) or (d), a preliminary amount 
determined pursuant to paragraph (f) of this section to the extent that 
funds are available in the distributing plant delivery credit fund. If 
an insufficient balance exists to pay all of the credits computed 
pursuant to this section, the market administrator shall distribute the 
balance available in the distributing plant delivery credit fund by 
reducing payments pro rata using the percentage derived by dividing the 
balance in the fund by the total credits that are due for the month. 
The amount of credits resulting from this initial proration shall be 
subject to audit adjustment pursuant to paragraph (d)(3) of this 
section.
    (2) The market administrator shall accept adjusted requests for 
distributing plant delivery credits on or before the 20th day of the 
month following the month for which such credits were requested 
pursuant to Sec.  1005.32(a). After such date, a preliminary audit will 
be conducted by the market administrator, who will recalculate any 
necessary proration of distributing plant delivery credit payments for 
the preceding month pursuant to the process provided in paragraph 
(d)(1) of this section. Handlers will be promptly notified of an 
overpayment of credits based upon this final computation and remedial 
payments to or from the distributing plant delivery credit fund will be 
made on or before the next payment date for the following month.
    (3) Distributing plant delivery credits paid pursuant to paragraphs 
(d)(1) and (2) of this section shall be subject to final verification 
by the market administrator pursuant to Sec.  1000.77 of this chapter. 
Adjusted payments to or from the distributing plant delivery credit 
fund will remain subject to the final proration established pursuant to 
paragraph (d)(2) of this section.
    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec.  1005.30(c)(3) prior to the date payment is due, the 
distributing plant delivery credits for such milk computed pursuant to 
this section shall be made to such cooperative association rather than 
to the operator of the pool plant at which the milk was received.
    (5) The Market Administrator shall provide monthly, to producers 
who are not members of a qualified cooperative association, a statement 
of the amount per hundredweight of distributing plant delivery credit 
which the distributing plant handler receiving their milk is entitled 
to claim.
    (e) Eligible milk. Distributing plant delivery credits shall apply 
to the following milk:
    (1) Bulk unconcentrated fluid milk received directly from dairy 
farms at a pool distributing plant as producer milk subject to the 
following conditions:
    (i) The farm on which the milk was produced is located within the 
specified marketing areas of the order in this part or the marketing 
area of Federal Order 1007 (7 CFR part 1007).
    (ii) The farm on which the milk was produced is located in the 
following counties:
    (A) Illinois: Alexander, Bond, Champaign, Christian, Clark, Clay, 
Clinton, Coles, Crawford, Cumberland, Douglas, Edgar, Edwards, 
Effingham, Fayette, Franklin, Gallatin, Hamilton, Hardin, Jackson, 
Jasper, Jefferson, Johnson, Lawrence, Macon, Marion, Massac, Monroe, 
Montgomery, Moultrie, Perry, Piatt, Pope, Pulaski, Randolph, Richland, 
St Clair, Saline, Shelby, Union, Vermilion, Wabash, Washington, Wayne, 
White, and Williamson.
    (B) Indiana: Bartholomew, Boone, Brown, Clay, Clinton, Dearborn, 
Decatur, Delaware, Fayette, Fountain, Franklin, Hamilton, Hancock, 
Hendricks, Henry, Jackson, Jefferson, Jennings, Johnson, Lawrence, 
Madison, Marion, Monroe, Montgomery, Morgan, Ohio, Owen, Parke, Putnam, 
Randolph, Ripley, Rush, Shelby, Switzerland, Tippecanoe, Tipton, Union, 
Vermillion, Vigo, Warren, and Wayne.
    (C) Kentucky: Boone, Boyd, Bracken, Campbell, Floyd, Grant, 
Greenup,

[[Page 46037]]

Harrison, Johnson, Kenton, Lawrence, Lewis, Magoffin, Martin, Mason, 
Pendleton, Pike, and Robertson.
    (D) Maryland: Allegany, Frederick, Garrett, Montgomery, and 
Washington.
    (E) Ohio: Adams, Athens, Brown, Butler, Clark, Clermont, Clinton, 
Darke, Fairfield, Fayette, Franklin, Gallia, Greene, Hamilton, 
Highland, Hocking, Jackson, Lawrence, Madison, Meigs, Miami, 
Montgomery, Morgan, Perry, Pickaway, Pike, Preble, Ross, Scioto, 
Vinton, Warren, Washington.
    (F) Pennsylvania: Bedford, Fayette, Franklin, Fulton, Greene, and 
Somerset.
    (G) Virginia counties: Albemarle, Amelia, Appomattox, Arlington, 
Brunswick, Buckingham, Caroline, Charles City, Charlotte, Chesterfield, 
Clarke, Culpeper, Cumberland, Dinwiddie, Essex, Fairfax, Fauquier, 
Fluvanna, Frederick, Gloucester, Goochland, Greene, Greensville, 
Halifax, Hanover, Henrico, Isle Of Wight, James City, King And Queen, 
King George, King William, Lancaster, Loudoun, Louisa, Lunenburg, 
Madison, Mathews, Mecklenburg, Middlesex, Nelson, New Kent, 
Northumberland, Nottoway, Orange, Page, Powhatan, Prince Edward, Prince 
George, Prince William, Rappahannock, Richmond, Shenandoah, 
Southampton, Spotsylvania, Stafford, Surry, Sussex, Warren, 
Westmoreland, York.
    (H) Virginia cities: Alexandria City, Charlottesville City, 
Chesapeake City, Colonial Heights City, Emporia City, Fairfax City, 
Falls Church City, Franklin City, Fredericksburg City, Hampton City, 
Hopewell City, Manassas City, Manassas Park City, Newport News City, 
Norfolk City, Petersburg City, Poquoson City, Portsmouth City, Richmond 
City, Suffolk City, Virginia Beach City, Williamsburg City, and 
Winchester City.
    (I) West Virginia: Barbour, Berkeley, Boone, Braxton, Cabell, 
Calhoun, Clay, Doddridge, Fayette, Gilmer, Grant, Greenbrier, 
Hampshire, Hardy, Harrison, Jackson, Jefferson, Kanawha, Lewis, 
Lincoln, Logan, Marion, Mason, Mineral, Mingo, Monongalia, Monroe, 
Morgan, Nicholas, Pendleton, Pleasants, Pocahontas, Preston, Putnam, 
Raleigh, Randolph, Ritchie, Roane, Summers, Taylor, Tucker, Tyler, 
Upshur, Wayne, Webster, Wetzel, Wirt, Wood, and Wyoming.
    (iii) The Market Administrator may include additional counties from 
the states listed in paragraph (e)(1)(ii) of this section upon the 
request of a pool handler and provision of satisfactory proof that the 
county is a source of regular supply of milk to order distributing 
plants.
    (iv) Producer milk eligible for a payment under this section cannot 
be eligible for payment from the transportation credit balancing fund 
as specified in Sec.  1005.82(c)(2).
    (v) The quantity of milk described herein shall be reduced by the 
quantity of any bulk unconcentrated fluid milk products transferred 
from a pool distributing plant to a nonpool plant or transferred to a 
pool supply plant on the same calendar day as producer milk was 
received at such plant for which a distributing plant delivery credit 
is requested.
    (2) Bulk unconcentrated fluid milk transferred from a pool plant 
regulated pursuant to Sec.  1005.7(c) or (d) to a pool distributing 
plant regulated pursuant to Sec.  1005.7(a) or (b). The quantity of 
milk described herein shall be reduced by the quantity of any bulk 
unconcentrated fluid milk products transferred from a pool distributing 
plant to a nonpool plant or transferred to a pool supply plant on the 
same calendar day as milk was received by transfer from a pool supply 
plant at such pool distributing plant for which a distributing plant 
delivery credit is requested.
    (f) Credit computation. Distributing plant delivery credits shall 
be computed as follows:
    (1) With respect to milk delivered directly from the farm to a 
distributing plant:
    (i) Determine the shortest hard-surface highway distance between 
the shipping farm and the receiving plant and multiply the miles by an 
adjustment rate of not greater than ninety-five percent (95%) and not 
less than seventy-five percent (75%);
    (ii) Subtract the Class I price specified in Sec.  1000.50(a) of 
this chapter for the county in which the shipping farm is located from 
the Class I price applicable for the county in which the receiving pool 
distributing plant is located;
    (iii) Multiply the adjusted miles so computed in paragraph 
(f)(1)(i) of this section by the monthly mileage rate factor for the 
month computed pursuant to paragraph (h) of this section;
    (iv) Subtract any positive difference in Class I prices computed in 
paragraph (f)(1)(ii) from the rate determined in paragraph (f)(1)(iii) 
of this section;
    (v) Multiply the remainder computed in paragraph (f)(1)(iv) of this 
section by the hundredweight of milk described in paragraph (e)(1) of 
this section.
    (2) With respect to milk delivered from a pool supply plant to a 
distributing plant:
    (i) Determine the shortest hard-surface highway distance between 
the transferring pool plant and the receiving plant, and multiply the 
miles by an adjustment rate not greater than ninety-five percent (95%) 
and not less than seventy-five percent (75%);
    (ii) Subtract the Class I price specified in Sec.  1000.50(a) of 
this chapter for the transferring pool plant from the Class I price 
applicable for the county in which the receiving pool distributing 
plant is located;
    (iii) Multiply the adjusted miles so computed in subpart (i) of 
this sub-paragraph by the mileage rate factor for the month computed 
pursuant to paragraph (h) of this section;
    (iv) Subtract any positive difference in Class I prices computed in 
paragraph (f)(2)(ii) of this sub-paragraph from the rate determined in 
paragraph (f)(2)(iii) of this section;
    (v) Multiply the remainder computed in paragraph (f)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (e)(2) of 
this section.
    (g) Mileage percentage rate adjustment. The monthly percentage rate 
adjustment within the range of permissible percentage adjustments 
provided in paragraphs (f)(1)(i) and (f)(2)(i) of this section shall be 
determined by the market administrator, and publicly announced prior to 
the month for which effective. In determining the percentage adjustment 
to the actual mileages of milk delivered from farms and milk 
transferred from pool plants the market administrator shall evaluate 
the general supply and demand for milk in the marketing area, any 
previous occurrences of sustained uneconomic movements of milk, and the 
balances in the distributing plant delivery credit fund. The adjustment 
percentage pursuant to paragraphs (f)(1)(i) and (f)(2)(i) of this 
section to the actual miles used for computing distributing plant 
delivery credits and announced by the market administrator shall always 
be the same percentage.
    (h) Mileage rate for the distributing plant delivery credit fund. 
The mileage rate for the distributing plant delivery credit fund shall 
be the mileage rate computed by the market administrator pursuant to 
Sec.  1005.83.
    (i) Oversight of milk movements. The market administrator shall 
regularly monitor and evaluate the requests for distributing plant 
delivery credits to determine that such credits are not encouraging 
uneconomic movements of milk, and that the credits continue to assure 
orderly marketing and efficient handling of milk in the marketing area. 
In making such determinations, the market administrator will include in 
the evaluation the general supply and demand for milk. If the market 
administrator finds that uneconomic movements are occurring, and such

[[Page 46038]]

movements are persistent and pervasive, or are not being made in a way 
that assures orderly marketing and efficient handling of milk in the 
marketing area, after good cause shown, the market administrator may 
disallow the payments of distributing plant delivery credit on such 
milk. Before making such a finding, the market administrator shall give 
the handler of such milk sufficient notice that an investigation is 
being considered and shall provide notice that the handler has the 
opportunity to explain why such movements were necessary, or the 
opportunity to correct such movements prior to the disallowance of any 
distributing plant delivery credits. Any disallowance of distributing 
plant delivery credit pursuant to this provision shall remain 
confidential between the market administrator and the handler.

PART 1006--MILK IN THE FLORIDA MARKETING AREA

0
8. The authority citation for part 1006 continues to read as follows:

    Authority: 7 U.S.C. 601-674, and 7253.

0
9. Amend Sec.  1006.30 by:
0
a. Redesignating paragraphs (a)(5) and (6) as (a)(7) and (8);
0
b. Adding new paragraphs (a)(5) and (6); and
0
c. Adding paragraph (c)(3).
    The additions read as follows:


Sec.  1006.30  Reports of receipts and utilization.

    (a) * * *
    (5) Receipts of producer milk described in Sec.  1006.84(e), 
including the identity of the individual producers whose milk is 
eligible for the distributing plant delivery credit pursuant to that 
paragraph and the date that such milk was received;
    (6) For handlers submitting distributing plant delivery credit 
requests, transfers of bulk unconcentrated milk to nonpool plants, 
including the dates that such milk was transferred.
* * * * *
    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a distributing plant delivery credit pursuant to Sec.  
1006.84, all of the information required in paragraphs (a)(5) and (6) 
of this section.
* * * * *
0
10. Revise Sec.  1006.32 to read as follows:


Sec.  1006.32  Other reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec.  1000.9(a) and (c) of this chapter shall 
report to the market administrator any adjustments to distributing 
plant delivery credit requests as reported pursuant to Sec.  
1006.30(a)(5) and (6).
    (b) In addition to the reports required pursuant to Sec. Sec.  
1006.30 and 1006.31 and paragraph (a) of this section, each handler 
shall report any information the market administrator deems necessary 
to verify or establish each handler's obligation under the order.
0
11. Add Sec.  1006.84 before the undesignated center heading 
``Administrative Assessment and Marketing Service Deduction'' to read 
as follows:


Sec.  1006.84  Distributing plant delivery credits.

    (a) Distributing Plant Delivery Credit Fund. The market 
administrator shall maintain a separate fund known as the Distributing 
Plant Delivery Credit Fund into which shall be deposited the payments 
made by handlers pursuant to paragraph (b) of this section and out of 
which shall be made the payments due handlers pursuant to Sec.  
1005.84(b) of this chapter. Payments due a handler shall be offset 
against payments due from the handler.
    (b) Payments to the distributing plant delivery credit fund. On or 
before the 12th day after the end of the month (except as provided in 
Sec.  1000.90 of this chapter), each handler operating a pool plant and 
each handler specified in Sec.  1000.9(c) of this chapter shall pay to 
the market administrator a distributing plant delivery credit fund 
assessment determined by multiplying the pounds of Class I producer 
milk assigned pursuant to Sec.  1006.44 by a per hundredweight 
assessment rate of $0.80 and thereafter not greater than $0.85 or such 
lesser amount as the market administrator deems necessary to maintain a 
balance in the fund equal to the total distributing plant delivery 
credit disbursed during the prior calendar year. If the distributing 
plant delivery credit fund is in an overfunded position, the market 
administrator may completely waive the distributing plant delivery 
credit assessment for one or more months. In determining the 
distributing plant delivery credit assessment rate, in the event that 
during any month of that previous calendar year the fund balance was 
insufficient to cover the amount of credits that were due, the 
assessment should be based upon the amount of credits that would have 
been disbursed had the fund balance been sufficient.
    (c) Assessment rate announcement. The market administrator shall 
announce publicly on or before the 23rd day of the month (except as 
provided in Sec.  1000.90 of this chapter) the assessment rate per 
hundredweight pursuant to paragraph (b) of this section for the 
following month.
    (d) Payments from the distributing plant delivery credit fund. 
Payments from the distributing plant delivery credit fund to handlers 
and cooperative associations requesting distributing plant delivery 
credits shall be made as follows:
    (1) On or before the 13th day (except as provided in Sec.  1000.90 
of this chapter) after the end of each month, the market administrator 
shall pay to each handler that received, and reported pursuant to Sec.  
1006.30(a)(5), bulk unconcentrated milk directly from producers' farms, 
or receipts of bulk unconcentrated milk by transfer from a pool supply 
plant as defined in Sec.  1006.7(c) or (d), a preliminary amount 
determined pursuant to paragraph (f) of this section to the extent that 
funds are available in the distributing plant delivery credit fund. If 
an insufficient balance exists to pay all of the credits computed 
pursuant to this section, the market administrator shall distribute the 
balance available in the distributing plant delivery credit fund by 
reducing payments pro rata using the percentage derived by dividing the 
balance in the fund by the total credits that are due for the month. 
The amount of credits resulting from this initial proration shall be 
subject to audit adjustment pursuant to paragraph (d)(3) of this 
section.
    (2) The market administrator shall accept adjusted requests for 
distributing plant delivery credits on or before the 20th day of the 
month following the month for which such credits were requested 
pursuant to Sec.  1006.32(a). After such date, a preliminary audit will 
be conducted by the market administrator, who will recalculate any 
necessary proration of distributing plant delivery credit payments for 
the preceding month pursuant to the process provided in paragraph 
(d)(1) of this section. Handlers will be promptly notified of an 
overpayment of credits based upon this final computation and remedial 
payments to or from the distributing plant delivery credit fund will be 
made on or before the next payment date for the following month.
    (3) Distributing plant delivery credits paid pursuant to paragraphs 
(d)(1) and (2) of this section shall be subject to final verification 
by the market administrator pursuant to Sec.  1000.77 of this chapter. 
Adjusted payments to or from the distributing plant delivery credit 
fund will remain subject to the final proration established pursuant to 
paragraph (d)(2) of this section.

[[Page 46039]]

    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec.  1006.30(c)(3) prior to the date payment is due, the 
distributing plant delivery credits for such milk computed pursuant to 
this section shall be made to such cooperative association rather than 
to the operator of the pool plant at which the milk was received.
    (5) The Market Administrator shall provide monthly, to producers 
who are not members of a qualified cooperative association, a statement 
of the amount per hundredweight of distributing plant delivery credit 
which the distributing plant handler receiving their milk is entitled 
to claim.
    (e) Eligible milk. Distributing plant delivery credits shall apply 
to the following milk:
    (1) Bulk unconcentrated fluid milk received at a pool distributing 
plant as producer milk directly from dairy farms located within the 
marketing area; or located within the Georgia counties of Appling, 
Atkinson, Bacon, Baker, Ben Hill, Berrien, Brooks, Calhoun, Charlton, 
Chattahoochee, Clay, Clinch, Coffee, Cook, Colquitt, Crisp, Decatur, 
Dodge, Dooley, Dougherty, Early, Echols, Grady, Irwin, Lanier, Lee, 
Lowndes, Jeff Davis, Macon, Marion, Miller, Mitchell, Pierce, Pulaski, 
Quitman, Randolph, Schley, Seminole, Stewart, Sumter, Telfair, Terrel, 
Thomas, Tift, Turner, Ware, Webster, Wilcox, and Worth, and received at 
pool distributing plants. The quantity of milk described herein shall 
be reduced by the quantity of any bulk unconcentrated fluid milk 
products transferred from a pool distributing plant to a nonpool plant 
or transferred to a pool supply plant on the same calendar day as 
producer milk was received at such plant for which a distributing plant 
delivery credit is requested.
    (2) Bulk unconcentrated fluid milk transferred from a pool plant 
regulated pursuant to Sec.  1006.7(c) or (d) to a pool distributing 
plant regulated pursuant to Sec.  1006.7(a) or (b). The quantity of 
milk described herein shall be reduced by the quantity of any bulk 
unconcentrated fluid milk products transferred from a pool distributing 
plant to a nonpool plant or transferred to a pool supply plant on the 
same calendar day as milk was received by transfer from a pool supply 
plant at such pool distributing plant for which a distributing plant 
delivery credit is requested.
    (f) Credit computation. Distributing plant delivery credits shall 
be computed as follows:
    (1) With respect to milk delivered directly from the farm to a 
distributing plant:
    (i) Determine the shortest hard-surface highway distance between 
the shipping farm and the receiving plant and multiply the miles by an 
adjustment rate of not greater than ninety-five percent (95%) and not 
less than seventy-five percent (75%);
    (ii) Subtract the Class I price specified in Sec.  1000.50(a) of 
this chapter for the county in which the shipping farm is located from 
the Class I price applicable for the county in which the receiving pool 
distributing plant is located;
    (iii) Multiply the adjusted miles so computed in (f)(1)(i) of this 
section by the monthly mileage rate factor for the month computed 
pursuant to paragraph (h) of this section;
    (iv) Subtract the difference in Class I prices computed in 
paragraph (f)(1)(ii) of this section from the rate determined in 
paragraph (f)(1)(iii) of this section;
    (v) Multiply the remainder computed in paragraph (f)(1(iv) of this 
section by the hundredweight of milk described in paragraph (e)(1) of 
this section;
    (2) With respect to milk delivered from a pool supply plant to a 
distributing plant:
    (i) Determine the shortest hard-surface highway distance between 
the transferring pool plant and the receiving plant, and multiply the 
miles by an adjustment rate of not greater than ninety-five percent 
(95%) and not less than seventy-five percent (75%);
    (ii) Subtract the Class I price specified in Sec.  1000.50(a) of 
this chapter for the transferring pool plant from the Class I price 
applicable for the county in which the receiving pool distributing 
plant is located;
    (iii) Multiply the adjusted miles so computed in paragraph 
(f)(2)(i) of this section by the mileage rate factor for the month 
computed pursuant to paragraph (h) of this section;
    (iv) Subtract any positive difference in Class I prices computed in 
paragraph (f)(2)(ii) from the rate determined in paragraph (f)(2)(iii) 
of this section;
    (v) Multiply the remainder computed in paragraph (f)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (e)(2) of 
this section.
    (g) Mileage percentage rate adjustment. The monthly percentage rate 
adjustment within the range of permissible percentage adjustments 
provided in paragraphs (f)(1)(i) and (f)(2)(i) of this section shall be 
determined by the market administrator, and publicly announced prior to 
the month for which effective. In determining the percentage adjustment 
to the actual mileages of milk delivered from farms and milk 
transferred from pool plants the market administrator shall evaluate 
the general supply and demand for milk in the marketing area, any 
previous occurrences of sustained uneconomic movements of milk, and the 
balances in the distributing plant delivery credit fund. The adjustment 
percentage pursuant to paragraphs (f)(1)(i) and (f)(2)(i) to of this 
section the actual miles used for computing distributing plant credits 
and announced by the market administrator shall always be the same 
percentage.
    (h) Mileage rate for the distributing plant delivery credit fund. 
The market administrator shall compute a mileage rate factor each month 
as follows:
    (1) Compute the simple average rounded down to three decimal places 
for the most recent four (4) weeks of the Diesel Price per Gallon as 
reported by the Energy Information Administration of the United States 
Department of Energy for the Lower Atlantic and Gulf Coast Districts 
combined;
    (2) From the result in paragraph (h)(1) of this section subtract 
$2.26 per gallon;
    (3) Divide the result in paragraph (h)(2) of this section by 6.2, 
and round down to three decimal places to compute the fuel cost 
adjustment factor;
    (4) Add the result in paragraph (h)(3) of this section to $3.67;
    (5) Divide the result in paragraph (h)(4) of this section by 497;
    (6) Round the result in paragraph (h)(5) of this section down to 
five decimal places to compute the mileage rate.
    (i) Oversight of milk movements. The market administrator shall 
regularly monitor and evaluate the requests for distributing plant 
delivery credits to determine that such credits are not encouraging 
uneconomic movements of milk, and the credits continue to assure 
orderly marketing and efficient handling of milk in the marketing area. 
In making such determinations the market administrator will include in 
the evaluation the general supply and demands for milk. If the market 
administrator finds that uneconomic movements are occurring, and such 
movements are persistent and pervasive, or are not being made in a way 
that assures orderly marketing and efficient handling of milk in the 
marketing area, after good cause shown, the market administrator may 
disallow the payments of distributing plant delivery credit on such 
milk. Before making such a finding, the market administrator shall give 
the handler on such milk sufficient notice that an investigation is 
being considered and shall provide notice that the handler has the 
opportunity to explain why such movements were

[[Page 46040]]

necessary, or the opportunity to correct such movements prior to the 
disallowance of any distributing plant delivery credits. Any 
disallowance of distributing plant delivery credit pursuant to this 
provision shall remain confidential between the market administrator 
and the handler.

PART 1007--MILK IN THE SOUTHEAST MARKETING AREA

0
12. The authority citation for part 1007 continues to read as follows:

    Authority: 7 U.S.C. 601-674, and 7253.

0
13. Amend Sec.  1007.30 by:
0
a. Redesignating paragraphs (a)(5) through (9) as paragraphs (a)(7) 
through (11);
0
b. Adding new paragraphs (a)(5) and (6);
0
c. Redesignating paragraph (c)(3) as (c)(4) and revising it; and
0
d. Adding new paragraph (c)(3).
    The revisions and additions read as follows.


Sec.  1007.30  Reports of receipts and utilization.

    (a) * * *
    (5) Receipts of producer milk described in Sec.  1007.84(e), 
including the identity of the individual producers whose milk is 
eligible for the distributing plant delivery credit pursuant to that 
paragraph and the date that such milk was received;
    (6) For handlers submitting distributing plant delivery credit 
requests, transfers of bulk unconcentrated milk to nonpool plants, 
including the dates that such milk was transferred;
* * * * *
    (c) * * *
    (3) With respect to milk for which a cooperative association is 
requesting a distributing plant delivery credit pursuant to Sec.  
1007.84, all of the information required in paragraphs (a)(5) and (6) 
of this section.
    (4) With respect to milk for which a cooperative association is 
requesting a transportation credit pursuant to Sec.  1007.82, all of 
the information required in paragraphs (a)(7) through (9) of this 
section.
* * * * *
0
14. Amend Sec.  1007.32 by revising paragraph (a) to read as follows:


Sec.  1007.32  Other reports.

    (a) On or before the 20th day after the end of each month, each 
handler described in Sec.  1000.9(a) and (c) of this chapter shall 
report to the market administrator any adjustments to distributing 
plant delivery credit requests as reported pursuant to Sec.  
1007.30(a)(5) and (6) and any adjustments to transportation credit 
requests as reported pursuant to Sec.  1007.30(a)(7) through (9) of 
this section.
* * * * *
0
15. Amend Sec.  1007.81 by revising the first sentence of paragraph (a) 
to read as follows:


Sec.  1007.81  Payments to the transportation credit balancing fund.

    (a) On or before the 12th day after the end of the month (except as 
provided in Sec.  1000.90 of this chapter), each handler operating a 
pool plant and each handler specified in Sec.  1000.9(c) of this 
chapter shall pay to the market administrator a transportation credit 
balancing fund assessment determined by multiplying the pounds of Class 
I producer milk assigned pursuant to Sec.  1007.44 by $0.60 per 
hundredweight or such lesser amount as the market administrator deems 
necessary to maintain a balance in the fund equal to the total 
transportation credits disbursed during the prior June through February 
period to reflect any changes in the current mileage rate versus the 
mileage rate(s) in effect during the prior June through February 
period. * * *
* * * * *
0
16. Amend Sec.  1007.82 by:
0
a. Revising the first sentence of paragraph (a)(1), the first sentence 
of paragraph (b), and paragraph (d)(3)(iii); and
0
b. Adding paragraph (d)(3)(viii).
    The revisions and addition read as follows:


Sec.  1007.82  Payments from the transportation credit balancing fund.

    (a) * * *
    (1) On or before the 13th day (except as provided in Sec.  1000.90) 
after the end of each of the months of January, and July through 
December and any other month in which transportation credits are in 
effect pursuant to paragraph (b) of this section, the market 
administrator shall pay to each handler that received, and reported 
pursuant to Sec.  1007.30(a)(7), bulk milk transferred from a plant 
fully regulated under another Federal order as described in paragraph 
(c)(1) of this section or that received, and reported pursuant to Sec.  
1007.30(a)(8), milk directly from producers' farms as specified in 
paragraph (c)(2) of this section, a preliminary amount determined 
pursuant to paragraph (d) of this section to the extent that funds are 
available in the transportation credit balancing fund. * * *
    (b) The market administrator may extend the period during which 
transportation credits are in effect (i.e., the transportation credit 
period) to the month of February or June if a written request to do so 
is received fifteen (15) days prior to the beginning of the month for 
which the request is made and, after conducting an independent 
investigation, finds that such extension is necessary to assure the 
market of an adequate supply of milk for fluid use. * * *
* * * * *
    (d) * * *
    (3) * * *
    (iii) Subtract 15 percent (15%) of the miles from the mileage so 
determined;
* * * * *
    (viii) The market administrator may revise the factor described in 
(3)(iii) of this section (the mileage adjustment factor) if a written 
request to do so is received fifteen (15) days prior to the beginning 
of the month for which the request is made and, (15) days prior to the 
beginning of the month for which the request is made and, after 
conducting an independent investigation, finds that such revision is 
necessary to assure orderly marketing, efficient handling of milk in 
the marketing area, and an adequate supply of milk for fluid use. The 
market administrator may increase the mileage adjustment factor by as 
much as ten percentage points (10%) up to twenty-five percent (25%) or 
decrease it by as much as ten percentage points (10%), to a minimum of 
five percent (5%). Before making such a finding, the market 
administrator shall notify all handlers in the market that a revision 
is being considered and invite written data, comments, and arguments. 
Any decision to revise the mileage rate factor must be issued in 
writing prior to the first day of the month for which the revision is 
to be effective.
0
17. Amend Sec.  1007.83 by revising paragraphs (a)(2) through (5) to 
read as follows:


Sec.  1007.83  Mileage rate for the transportation credit balancing 
fund.

    (a) * * *
    (2) From the result in paragraph (a)(1) of this section subtract 
$2.26 per gallon;
    (3) Divide the result in paragraph (a)(2) of this section by 6.2, 
and round down to three decimal places to compute the fuel cost 
adjustment factor;
    (4) Add the result in paragraph (a)(3) of this section to $3.67;
    (5) Divide the result in paragraph (a)(4) of this section by 497;
* * * * *
0
18. Add Sec.  1007.84 before the undesignated center heading 
``Administrative Assessment and

[[Page 46041]]

Marketing Service Deduction'' to read as follows:


Sec.  1007.84  Distributing plant delivery credits.

    (a) Distributing Plant Delivery Credit Fund. The market 
administrator shall maintain a separate fund known as the Distributing 
Plant Delivery Credit Fund into which shall be deposited the payments 
made by handlers pursuant to paragraph (b) of this section and out of 
which shall be made the payments due handlers pursuant to paragraph (d) 
of this section. Payments due a handler shall be offset against 
payments due from the handler.
    (b) Payments to the distributing plant delivery credit fund. On or 
before the 12th day after the end of the month (except as provided in 
Sec.  1000.90 of this chapter), each handler operating a pool plant and 
each handler specified in Sec.  1000.9(c) of this chapter shall pay to 
the market administrator a distributing plant delivery credit fund 
assessment determined by multiplying the pounds of Class I producer 
milk assigned pursuant to Sec.  1007.44 by a per hundredweight 
assessment rate of $0.45 and thereafter not greater than $0.50 or such 
lesser amount as the market administrator deems necessary to maintain a 
balance in the fund equal to the total distributing plant delivery 
credit disbursed during the prior calendar year. If the distributing 
plant delivery credit fund is in an overfunded position, the market 
administrator may completely waive the distributing plant delivery 
credit assessment for one or more months. In determining the 
distributing plant delivery credit assessment rate, in the event that 
during any month of that previous calendar year the fund balance was 
insufficient to cover the amount of credits that were due, the 
assessment should be based upon the amount of credits that would have 
been disbursed had the fund balance been sufficient.
    (c) Assessment rate announcement. The market administrator shall 
announce publicly on or before the 23rd day of the month (except as 
provided in Sec.  1000.90 of this chapter), the assessment rate per 
hundredweight pursuant to paragraph (b) of this section for the 
following month.
    (d) Payments from the distributing plant delivery credit fund. 
Payments from the distributing plant delivery credit fund to handlers 
and cooperative associations requesting distributing plant delivery 
credits shall be made as follows:
    (1) On or before the 13th day (except as provided in Sec.  1000.90 
of this chapter) after the end of each month, the market administrator 
shall pay to each handler that received, and reported pursuant to Sec.  
1007.30(a)(5), bulk unconcentrated milk directly from producers' farms, 
or receipts of bulk unconcentrated milk by transfer from a pool supply 
plant as defined in Sec.  1007.7(c) or (d), a preliminary amount 
determined pursuant to paragraph (f) of this section to the extent that 
funds are available in the distributing plant delivery credit fund. If 
an insufficient balance exists to pay all of the credits computed 
pursuant to this section, the market administrator shall distribute the 
balance available in the distributing plant delivery credit fund by 
reducing payments pro rata using the percentage derived by dividing the 
balance in the fund by the total credits that are due for the month. 
The amount of credits resulting from this initial proration shall be 
subject to audit adjustment pursuant to paragraph (d)(3) of this 
section.
    (2) The market administrator shall accept adjusted requests for 
distributing plant delivery credits on or before the 20th day of the 
month following the month for which such credits were requested 
pursuant to Sec.  1007.32(a). After such date, a preliminary audit will 
be conducted by the market administrator, who will recalculate any 
necessary proration of distributing plant delivery credit payments for 
the preceding month pursuant to the process provided in paragraph 
(d)(1) of this section. Handlers will be promptly notified of an 
overpayment of credits based upon this final computation and remedial 
payments to or from the distributing plant delivery credit fund will be 
made on or before the next payment date for the following month.
    (3) Distributing plant delivery credits paid pursuant to paragraphs 
(d)(1) and (2) of this section shall be subject to final verification 
by the market administrator pursuant to Sec.  1000.77 of this chapter. 
Adjusted payments to or from the distributing plant delivery credit 
fund will remain subject to the final proration established pursuant to 
paragraph (d)(2) of this section.
    (4) In the event that a qualified cooperative association is the 
responsible party for whose account such milk is received and written 
documentation of this fact is provided to the market administrator 
pursuant to Sec.  1007.30(c)(3) prior to the date payment is due, the 
distributing plant delivery credits for such milk computed pursuant to 
this section shall be made to such cooperative association rather than 
to the operator of the pool plant at which the milk was received.
    (5) The Market Administrator shall provide monthly to producers who 
are not members of a qualified cooperative association a statement of 
the amount per hundredweight of distributing plant delivery credit 
which the distributing plant handler receiving their milk is entitled 
to claim.
    (e) Eligible milk. Distributing plant delivery credits shall apply 
to the following milk:
    (1) Bulk unconcentrated fluid milk received directly from dairy 
farms at a pool distributing plant as producer milk subject to the 
following conditions:
    (i) The farm on which the milk was produced is located within the 
specified marketing areas of the order in this part or the marketing 
area of Federal Order 1005 (7 CFR part 1005).
    (ii) The farm on which the milk was produced is located in the 
following counties in the State of:
    (A) Illinois: Alexander, Bond, Clay, Clinton, Crawford, Edwards, 
Effingham, Fayette, Franklin, Gallatin, Hamilton, Hardin, Jackson, 
Jasper, Jefferson, Johnson, Lawrence, Marion, Massac, Monroe, 
Montgomery, Perry, Pope, Pulaski, Randolph, Richland, St Clair, Saline, 
Union, Washington, Wayne, White, Williamson, Calhoun, Greene, Jersey, 
Macoupin, Madison, and Wabash.
    (B) Kansas: Allen, Anderson, Bourbon, Chautauqua, Cherokee, Coffey, 
Crawford, Douglas, Elk, Franklin, Greenwood, Jefferson, Johnson, 
Labette, Leavenworth, Linn, Lyon, Miami, Montgomery, Neosho, Osage, 
Shawnee, Wabaunsee, Wilson, Woodson, and Wyandotte
    (C) Missouri: Audrain, Bates, Benton, Boone, Callaway, Camden, 
Cass, Clay, Cole, Cooper, Franklin, Gasconade, Henry, Hickory, Howard, 
Jackson, Jefferson, Johnson, Lafayette, Lincoln, Maries, Miller, 
Moniteau, Montgomery, Morgan, Osage, Pettis, Phelps, Pike, Platte, 
Pulaski, Ray, St Charles, St Clair, Ste Genevieve, St Louis, St. Louis 
City, Saline, and Warren
    (D) Oklahoma: Adair, Atoka, Bryan, Cherokee, Choctaw, Coal, Craig, 
Creek, Delaware, Haskell, Hughes, Latimer, Le Flore, McCurtain, 
Mcintosh, Mayes, Muskogee, Nowata, Okfuskee, Okmulgee, Osage, Ottawa, 
Pawnee, Pittsburg, Pushmataha, Rogers, Sequoyah, Tulsa, Wagoner, and 
Washington
    (E) Texas: Anderson, Angelina, Bowie, Camp, Cass, Chambers, 
Cherokee, Delta, Fannin, Franklin, Galveston, Gregg, Hardin, Harris, 
Harrison, Henderson, Hopkins, Houston, Hunt, Jasper, Jefferson, 
Kaufman, Lamar, Liberty, Marion, Montgomery, Morris, Nacogdoches, 
Newton, Orange, Panola, Polk, Rains, Red River, Rusk, Sabine, San 
Augustine,

[[Page 46042]]

San Jacinto, Shelby, Smith, Titus, Trinity, Tyler, Upshur, Van Zandt, 
Walker, and Wood.
    (iii) The Market Administrator may include additional counties from 
the states listed in paragraph (e)(1)(ii) of this section upon the 
request of a pool handler and provision of satisfactory proof that the 
county is a source of regular supply of milk to order distributing 
plants.
    (iv) Producer milk eligible for a payment under this section cannot 
be eligible for payment from the transportation credit balancing fund 
as specified in Sec.  1007.82(c)(2).
    (v) The quantity of milk described herein shall be reduced by the 
quantity of any bulk unconcentrated fluid milk products transferred 
from a pool distributing plant to a nonpool plant or transferred to a 
pool supply plant on the same calendar day as producer milk was 
received at such plant for which a distributing plant delivery credit 
is requested.
    (2) Bulk unconcentrated fluid milk transferred from a pool supply 
plant regulated pursuant to Sec.  1007.7(c) or (d) to a pool 
distributing plant regulated pursuant to Sec.  1007.7(a) or (b). The 
quantity of milk described herein shall be reduced by the quantity of 
any bulk unconcentrated fluid milk products transferred from a pool 
distributing plant to a nonpool plant or transferred to a pool supply 
plant on the same calendar day as milk was received by transfer from a 
pool supply plant at such pool distributing plant for which a 
distributing plant delivery credit is requested.
    (f) Credit computation. Distributing plant delivery credits shall 
be computed as follows:
    (1) With respect to milk delivered directly from the farm to a 
distributing plant:
    (i) Determine the shortest hard-surface highway distance between 
the shipping farm and the receiving plant, and multiply the miles by an 
adjustment rate of not greater than ninety-five percent (95%) and not 
less than seventy-five percent (75%);
    (ii) Subtract the Class I price specified in Sec.  1000.50(a) of 
this chapter for the county in which the shipping farm is located from 
the Class I price applicable for the county in which the receiving pool 
distributing plant is located;
    (iii) Multiply the adjusted miles so computed in (f)(1)(i) of this 
section by the monthly mileage rate factor for the month computed 
pursuant to paragraph (h) of this section;
    (iv) Subtract any positive difference in Class I prices computed in 
paragraph (f)(1)(ii) of this section from the rate determined in 
paragraph (f)(1)(iii) of this section;
    (v) Multiply the remainder computed in paragraph (f)(1)(iv) of this 
section by the hundredweight of milk described in paragraph (e)(1) of 
this section;
    (2) With respect to milk delivered from a pool supply plant to a 
distributing plant:
    (i) Determine the shortest hard-surface highway distance between 
the transferring pool plant and the receiving plant, and multiply the 
miles by an adjustment rate of not greater than ninety-five (95%) 
percent and not less than seventy-five (75%) percent;
    (ii) Subtract the Class I price specified in Sec.  1000.50(a) of 
this chapter for the transferring pool plant from the Class I price 
applicable for the county in which the receiving pool distributing 
plant is located;
    (iii) Multiply the adjusted miles so computed in paragraph 
(f)(2)(i) of this section by the mileage rate factor for the month 
computed pursuant to paragraph (h) of this section;
    (iv) Subtract any positive difference in Class I prices computed in 
paragraph (f)(2)(ii) of this section from the rate determined in 
paragraph (f)(2)(iii) of this section;
    (v) Multiply the remainder computed in paragraph (f)(2)(iv) of this 
section by the hundredweight of milk described in paragraph (e)(2) of 
this section;
    (g) Mileage percentage rate adjustment. The monthly percentage rate 
adjustment within the range of permissible percentage adjustments 
provided in paragraphs (f)(1)(i) and (f)(2)(i) of this section shall be 
determined by the market administrator, and publicly announced prior to 
the month for which effective. In determining the percentage adjustment 
to the actual mileages of milk delivered from farms and milk 
transferred from pool plants the market administrator shall evaluate 
the general supply and demand for milk in the marketing area, any 
previous occurrences of sustained uneconomic movements of milk, and the 
balances in the distributing plant delivery credit fund. The adjustment 
percentage pursuant to paragraphs (f)(1) and (2) of this section to the 
actual miles used for computing distributing plant delivery credits and 
announced by the market administrator shall always be the same 
percentage.
    (h) Mileage rate for the distributing plant delivery credit fund. 
The mileage rate for the distributing plant delivery credit fund shall 
be the mileage rate computed by the market administrator pursuant to 
Sec.  1007.83.
    (i) Oversight of milk movements. The market administrator shall 
regularly monitor and evaluate the requests for distributing plant 
delivery credits to determine that such credits are not encouraging 
uneconomic movements of milk, and the credits continue to assure 
orderly marketing and efficient handling of milk in the marketing area. 
In making such determinations the market administrator will include in 
the evaluation the general supply and demand for milk. If the market 
administrator finds that uneconomic movements are occurring, and such 
movements are persistent and pervasive, or are not being made in a way 
that assures orderly marketing and efficient handling of milk in the 
marketing area, after good cause shown, the market administrator may 
disallow the payments of distributing plant delivery credit on such 
milk. Before making such a finding, the market administrator shall give 
the handler on such milk sufficient notice that an investigation is 
being considered and shall provide notice that the handler has the 
opportunity to explain why such movements were necessary, or the 
opportunity to correct such movements prior to the disallowance of any 
distributing plant delivery credits. Any disallowance of distributing 
plant delivery credit pursuant to this provision shall remain 
confidential between the market administrator and the handler.

Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2023-15086 Filed 7-17-23; 8:45 am]
BILLING CODE P