Milk in the Carolina, Georgia, Tennessee Valley, and Louisville- Lexington-Evansville Marketing Areas; Revised Proposed Suspension of Certain Provisions of the Orders

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1005, 1007, 1011, and 1046

[DA-93-29]

Milk in the Carolina, Georgia, Tennessee Valley, and Louisville-

Lexington-Evansville Marketing Areas; Revised Proposed Suspension of

Certain Provisions of the Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed suspension of rules.

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SUMMARY: This document invites written comments on a proposal that

would suspend for nearly two years certain provisions of the Carolina,

Georgia, Tennessee Valley, and Louisville-Lexington-Evansville Federal

milk orders. If adopted, the proposal would regulate a plant at

Kingsport, Tennessee, under the Tennessee Valley order, instead of the

Carolina order, and it would keep regulated under the Tennessee Valley

order a plant at Somerset, Kentucky, that otherwise might become

regulated under the Louisville-Lexington-Evansville order. The

proposals were submitted by Land-O-Sun Dairies, which operates the

Kingsport, Tennessee, plant, and Southern Bell Dairy, Inc., which

operates the Somerset, Kentucky, plant. These handlers contend that

without the suspension they would be subject to pricing disparities

that could jeopardize their business.

DATES: Comments are due no later than January 20, 1994.

ADDRESSES: Comments (two copies) should be sent to USDA/AMS/Dairy

Division, Order Formulation Branch, room 2968, South Building, P.O. Box

96456, Washington, DC 20090-6456.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,

USDA/AMS/Dairy Division, Order Formulation Branch, room 2968, South

Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1932.

SUPPLEMENTARY INFORMATION: Prior document in this proceeding:

Notice of Proposed Suspension (DA-93-29): Issued October 22, 1993;

published October 28, 1993 (58 FR 57970).

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires the

Agency to examine the impact of a proposed rule on small entities.

Pursuant to 5 U.S.C. 605(b), the Administrator of the Agricultural

Marketing Service has certified that this action would not have a

significant economic impact on a substantial number of small entities.

This action would lessen the regulatory burden on small entities by

removing pricing disparities that are causing or could cause financial

hardship for certain distributing plants.

The Department is issuing this proposed action in conformance with

Executive Order 12866.

This proposed suspension has been reviewed under Executive Order

12778, Civil Justice Reform. This action is not intended to have a

retroactive effect. This action will not preempt any state or local

laws, regulations, or policies, unless they present an irreconcilable

conflict with the rule.

The Agricultural Marketing Agreement Act of 1937, as amended (7

U.S.C. 601-674), provides that administrative proceedings must be

exhausted before parties may file suit in court. Under section

608c(15)(A) of the Act, any handler subject to an order may file with

the Secretary a petition stating that the order, any provisions of the

order, or any obligation imposed in connection with the order is not in

accordance with law and requesting a modification of the order or to be

exempted from the order. A handler is afforded the opportunity for a

hearing on the petition. After a hearing, the Secretary would rule on

the petition. The Act provides that the district court of the United

States in any district in which the handler is an inhabitant, or has

its principal place of business, has jurisdiction in equity to review

the Secretary'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.

Notice of proposed rulemaking was published in the Federal Register

(58 FR 57970) on October 28, 1993, concerning the proposed suspension

of certain provisions of the Georgia, Carolina, and Tennessee Valley

Federal milk orders (DA-93-29). The public was afforded the opportunity

to comment on the notice by submitting written data, views, and

arguments by November 4, 1993. Six comment letters were received

concerning the three-market proposed suspension.

Subsequent to the issuance of the above proposed suspension, a

suspension request was received from a handler regulated under the

Tennessee Valley order that in effect expands the initial suspension

issue to the Louisville-Lexington-Evansville order. It also affects a

proposed suspension that was issued earlier for the Louisville order.

Because of the interrelationship of these several requests, it has been

determined that a revised proposed suspension involving all four orders

should be issued for comment. Therefore, notice is hereby given that,

pursuant to the provisions of the Agricultural Marketing Agreement Act

of 1937, as amended (7 U.S.C. 601-674), the suspension of the following

provisions of the orders regulating the handling of milk in the

Carolina, Georgia, Tennessee Valley, and Louisville-Lexington-

Evansville marketing areas is being considered for a 23-month period

beginning February 1, 1994:

1. In Sec. 1005.7(d)(3) of the Carolina order, the words ``from'',

``there'', ``a greater quantity of route disposition, except filled

milk, during the month'', and ``than in this marketing area'';

2. In Sec. 1007.7(e)(3) of the Georgia order, the words ``, except

as provided in paragraph (e)(4) of this section,'';

3. In Sec. 1007.7 of the Georgia order, paragraph (e)(4);

4. In Sec. 1011.7(d)(3) of the Tennessee Valley order, the words

``from'', ``there'', ``a greater quantity of route disposition, except

filled milk, during the month'', and ``than in this marketing area'';

and

5. In Sec. 1046.2 of the Louisville-Lexington-Evansville order, the

word ``Pulaski''.

All persons who desire to send written data, views or arguments

about the proposed suspension should send two copies of them to the

USDA/AMS/Dairy Division, Order Formulation Branch, Room 2968, South

Building, P.O. Box 96456, Washington, DC 20090-6456, by the 10th day

after publication of this notice in the Federal Register.

The comment period is limited to 10 days so that the suspension, if

found appropriate, can be implemented quickly and thereby minimize

financial hardship and disruptive marketing conditions.

The comments that are sent will be made available for public

inspection in the Dairy Division during normal business hours (7 CFR

1.27(b)).

Statement of Consideration

This proposed suspension would allow a distributing plant at

Kingsport, Tennessee, that is located within the Tennessee Valley

marketing area and that meets all of the pooling standards of the

Tennessee Valley order to be regulated under that order rather than the

Carolina order, as now, despite the plant having greater sales in the

Carolina marketing area. It would also allow a distributing plant

located at Somerset, Kentucky, that has been regulated under the

Tennessee Valley order to remain regulated there even if it should

develop greater sales in the Louisville-Lexington-Evansville (Order 46)

marketing area. In addition, the proposed suspension would allow a

supply plant at Springfield, Kentucky, that has been supplying the

Somerset plant to remain pooled under the Tennessee Valley order

without having to make uneconomic shipments of milk that it contends

would be necessary if the Southern Belle plant shifted to Order 46.

1. The problem of Land-O-Sun Dairies, Inc. In recent months, the

blend price to producers at Kingsport, Tennessee, under the Tennessee

Valley order has been significantly higher than the blend price at that

location under the Carolina order. For example, during the months of

July through October 1993, the Tennessee Valley blend price at

Kingsport was 32 cents, 29 cents, 20 cents, and 20 cents, respectively,

higher than the Carolina blend price at Kingsport. Although the Class I

price at Kingsport is identical under both of these orders, the

Tennessee Valley order's higher Class I utilization has resulted in a

higher blend price at Kingsport during nearly every month for the past

two years.

The difference in blend prices at Kingsport requires Land-O-Sun

Dairies, as a Carolina order handler, to pay significant over-order

prices to retain its milk supply in competition with nearby handlers

regulated under the Tennessee Valley order. Land-O-Sun has indicated

that it cannot continue to pay these over-order prices without

jeopardizing the existence of its business. It therefore proposed a

suspension of certain provisions of Orders 5 and 11 that would allow it

to become regulated under Order 11.

As noted in the earlier proposed suspension, the paragraph that is

proposed to be suspended from the Georgia order is merely a conforming

change to preserve the status quo between the Carolina and Georgia

orders. This change is necessary to continue the regulation of a

Greenville, South Carolina, plant under the Georgia order. Without the

suspension, the plant would become regulated under the Carolina order.

2. The problem of Southern Belle Dairy Company. Southern Belle

Dairy at Somerset, Kentucky, has been regulated under Order 11 for the

past four years. However, recently it has acquired accounts that could

cause it to shift to Order 46.

In recent months, the blend price at Somerset under Order 11 has

been significantly higher than the blend price at that location under

Order 46. For example, during the months of July through October 1993,

the blend price under Order 11 at Somerset was 67 cents, 62 cents, 49

cents, and 25 cents, respectively, higher than the Order 46 price at

that location. Of these amounts, 19 cents is attributable to a 19-cent

higher Class I price at that location under Order 11. Southern Belle

contends that if it should shift to Order 46 it would have to pay

substantial over-order prices to its producers to retain its milk

supply. Moreover, slight changes in sales could cause it to shift back

and forth between the two orders, causing market instability and

uncertainty under the base-excess programs applicable to both orders.

3. The problem of Armour Food Ingredients Company. Armour Food

operates a supply plant and a nonpool manufacturing plant at

Springfield, Kentucky. The supply plant has been regulated under Order

11 since August 1992. If the Southern Belle plant shifts to Order 46,

Armour's supply plant would also become subject to the regulations of

Order 46 because the plant is supplying milk to the Southern Belle

plant. Armour contends that the plant would not qualify as a pool plant

based on its present milk handling practices because, under the net

shipment provision of Order 46, all of the shipments sent to its

manufacturing facility from pool distributing plants for surplus

disposal would be subtracted from its shipments to pool distributing

plants. Armour states that to keep the milk of its producers pooled

under Order 46 it would have to incur substantial increases in

transportation and assembly costs. To avoid these costs, Armour

proposed suspending language in the net shipment provision of Order 46.

4. Industry responses to the earlier proposed suspensions (DA-93-29

and DA-93-26). On the basis of the Land-O-Sun request, a notice of

proposed suspension of provisions in Orders 5, 7, and 11 was issued on

October 22, 1993 (DA-93-29)(58 FR 57970). Four comments were submitted

in support of the action, and two comments were filed in opposition to

it.

Milkco, Inc., a handler regulated under the Carolina order with a

plant in Asheville, North Carolina, stated that it supported the

proposed suspension. Southern Belle Dairy also submitted a letter in

support of the suspension.

A letter supporting the suspension also was received from Mid-

America Dairymen, Inc., on behalf of Southern Milk Sales, Inc., a dairy

cooperative with producer milk pooled on the Tennessee Valley, Georgia,

and Carolina orders. The cooperative notes in its letter that ``paying

higher over-order values to maintain its supply of milk would

jeopardize the existence of the affected distributing plant.''

Additionally, an individual dairy farmer who supplies producer milk

to Land-O-Sun filed a comment in support of the suspension. He stated

that if Land-O-Sun paid him a lesser price for his milk he would have

to sell to another handler.

Coburg Dairy, a Carolina order handler located in Charleston, South

Carolina, filed a comment opposing the suspension. Coburg competes with

the Kingsport plant for Class I sales in the Carolina market. The

handler argued that the regulation of the Kingsport plant under the

Tennessee Valley order would give the plant a competitive advantage in

the Carolina market since it has a lower Class I price and because it

presumably would not have to pay over-order prices to its producers.

The North Carolina Farm Bureau Federation, a general farm

organization, also objected to the proposed suspension on the grounds

that regulation of the Kingsport plant under Order 11 would jeopardize

the over-order prices in the Carolina market. The Federation indicated

that eroding Class I premiums and lower Class I utilization were

threatening the health of the dairy industry in North Carolina.

In response to the Armour Food request, a notice of proposed

suspension of the net shipment provision of Order 46 was issued on

September 22, 1993 (DA-93-26) (58 FR 50526). Three comments were

submitted.

Southern Belle supported the suspension, indicating that Armour was

supplying it with milk and could encounter problems of assembly and

transportation if the plant became subject to the provisions of Order

46 because of a shift in regulation of the Southern Belle plant from

Order 11 to Order 46.

Milk Marketing, Inc., a cooperative association with 688 dairy

farmers under Order 46, and The Kroger Company, a handler operating

Winchester Farms Dairy at Winchester, Kentucky, filed comments opposing

the proposed suspension of the net shipment provision. MMI argued that

if the net shipment provision is suspended, the intent of the order

would not be carried out appropriately and that the needs of the order

would not be met in an efficient manner. Kroger stated that there was

not an abundant amount of milk available for fluid use under Order 46

and that the net shipment provision was needed to help assure that

distributing plants have sufficient supplies of milk to meet their

fluid requirements. It contends that there is no justification to relax

the performance provisions of the order during the season when milk

availability is reduced and Class I sales increase simply because there

is a ``possibility'' that a distributing plant may switch regulation

from Order 11 to Order 46.

No final action has been taken on Armour's request to suspend the

net shipment provision. However, since that issue would become moot

under the proposed suspension being considered herein, final action on

the Armour proposal is being held in abeyance pending the outcome of

the current proposal.

List of Subjects in 7 CFR Parts 1005, 1007, 1011, and 1046

Milk marketing orders.

Authority: Secs. 1-19, 48 Stat. 31, as amended; 7 U.S.C. 601-

674.

Dated: January 3, 1994.

Lon Hatamiya,

Administrator.

[FR Doc. 94-424 Filed 1-7-94; 8:45 am]

BILLING CODE 3410-02-P