Milk in the Appalachian, Florida, and Southeast Marketing Areas; Final Decision on Proposed Amendments to Marketing Agreements and to Orders, 84038-84065 [2023-25879]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Proposed Rules]
[Pages 84038-84065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25879]



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Vol. 88

Friday,

No. 230

December 1, 2023

Part II





 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; Final 
Decision on Proposed Amendments to Marketing Agreements and to Orders; 
Proposed Rule

Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / 
Proposed Rules

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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; 
Final Decision on Proposed Amendments to Marketing Agreements and to 
Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule; final decision.

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SUMMARY: This proposed rule is the Secretary's final decision in this 
proceeding and recommends amendments to the transportation credit 
balancing fund provisions for the Appalachian and Southeast Federal 
milk marketing orders, and establishment of distributing plant delivery 
credits in the Appalachian, Florida, and Southeast Federal milk 
marketing orders. AMS will determine whether producers approve of the 
proposed amended orders, as required by regulation.

DATES: The representative period for ascertaining producer approval is 
March 2023.

ADDRESSES: To review the hearing record, please see https://www.ams.usda.gov/rules-regulations/milk-appalachian-southeast-and-florida-areas-hearing-proposed-amendments.

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 final decision recommends amendments to 
the transportation credit balancing fund (TCBF) provisions in the 
Appalachian and Southeast Federal milk marketing orders (FMMOs) that 
(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 final decision also recommends establishment of 
distributing plant delivery credit (DPDC) provisions in the 
Appalachian, Florida, and Southeast FMMOs that make marketwide service 
payments to qualifying handlers and cooperatives for milk shipments to 
pool distributing plants from farms that are year-round, consistent 
suppliers. AMS will determine if producers approve of the proposed 
amended orders, as required by regulation. If at least two-thirds of 
the producers or two-thirds of the milk represented in the vote approve 
of the amended orders, AMS will issue a final rule implementing the 
changes.
    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 Orders 12866, 13563, 14094, and 13175.
    The amendments to the regulations as 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:

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                                                                                             Size standards in
                 NAICS code                            NAICS U.S. industry title            number of employees
----------------------------------------------------------------------------------------------------------------
311511.....................................  Fluid Milk Manufacturing....................                  1,150
311512.....................................  Creamery Butter Manufacturing...............                    750
311513.....................................  Cheese Manufacturing........................                  1,250
311514.....................................  Dry, Condensed, and Evaporated Dairy Product                  1,000
                                              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; the 1,000-employee limit for 
dry, condensed, and evaporated dairy product manufacturing; the 1,150-
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, 1,150, 
or 1,250-employee limits, 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.

[[Page 84039]]

    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 estimated to be 2 (12 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 (1) from whom 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) who 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 for transportation credits.
    This decision continues to propose amendments to 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 continues to propose adoption of 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 
those requirements would remain unchanged. No new forms are proposed, 
and no additional reporting requirements would be necessary.
    This final decision does not require additional information 
collection that requires clearance by the Office of Management and 
Budget 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 in the Federal Register on January 30, 
2023 (88 FR 5800).
    Recommended Decision: Published in the Federal Register on July 18, 
2023 (88 FR 46016).

Secretary's Decision

    Notice is hereby given of the filing with the Hearing Clerk of this 
final decision with respect to proposed amendments to the tentative 
marketing agreements and the orders regulating the handling of milk in 
the Appalachian, Florida, and Southeast marketing areas. This final 
decision is issued pursuant to the provisions of the Agricultural 
Marketing Agreement Act and the applicable rules of practice and 
procedure governing the formulation of marketing agreements and 
marketing orders (7 CFR part 900).
    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, Tennessee, 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

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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 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--

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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 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

[[Page 84042]]

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-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 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

[[Page 84043]]

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 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

[[Page 84044]]

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 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

[[Page 84045]]

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.
    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

[[Page 84046]]

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 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 decisi