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

DEPARTMENT OF AGRICULTURE

7 CFR Parts 1005, 1007, 1011, and 1046

[DA-93-29]

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

Lexington-Evansville Marketing Areas; Suspension of Certain Provisions

of the Orders

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Suspension of rules.

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SUMMARY: This document suspends for 12 months certain provisions of the

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

Evansville Federal milk orders. The suspension will regulate a plant at

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

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

order a plant at Somerset, Kentucky, that otherwise could have become

regulated under the Louisville-Lexington-Evansville order. The action

is being taken to remove and prevent pricing disparities that could

jeopardize the business of these handlers, pending an amendatory

proceeding on these matters.

EFFECTIVE DATE: March 1, 1994, through February 28, 1995.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,

USDA/AMS/Dairy Division, Order Formulation Branch, room 2971, South

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

SUPPLEMENTARY INFORMATION: Prior documents in this proceeding:

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

published October 28, 1993 (58 FR 57970).

Revised Proposed Suspension (DA-93-29): Issued January 3, 1994;

published January 10, 1994 (59 FR 1305).

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 will not have a

significant economic impact on a substantial number of small entities.

This action will 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 rule in conformance with Executive

Order 12866.

This final rule has been reviewed under Executive Order 12778,

Civil Justice Reform. This rule is not intended to have a retroactive

effect. This rule 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.

This order of suspension is issued pursuant to the provisions of

the Agricultural Marketing Agreement Act and of the orders regulating

the handling of milk in each of the aforesaid marketing areas.

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, 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 expanded the initial suspension issue to

the Louisville-Lexington-Evansville order. Thereafter, a revised notice

of proposed rulemaking was published in the Federal Register (59 FR

1305) on January 10, 1994, concerning the proposed suspension of

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

Louisville-Lexington-Evansville Federal milk orders. The public was

afforded the opportunity to comment on the notice by submitting written

data, views, and arguments by January 20, 1994. Ten comment letters

were received concerning the expanded four-market proposed suspension.

After consideration of all relevant material, including the

proposal in the notices and other available information, it is hereby

found and determined that the following provisions of the orders

regulating the handling of milk in the Georgia, Carolina, Tennessee

Valley, and Louisville-Lexington-Evansville Federal milk marketing

areas will not tend to effectuate the declared policy of the Act during

the months of March 1994 through February 1995:

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''.

Statement of Consideration

This action will 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 will allow a distributing plant located at Somerset,

Kentucky, that has been regulated under the Tennessee Valley order to

remain regulated under that order even if it should develop greater

sales in the Louisville-Lexington-Evansville (Order 46) marketing area.

In addition, this action will 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 have been 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 indicated that

it could not 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.

It should be noted that the paragraph that is being 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 since 1989. 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 blend 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 contended 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 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 had shifted to Order

46, Armour's supply plant would also have become subject to the

regulations of Order 46 because the plant is supplying milk to the

Southern Belle plant. Armour argued 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 stated 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,

notice of which was provided in the Federal Register on September 28,

1993 (DA-93-26). Two comment letters were received opposing that

request.

4. Industry Responses to the Revised Proposed Suspension

In response to the notice of proposed suspension and the revised

proposed suspension, a total of 18 comments were received from 12

different parties.

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, Armour and Land-O-Sun also

submitted letters in support of the suspension.

A letter supporting the proposed suspension affecting Orders 5, 7,

and 11 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 noted in its letter that ``paying higher over-order values

to maintain its supply of milk would jeopardize the existence of the

affected distributing plant.'' Mid-America did not file a comment in

response to the revised proposed suspension.

An individual dairy farmer who supplies producer milk to Land-O-Sun

also filed a comment in support of the suspension, stating that if

Land-O-Sun paid him a lesser price for his milk he would have to sell

to another handler. A dairy farmer that formerly supplied Land-O-Sun

stated that he opposed the action.

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

Carolina, and Peeler Jersey Farms, Inc., which operates a distributing

plant in Gaffney, South Carolina, filed comments opposing the

suspension. Both handlers compete with the Kingsport plant for Class I

sales in the Carolina market. Coburg 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. Peeler stated that Land-O-Sun was engaging in

``low ball'' pricing and that no action should be taken that will have

a significant economic impact on small entities.

Edisto Milk Producers Cooperative, which supplies Coburg Dairy and

another Order 5 handler, opposed the suspension because it would allow

the Kingsport plant to switch to Order 11 at the expense of the Order 5

pool.

The North Carolina Farm Bureau Federation, a general farm

organization, 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.

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

farmers under Order 46, stated that it had supported lock-in provisions

in the past but that it was opposing the suspension that would keep

Southern Belle regulated under Order 11 because its procurement area

and sales area were the same.

Finally, a comment opposing the suspension was submitted by Central

Milk Producers Cooperative on behalf of all of its constituent

cooperative members, with the exception of Mid-America Dairymen, Inc,

the only CMPC member with dairy farmer members in the affected area.

CMPC stated that it opposed the suspension because it ``circumvents the

amendment process.'' It argued that the problems described above should

have been handled through a formal rulemaking process.

5. The Need To Adopt This Suspension Pending an Amendatory Proceeding

To Resolve These Issues in a More Permanent Manner

After carefully evaluating the comments that were submitted, it

must be concluded, on balance, that orderly marketing will be best

preserved by adopting the proposed suspension, for a 12-month period

only, to allow the industry time to develop proposals for a hearing to

be held before the suspension period expires.

There was only limited opposition to that portion of the suspension

request that would permit the Southern Belle plant at Somerset,

Kentucky, and the Armour Food Ingredients Company plant at Springfield,

Kentucky, to remain pooled under the Tennessee Valley order, where they

have been regulated since 1989 and 1992, respectively. The present

suspension will remove a potential problem for both plants and will

eliminate the need to move forward with an alternative suspension

action (DA-93-26) that would have removed the net shipment provision of

Order 46, an action opposed by both Milk Marketing, Inc., and The

Kroger Company. (Commensurate with the issuance of this suspension

order, the proceeding involving DA-93-26 is being terminated.)

The primary objections to the suspension action centered on the

situation faced by Land-O-Sun Dairy at Kingsport, Tennessee. Coburg

Dairy and Edisto Milk Producers stated that ``the Kingsport plant has a

lower Class I price than plants located in the Carolina marketing area

* * * but the blend price at Kingsport under the Tennessee Valley

marketing order is significantly greater than the blend price paid to

Coburg's producers'' and that ``handlers with a lower federal order

cost of milk procurement, but whose producers receive more by way of

the blend price, should not be permitted to compete against a handler

with higher milk procurement costs, but whose producers receive less by

way of the blend price.''

The Class I price at Kingsport, Tennessee, is identical under

Orders 5 and 11. Under Order 5, the price increases to the east and

southeast of Kingsport reflecting the higher value of milk that is

consistent with a national pattern of higher milk prices as distance

increases from the surplus producing areas of Minnesota and Wisconsin.

Consequently, the Order 5 Class I price applicable to Coburg Dairy at

Charleston, South Carolina, is 46 cents higher than the Order 5 Class I

price at Kingsport, Tennessee. This difference in Class I price would

apply regardless of whether Land-O-Sun was regulated under Order 5 or

Order 11.

In December 1993, the Order 5 Class I price was $15.23 at Kingsport

and $15.69 at Charleston. The Order 5 blend price that producers would

have received, if the order did not have a base-excess plan, reflected

this same location difference: $14.65 at Kingsport and $15.11 at

Charleston.

The blend price under Order 11 in December 1993 was $14.76, eleven

cents higher than the Order 5 price at Kingsport that month, but 35

cents below the blend price at Coburg Dairy in Charleston.

Consequently, it is simply not correct that Coburg pays a higher Class

I price but that its producers receive a lower blend price. On the

contrary, Coburg's producers would receive a higher blend price than

Land-O-Sun's producers whether Land-O-Sun was regulated under Order 5

or Order 11. The difference would be less if Land-O-Sun were regulated

under Order 11.

The comments of Peeler Jersey Farms, Inc., of Gaffney, South

Carolina, suggest that shifting the Land-O-Sun plant from Order 5 to

Order 11 would unfairly impact them economically. Peeler also

questioned the finding that the suspension would not have a significant

impact on a substantial number of small entities.

Like Coburg Dairy, Peeler Jersey Farms has a higher Class I price

applicable at its location than is applicable at Kingsport. This

difference of 31 cents in the Class I price would apply whether the

Kingsport plant was regulated under Order 5 or Order 11. Under Order 5,

this 31-cent location adjustment is also reflected in the blend price

at Gaffney as compared to Kingsport.

Regulation of the Land-O-Sun plant under Order 11 will not have a

significant economic impact on either Coburg Dairy, Edisto Milk

Producers, or Peeler Jersey Farms. However, keeping the Land-O-Sun

plant regulated under Order 5 will have a serious impact on its ability

to maintain a milk supply in competition with nearby Order 11 handlers.

A review of the almost 60-year history of the Federal order program

clearly highlights the continuously evolving nature of the dairy

industry and the necessity of the market order program to keep up with

changes in the industry. The price discrepancies leading to this

suspension request suggest that the regulatory framework in this area

has not kept pace with the realities of the marketplace.

In administering the Federal milk order program, the Department

cannot be insensitive to those who would be unfairly impacted by its

regulation. The price that is established for a handler may dictate

whether the handler can maintain a viable business operation.

In response to those who argue that the Department is engaging in

rulemaking with this action, we would emphasize that this is a

temporary measure taken to give the industry time to submit proposals

for a more permanent solution to these problems. We agree with those

who stated that the best way to keep current with changes in the

marketplace is through a hearing process where all parties have an

opportunity to build a comprehensive record on the matters. However,

knowing that situations can change quickly or temporarily, Congress

gave the Secretary the authority to suspend order provisions for

temporary periods to handle situations in which the order is no longer

effectuating the declared objectives of the Act.

We now find ourselves in such a situation. The regulatory program

may have fallen behind the realities of the marketplace, and time is

needed to explore possible approaches to deal with these concerns. For

this reason, we are limiting this suspension to 12 months only. This

should provide the industry with time to develop and submit proposals

for a hearing on the appropriate regulatory structure in the marketing

areas covered by Orders 5, 11, and 46. In the meantime, we believe that

this suspension will remove the immediate potential of disorderly

marketing conditions while an amendatory proceeding moves forward.

It is hereby found and determined that thirty days' notice of the

effective date hereof is impractical, unnecessary, and contrary to the

public interest in that: (a) The suspension is necessary to reflect

current marketing conditions and to assure orderly marketing conditions

in the marketing area;

(b) This suspension does not require of persons affected

substantial or extensive preparation prior to the effective date; and

(c) Notice of proposed rulemaking was given to interested parties,

and they were afforded opportunity to file written data, views, or

arguments concerning this suspension.

Therefore, good cause exists for making this order effective March

1, 1994.

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

Milk marketing orders.

For reasons set forth in the preamble, Title 7, parts 1005, 1007,

1011, and 1046, are amended as follows:

1. The authority citation for 7 CFR parts 1005, 1007, 1011, and

1046 continues to read as follows:

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

674.

PART 1005--MILK IN THE CAROLINA MARKETING AREA

Sec. 1005.7 [Temporarily suspended in part]

2. In Sec. 1005.7(d)(3), the words ``from'', ``there'', ``a greater

quantity of route disposition, except filled milk, during the month'',

and ``than in this marketing area'' are suspended from March 1, 1994,

through February 28, 1995;

PART 1007--MILK IN THE GEORGIA MARKETING AREA

Sec. 1007.7 [Temporarily suspended in part]

3. In Sec. 1007.7(e)(3), the words ``, except as provided in

paragraph (e)(4) of this section,'' are suspended from March 1, 1994,

through February 28, 1995;

4. In Sec. 1007.7, paragraph (e)(4) is suspended from March 1,

1994, through February 28, 1995;

PART 1011--MILK IN THE TENNESSEE VALLEY MARKETING AREA

Sec. 1011.7 [Temporarily suspended in part]

5. In Sec. 1011.7(d)(3), the words ``from'', ``there'', ``a greater

quantity of route disposition, except filled milk, during the month'',

and ``than in this marketing area'' are suspended from March 1, 1994,

through February 28, 1995; and

PART 1046--MILK IN THE LOUISVILLE-LEXINGTON-EVANSVILLE MARKETING

AREA

Sec. 1046.2 [Temporarily suspended in part]

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

word ``Pulaski'' is suspended from March 1, 1994, through February 28,

1995.

Dated: March 28, 1994

Patricia Jensen,

Acting Assistant Secretary Marketing and Inspection Services.

[FR Doc. 94-7840 Filed 3-31-94; 8:45 am]

BILLING CODE 3410-02-P