Milk in the Middle Atlantic Marketing Area; Recommended Decision and Opportunity To File Written Exceptions on Proposed Amendments to Tentative Marketing Agreement and to Order

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1004

[Docket No. AO-160-A71; DA-93-30]

Milk in the Middle Atlantic Marketing Area; Recommended Decision

and Opportunity To File Written Exceptions on Proposed Amendments to

Tentative Marketing Agreement and to Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This document recommends changes in some provisions of the

Middle Atlantic milk marketing order based on industry proposals

considered at a public hearing. The changes would reduce the standards

for regulating distributing plants and cooperative reserve processing

plants and increase the amount of producer milk that can be diverted to

nonpool plants. Additional changes would authorize the market

administrator to adjust pool plant qualification standards and producer

milk diversion limits to reflect changes in marketing conditions. Also,

the decision provides that a pool distributing plant that meets the

pooling standards of more than one Federal order should continue to be

regulated under this order for two months before regulation can shift

to the other order. A decision on a proposal that would utilize only a

route disposition standard to determine under which Federal order a

plant should be regulated cannot be made on the basis of the hearing

record.

DATES: Comments are due on or before August 14, 1995.

ADDRESSES: Comments (six copies) should be filed with the Hearing

Clerk, Room 1083, South Building, United States Department of

Agriculture, Washington, DC 20250.

FOR FURTHER INFORMATION CONTACT: Gino M. Tosi, Marketing Specialist,

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

Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 690-1366.

SUPPLEMENTARY INFORMATION: This administrative action is governed by

the provisions of Sections 556 and 557 of Title 5 of the United States

Code and, therefore, is excluded from the requirements of Executive

Order 12866.

The 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 proposed rule will not have a

significant economic impact on a substantial number of small entities.

The amendments would promote more orderly marketing of milk by

producers and regulated handlers.

The amendments to the rules proposed herein have been reviewed

under Executive Order 12778, 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), 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 provision of the

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

accordance with the law and requesting a modification of an 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.

Prior document in this proceeding:

Notice of Hearing: Issued February 25, 1994; published March 4,

1994 (59 FR 10326).

Preliminary Statement

Notice is hereby given of the filing with the Hearing Clerk of this

recommended decision with respect to proposed amendments to the

tentative marketing agreement and the order regulating the handling of

milk in the Middle Atlantic marketing area. This notice 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).

Interested parties may file written exceptions to this decision

with the Hearing Clerk, U.S. Department of Agriculture, Washington, DC

20250, by the 30th day after publication of this decision in the

Federal Register. Six copies of the exceptions should be filed. All

written submissions made pursuant to this notice will be made available

for public inspection at the office of the Hearing Clerk during regular

business hours (7 CFR 1.27(b)).

The proposed amendments set forth below are based on the record of

a public hearing held at the Holiday Inn-Independence Mall, 400 Arch

Street, Philadelphia, Pennsylvania, on May 3, 1994, pursuant to a

notice of hearing issued February 25, 1994, and published in the

Federal Register, March 4, 1994 (59 FR 10326).

The material issues on the record of the hearing relate to:

1. Pool plant definitions and qualifications;

2. Diversions of milk to nonpool plants;

3. Regulation of distributing plants that meet the pooling

standards of more than one Federal order.

4. Discretionary authority to revise pooling standards and producer

milk diversion limits.

Findings and Conclusions

The following findings and conclusions on the material issues are

based on evidence presented at the hearing and the record thereof:

1. Pool Plant Definitions and Qualifications

Two proposals that would modify the pool plant definition of the

order should be adopted. One proposal would exclude diversions of

producer milk

[[Page 36240]]

from a pool distributing plant's receipts in determining whether or not

the plant satisfies the pool plant definition standard. Currently, the

order's pool plant definition includes diverted producer milk as a

receipt at a distributing plant in determining whether the plant has a

sufficient proportion of its receipts in Class I use to qualify as a

pool plant. The other proposal would reduce the percentage of a

cooperative association's member milk that must be transferred to pool

distributing plants from 30 percent to 25 percent of receipts for a

reserve processing plant to qualify as a pool plant.

Pennmarva, a federation of certain Middle Atlantic marketing area

dairy cooperatives, and Atlantic Processing, Inc., an association of

cooperatives, proposed the changes to the pool plant definition of the

order which were published as Proposal No. 1 and Proposal No. 4 in the

hearing notice. Pennmarva's members include Atlantic Dairy Cooperative;

Dairymen Incorporated (Middle Atlantic Division); Maryland and Virginia

Milk Producers' Cooperative Association; and Valley of Virginia Co-

operative Milk Producers Association--associations that market more

than 90 percent of the producer milk associated with the order.

Atlantic Processing, Inc., members include Mount Joy Milk Producers

Cooperative and Cumberland Valley Milk Producers Cooperative.

According to the Pennmarva witness, changing the distributing plant

pooling standard (Proposal No. 1) is a more comprehensive solution to

past informal rulemaking actions which suspended the requirement that

40 percent of a pool plant's receipts be disposed of as Class I milk

during the months of September through February. These suspension

actions were taken because of the decline of Class I use in the Order 4

marketplace and because of a shift in regulation of two plants that

were regulated under the order.

Pennmarva testified that a more permanent change to the pool plant

definition is warranted because: (1) the Order 4 market is primarily

serviced by cooperatives in a system-wide fashion and that accounting

for diversions at the individual plant level given this cooperatively-

supplied nature of the Order 4 market is burdensome; (2) there is a

lack of complete knowledge by the servicing cooperative of the total

receipts and Class I sales of the pool distributing plants from which

the cooperative diverts milk; and (3) continued association of diverted

milk on the order would still be provided for because of the producer

definition of the order.

Cooperatives in Order 4 attempt to market milk, said Pennmarva, in

a manner that will minimize the overall transportation costs. Pennmarva

said that accounting for diversions at the individual plant level

places an unnecessary and costly burden on cooperatives. Pennmarva also

noted that to a pool handler who buys his/her entire milk supply from a

cooperative, there are no market-disruptive consequences if milk is

over-diverted. According to Pennmarva, handlers continue to pay the

appropriate class price for the milk when an excess amount of milk is

diverted from the plant. However, the cooperative supplying milk must

reduce the volume of milk from the pool when it over-diverts milk

shipments so that the plant will continue to qualify as a pool plant.

Additionally, Pennmarva testified that the lack of complete

knowledge of a pool distributing plant's other milk supplies makes it

unnecessarily difficult to effectively operate under the current

requirements of the pool plant definition. No supplier knows either the

total receipts of the distributing plant or the Class I disposition of

the plant, said Pennmarva. Similarly, Pennmarva testified, suppliers of

a pool distributing plant have no knowledge of the plant's in-area

Class I sales. This lack of knowledge by the supplying cooperative is

especially important, according to Pennmarva, because the ``lock-in''

provisions of the pool plant definition do not apply to the requirement

that 15 percent of the plant's sales must be within the marketing area.

Pennmarva testified that deleting diversions from a plant's

receipts in determining its regulatory status would have limited

effects given present marketing conditions within the order. According

to Pennmarva, plants that meet the 15 percent in-area sales and 40

percent Class I disposition pooling standard in the months of September

through February, and 30 percent Class I disposition during the

remainder of the year, will continue to be pooled under the order.

According to Pennmarva, diversions from such plants either by a

cooperative or by a handler with a non-member supply will continue to

be regulated through the producer definition of the order. Pennmarva

also indicated that both the producer definition and the pool reserve

processing plant definition will continue to encourage deliveries of

cooperative and non-member milk supplies to Order 4 pool plants in

meeting priority Class I needs of the market while decreasing the

uneconomic movement of milk.

No opposition to excluding diverted milk as a receipt at a

distributing plant for determining pool plant status (Proposal No. 1)

was received.

Currently, a cooperative must ship a minimum of 30 percent of its

member milk to an Order 4 pool distributing plant in order for its milk

to be pooled. Pennmarva proposed to reduce the minimum percentage to 25

percent as published in the hearing notice as Proposal No. 4. Pennmarva

testified that this reduction is needed to continue the pooling of

Order 4 producers historically associated with the market and is

preferable to suspension of such provisions.

Pennmarva testified that this change is warranted because of recent

changes in the market. Pennmarva cited that between 1990 and 1992, the

level of Class I sales has remained unchanged, while producer receipts

expanded. The expansion of producer receipts caused a reduction of the

Class I utilization for the market, according to published statistics.

Class I use dropped from 53.1 percent in 1990, to 50.7 percent in 1991,

and to 48.0 percent in 1992. Level Class I sales and expanding

production in Order 4 between 1990 and 1992, said Pennmarva, reduced

the proportion of Order 4 milk delivered to pool distributing plants by

cooperatives operating reserve processing plants.

Pennmarva also testified that in 1993, both Class I and producer

receipts declined. According to market administrator statistics,

production decreased by 162.3 million pounds and Class I sales fell by

265.6 million pounds--resulting in a Class I utilization percentage of

45.1 percent.

According to Pennmarva, the reduction of Class I use in Order 4

during 1993 was partially attributable to a shifting of an Order 4-

regulated distributing plant located in Lansdale, PA, in November 1992

and another distributing plant located in Reading, PA, in January 1993

to regulation under another Federal order. Pennmarva said this had the

effect of reducing the Order 4 pool plant deliveries required by

reserve processing plants to maintain pool status.

Pennmarva maintained that the shifting of regulation of these two

plants has had a dramatic effect. In a one-year period from October

1992 to October 1993, Atlantic Dairy Cooperative, which operates a pool

reserve processing plant, delivered 13.3 percent less milk to a

Lansdale, PA, distributing plant. Between December 1992 and December

1993 Maryland and Virginia Milk Producers Cooperative Association,

[[Page 36241]]

which also operates a pool reserve processing plant, experienced a 14

percent reduction in deliveries to a Reading, PA, distributing plant.

Pennmarva noted other changes in the Order 4 market, including the

closing of a distributing plant in Harrisburg, PA, and a change in the

product mix of two large Order 4 distributing plants that eliminated

yogurt and cottage cheese production. Pennmarva said this loss of Class

II business at distributing plants caused a reduction in the amount of

pool-qualifying milk deliveries for the cooperative supplying milk to

these plants. Additionally, Pennmarva made note of previous suspension

actions to extend the period of automatic pool plant status for supply

and reserve processing plants.

No opposition to reducing the shipping standard (Proposal No. 4)

was received.

Regarding Proposal No. 1, the record is clear that cooperatives

play a dominant role in servicing the Middle Atlantic marketing area,

accounting for some 90 percent of milk deliveries to pool distributing

plants. While accounting for diversions on an individual plant basis

has merit, good reason exists to conclude that in this market,

retaining individual plant accounting for the purposes of diversions

does place a burden and costs on cooperatives who seek to deliver milk

to where it is needed in the most economic fashion. This is especially

important and justified due to the changing marketing conditions of

declining Class I use in the marketing area.

As indicated by the testimony and in a brief filed by Pennmarva,

distributing plants generally have more than one supplier, and such

suppliers generally do not know the plant's total receipts and Class I

disposition. This makes it difficult to determine what milk can be

diverted from any single pool plant in a given month. Inadvertent over-

diversions of milk will result in milk not being eligible for pooling

and the benefits that accrue from such pooling.

Part of the Order 4 pooling provisions rests on a 15 percent route

disposition standard. Adoption of Proposal No. 1 would enable

cooperatives supplying the market to more economically move milk

without undermining this standard or other pool plant definition

standards.

Regarding Proposal No. 4, changing marketing conditions, namely

expanding producer receipts and a decline in the Class I utilization of

the market, provide support for changing the pooling requirements for

reserve processing plants operated by a cooperative, without negating

the demands of the Class I market. Such prevailing marketing conditions

have in the past resulted in the suspension of certain pooling

provisions of reserve processing plants operated by cooperatives so

that producer milk normally associated with the Order 4 market would

remain pooled under the order. Proposal No. 4 offers a more permanent

and reasonable solution to potentially repetitive requests by Order 4

producers for suspension of such pooling standards by easing the

shipping standard by 5 percentage points.

2. Diversions of Milk to Nonpool Plants

Two proposals that would increase the permissible percentage of

milk deliveries for both cooperative (or federation of cooperative

associations) and non-cooperative (nonmember) milk that may be diverted

under the producer definition of the order should be adopted. The

proposal for increasing the permissible percentage of cooperative milk

that can be diverted to nonpool plants was proposed by Pennmarva and

was Proposal No. 7 as published in the hearing notice. The proposal for

increasing the permissible percentage of nonmember milk that can be

diverted to nonpool plants was proposed by Johanna Dairies, Inc.

(Johanna), a handler regulated under both the Middle Atlantic and New

York-New Jersey marketing orders and was Proposal No. 9 as published in

the hearing notice.

Another proposal by Pennmarva--intended to more clearly define the

pooling requirements for producer deliveries to pool plants and the

status of producers whose marketing is interrupted by compliance with

health regulations under the producer definition of the order--was

abandoned and received no evidence or testimony at the hearing. This

proposal was Proposal No. 6 as published in the hearing notice.

In Proposal No. 7, Pennmarva recommended increasing the permissible

percentage of milk that can be diverted to nonpool plants to a maximum

volume of 55 percent of receipts instead of the current 50 percent

maximum. For nonmember milk, Johanna proposed increasing the maximum

allowable deliveries from the current 40 percent to a new maximum of 45

percent.

Citing statistics prepared by the market administrator, the

Pennmarva witness observed that over the three-year period of 1991 to

1993, producer receipts under Order 4 increased by 158.8 millions

pounds, while Class I disposition fell by 277.3 million pounds.

Similarly, over the same three-year period, the witness also noted the

annual Class I utilization of the market fell from 50.7 percent in

1991, to 48 percent in 1992, and to 45.1 percent in 1993. This witness

testified that because the market's Class I use decreased, diversions

to nonpool plants increased. According to Pennmarva, such a situation

makes it difficult to keep producers historically associated with the

market pooled under the order.

Johanna provided similar testimony and indicated that there is no

equitable basis why diversions of nonmember milk should not similarly

be increased from the current 40 percent of receipts for nonmember milk

to a maximum of 45 percent of receipts. Johanna testified that the

producer definition historically has offered disparate treatment

between member (cooperative) and nonmember milk in terms of the

allowable percentage of milk that can be diverted to nonpool plants and

still be priced under the order. Johanna noted that the incremental

difference between the two has consistently been 10 percentage points,

and that if the allowable percentage of member deliveries can be

increased by 5 percentage points, nonmember milk should similarly be

increased by the same amount.

Johanna also supported Pennmarva's observations of the market

administrator statistics that show the steadily declining percentage of

Class I milk receipts within the order's pool. The same statistics,

Johanna said, support the adoption of their proposal.

No opposition to the adoption of Proposals Nos. 7 and 9 was

received.

Regarding Proposal No. 7, changing marketing conditions, namely

increasing producer receipts and declining Class I use, provide support

for adoption of this proposal to increase the percentage of milk of

cooperative members which may be diverted to non-pool plants during the

months of September through February. This proposal offers a reasonable

unopposed solution for more orderly marketing and to keep milk pooled

under the order that has historically been associated with the market.

Regarding Proposal No. 9, the record does not reveal any reason to

not similarly increase the permissible diversion limit by handlers with

non-cooperative member milk supplies for the same reasons already

indicated regarding Proposal No. 7.

3. Regulation of Distributing Plants That Meet the Pooling Standards of

More Than One Federal Order

a. A proposal to leave the determination of which order regulates

[[Page 36242]]

a plant with pool-qualifying disposition in more than one Federal order

to the provisions of Sec. 1004.7(f)(1) cannot be decided upon on the

basis of the hearing record. The provisions of Sec. 1004.7(f)(1)

requires that if a pool plant qualifies as a pool plant in another

order, the plant will be regulated under that order unless the plant

has a greater volume of Class I dispositions in the Order 4 marketing

area. Currently, this order provision is subordinated by an additional

provision in Sec. 1004.7(f)(2) that yields a plant's pool status to

another order whenever such plant qualifies as a pool plant under the

other order. It is this subordinating provision that is proposed to be

deleted from the order (Proposal No. 3 as published in the hearing

notice). In other words, Proposal No. 3, offered by Pennmarva, would

determine the regulation of a plant under the order on the basis of

where the plant has its greatest Class I route disposition in the event

that a plant qualifies as a pool plant under another order.

According to Pennmarva, the yield provision contained in

Sec. 1004.7(f)(2) unnecessarily subordinates the Middle Atlantic milk

order to the provisions of another Federal order. Such subordination is

not needed, said Pennmarva, because the provisions of Sec. 1004.7(f)(1)

defines a comprehensive and adequate standard for determining whether a

pool plant should be regulated under Order 4.

Pennmarva testified that two pool plants, one located in Lansdale,

PA (Lansdale), and the other located in Reading, PA (Reading), have

changed from being regulated under Order 4 to Order 2. These changes,

said Pennmarva, have had the effect of depressing the Order 4 blend

price relative to the blend price of Order 2. According to Pennmarva,

the New York-New Jersey 1992 average blend price was $0.68 per

hundredweight less than the Order 4 blend price for the same time

period. Similarly, Pennmarva indicated that for 1993, the Order 2 blend

price was $0.50 per cwt. less than in Order 4.

Pennmarva testified that between 1992 and 1993 there also were

changes in Class I receipts and utilization between Order 4 and Order

2. During this time period, Class I receipts of producer milk in Order

4 fell by 265,613,000 pounds while in Order 2 they rose by 170,765,660

pounds, said Pennmarva. During this same time period, the Class I

utilization of Order 4 shrank by nearly 3 percentage points to a total

of 45.1 percent, while the Order 2 Class I utilization grew by one

percentage point to a total of 40.3 percent. Pennmarva attributed these

changes partly to the change in regulation of the already-noted plants.

Pennmarva also testified that the exchange of milk between Orders 2

and 4 has historically been equal. However, according to Pennmarva,

this relationship changed greatly in the past year. Citing Order 4

market administrator published statistics (the volume of packaged fluid

sales from Order 2 into the Order 4 marketing area in 1993), Pennmarva

indicated that 327.3 million pounds of pooled and priced Order 2 milk

was disposed of in the Order 4 marketing area, up by 134.7 million

pounds from 1992--an increase of 70 percent. However, Order 4 priced

and pooled milk in the Order 2 marketing area over the same time period

increased by only 12.1 percent to a total of 238.0 million pounds. This

change of the historical balance was attributed by Pennmarva to the

shifting of regulation of the Lansdale pool plant in November 1992 and

the Reading pool plant in January 1993 to regulation under Order 2.

Even though these plants became regulated under the New York-New Jersey

milk order, Pennmarva said, these plants continued to have significant

Class I route disposition in the Order 4 marketing area.

Pennmarva also justified using the measure of greatest Class I

route sales as the basis for deciding where a plant should be pooled by

citing the provisions of nearby orders that provide for this

measurement; specifically, the Carolina (Order 5) and the Eastern Ohio-

Western Pennsylvania (Order 36) milk orders. However, noted Pennmarva,

the New York-New Jersey order provides a different measure.

Pennmarva noted differences between Order 4 and Order 2 pooling

provisions. Order 2 allows for transfers of bulk fluid milk (classified

as Class I-A) between plants, while Order 4 specifically excludes

deliveries to a plant, said Pennmarva. This difference in order

provisions may result in a situation where a plant may have a greater

in-area packaged route disposition in Order 4, but, testified

Pennmarva, because Order 2 allows for plant transfers of bulk fluid

milk (milk classified as Class I-A), such bulk transfers may cause the

plant to have greater total Class I assignments in Order 2 than in

Order 4. In this event, said Pennmarva, the subordinating language of

Sec. 1004.7(f)(2) causes the plant to be regulated as an Order 2 pool

plant, even though it may have more packaged Class I route distribution

in the Order 4 marketing area.

Pennmarva said this proposal would not change the pool plant

definition of the New York-New Jersey order. According to Pennmarva, a

plant which qualifies as a pool plant in either order prior to the

adoption of this proposal will continue to qualify as a pool plant.

Significant opposition testimony was received regarding Proposal

No. 3. Johanna, testified that Proposal No. 3 seems intended to prevent

them from pooling the milk from its Lansdale plant under the New York-

New Jersey milk order despite the fact that the greater percentage of

such milk ultimately is distributed as Class I milk in that area. To

the best of his knowledge, Johanna said, Proposal No. 3 would have no

effect on any other handler. Moreover, the requirement that milk

received at Johanna's Lansdale plant be pooled in Order 4 yields no

material benefit to Order 4 producers.

According to Johanna, Proposal No. 3 fails to recognize the close

relationship between the Order 2 and Order 4 markets and would be

counterproductive to the goals of the Federal milk marketing scheme.

Johanna contended that milk which is received and separated at one

plant, and then shipped as bulk milk for subsequent packaging and Class

I distribution by another plant, is most clearly associated with the

market in which the milk ultimately is distributed on fluid routes.

Johanna also asserted that if more than half of a plant's receipts from

producers are regularly shipped to another plant for packaging and

Class I disposition in another order, the plant initially receiving the

milk, and those farmers who supply such milk, should be associated with

and pooled under the order where those later fluid Class I sales are

made.

Johanna testified that its Lansdale plant became pooled under Order

2 for legitimate business reasons and not for the purpose of

circumventing where it is regulated. The reason for the switch in

regulation from Order 4 to Order 2 was the cessation of milk processing

at another Johanna plant located in Flemington, New Jersey

(Flemington). Prior to this plant's closure, Johanna said, the

Flemington plant had been distributing some 677 million pounds of Class

I milk annually in the Order 2 market and had been an Order 2 pool

plant for more than 15 years.

Upon closing the Flemington plant, Johanna indicated that the

greatest majority of its milk business was relocated to its Lansdale

operation, with the greatest majority of its Class I sales in Order 2.

Johanna said there was no change in Class I disposition in either Order

2 or Order 4 by virtue of the movement of that milk. Johanna asserted

again that the combining of operations of the two plants at Lansdale

[[Page 36243]]

was a business decision and not an attempt at manipulating order

provisions.

Johanna testified that producers in Pennsylvania's milkshed

typically supply large quantities of milk to handlers in both Orders 2

and 4. Further, said Johanna, it is unrealistic to view the

Pennsylvania milkshed as somehow geographically linked to the Order 4

market. The overlapping nature of this milkshed between the two orders,

said Johanna, supports Order 2 regulation of a Pennsylvania plant that

distributes the majority of its fluid milk within the Order 2 marketing

area.

Johanna emphasized that the Lansdale plant is a ``designated''

Order 2 pool plant, and therefore is relied upon by the performance

standards of such designation to provide support for Class I sales

within the marketing area. The presence of such plants, said Johanna,

supports the blend price which accommodates the large amount of

manufacturing milk pooled in the New York-New Jersey order.

No appreciable adverse effect on the Order 4 blend price would

result from the inclusion of the Lansdale plant under Order 2,

according to Johanna's analysis. The effect on the Order 4 blend price

using 1993 averages, said Johanna, amounts to about a three-cent

reduction. Johanna also indicated that pooling the milk under Order 4

would have had a slightly smaller reduction in the blend price received

by Order 2 producers.

Johanna concluded that any justification for adopting Proposal No.

3 upon a supposed improvement in the blend price by pooling the

Lansdale plant under Order 4 fails to account for the effect upon the

blend price in Order 2. At most, said Johanna, classification of the

plant's milk with one order or the other would represent an

insignificant adjustment in the movement, up or down, of blend prices

in either order.

Johanna also testified that Proposal No. 3 seems intended to

eliminate the applicable location differential as an Order 2 plant.

Because of the Lansdale's route distribution in Order 2, the existing

location differential is fair, said Johanna. Adoption of Proposal No.

3, according to Johanna, would place them at a competitive disadvantage

against other Order 2 handlers competing in the market for fluid sales.

Johanna noted that there is a 24.5-cent difference in the location

differential in Order 2 between the Lansdale plant's applicable zone

(the 71-75 mile zone) and the next nearer zone (the 61-70 mile zone).

If Proposal No. 3 is intended to alter the location differentials of

Order 2 because of some perceived unfairness, such changes to the Order

2 pricing structure should be addressed through proposed amendments to

the New York-New Jersey order and not this proceeding, said Johanna.

Johanna asserted that the 24.5-cent location adjustment between the

two zones was properly factored into Order 2's location differential

scheme based upon the historical mechanism of transporting distant milk

to the urban market through the use of receiving stations. Johanna

added that the 24.5-cent difference equalizes the price, for

competitive purposes, of milk brought into the Order 2 market from more

distant locations. The witness said that as milk had to be shipped from

more distant locations, receiving stations collected the milk from

dispersed producers. At the time the Order 2 location differential

applicable to the Lansdale operation was adopted, said Johanna, the

location adjustment difference was intended to allow handlers to recoup

the fixed costs associated with the creation and maintenance of

receiving stations. At the same time, Johanna added, the location

adjustment difference between zones was intended to not affect any

Order 2 plant then in existence.

A witness from Dairylea Cooperative, Inc. (Dairylea), of Syracuse,

New York, also testified in opposition to Proposal No. 3. Dairylea is a

dairy farmer cooperative comprised of some 2,200 members throughout the

northeast of the United States who produce milk regulated under Federal

Orders 1, 2, 4, and 36. This witness testified Order 4 provisions

currently recognizes its interdependence with Order 2. When there is a

dispute over which order a particular plant should be pooled under,

Dairylea said, there is recognition by Order 4 provisions of the

historical uniqueness of Order 2 in terms of its use of up-country

plants to separate farm milk into skim milk that is shipped hundreds of

miles to city bottling plants, while leaving the cream fraction of the

raw milk in the up-country plants for processing into Class II or Class

III products. Dairylea said this is part of a sound economic system

that has developed over many years.

According to Dairylea, adoption of Proposal No. 3 would set up a

direct conflict between Order 4 and Order 2 pooling provisions because

adopting it would tend to amend the application of Order 2's pooling

provisions. Dairylea was of the opinion that Proposal No. 3 appeared to

be based solely on the goal of enhancing a single group's economic

interest without regard to the potential of injury to another order's

system of milk sales that developed over many years. Dairylea indicated

there is a historical uniqueness of Order 2 in terms of its use of up-

country plants to separate farm milk into skim milk that is shipped

hundreds of miles to city bottling plants, while leaving the cream

fraction of the raw milk in up-country plants for processing into Class

II or Class III products.

Opposition testimony was also received from a witness on behalf of

Clover Farms Dairy Company (Clover Farms), located in Reading, PA.

Clover Farms testified that adoption of Proposal No. 3 would lead to

irreconcilable conflict with the provisions of the New York-New Jersey

order.

Clover Farms testified that the most basic provisions of any milk

marketing order are those that determine which plants are to be

regulated. These provisions, Clover Farms said, often differ from one

order to another because they are designed to meet the varying

characteristics of the marketing areas involved. According to Clover

Farms, because an individual plant serving a diverse market may meet

the pooling requirements of more than one Federal order, each order

must specify how such a situation is to be resolved. Moreover, said

Clover Farms, the resolution as determined by each order involved must

lead to the same conclusion, otherwise no guidance will be given either

to the Department of Agriculture or to the courts in resolving the

conflict.

Clover Farms testified that Proposal No. 3 would eliminate the

basis for deciding which order takes precedence when a plant would

otherwise be subject to the classification and pricing provisions of

both Order 4 and another Federal order. Leaving the determination on

which order has the greater volume of Class I milk disposed of on

routes in its marketing area from the plant might work, said Clover

Farms, provided the other order has a provision that provides the same

conclusion. This could not work in the case of Order 4 and Order 2,

Clover Farms indicated, because the provisions of the New York-New

Jersey order bases the decision on which order has the larger portion

of disposition of Class I-A milk, which includes bulk shipments of milk

assigned to Class I, in its marketing area. Since Order 4 does not

recognize the role of bulk shipments in its calculation, said Clover

Farms, adoption of Proposal No. 3 would provide no basis upon which to

resolve the conflict between the two orders when a plant meets the

pooling provisions of both.

The opposition testimony of the Clover Farms witness was supported

in testimony by a witness who testified on

[[Page 36244]]

behalf of Eastern Milk Producers Cooperative Association, a dairy

farmer cooperative having some 2,400 members that ship milk to Orders

1, 2, 4, and 36.

A brief filed by Pennmarva noted that while Johanna agrees that a

plant should be pooled under the order in which most Class I sales are

made, Johanna provided no evidence to support the claim that fluid milk

transfers from the Lansdale plant were in fact distributed on routes in

the Order 2 marketing area, thereby meeting a defacto route disposition

test. Pennmarva argues here that if, in fact, the Lansdale plant has

greater route disposition in Order 2 than it has in Order 4, the

adoption of Proposal No. 3 will have no effect on the plant. Pennmarva

further argues that even if the plant did not now have greater route

disposition in Order 2, operators of the plant could implement the

changes necessary to ensure greater route sales in Order 2.

To illustrate the need for adopting Proposal No. 3, the Pennmarva

brief noted that in 1993, the Lansdale plant had 224 millions pounds of

Class I disposition in Order 4 and 245 million pounds of Class I

disposition in Order 2, for a total of 469 million pounds. Of that 469

million pounds, Pennmarva indicated that at least 10 percent (46.9

million pounds) of its milk was transferred in bulk or packaged form

from Lansdale to other plants. According to Pennmarva, Lansdale

consequently distributed on routes no more than 198.1 million pounds in

the Order 2 marketing area. Thus, Pennmarva claims that the Lansdale

plant distributed 198.1 million pounds of Class I milk on routes in

Order 2 versus 224 million pounds of Class I milk in Order 4, clearly

revealing that there is more route disposition under Order 4. However,

because of the yield provision contained in Sec. 1004.7(f)(2),

according to Pennmarva, the Lansdale plant is regulated under Order 2.

The Pennmarva brief contends that Johanna's testimony that the

Lansdale Class I-A milk transfers were ultimately distributed on routes

in Order 2 is in error. Pennmarva noted that the definition of Class I-

A milk under Order 2 is ``as route disposition in an other order

marketing area'' as delineated in Sec. 1002.41(a)(1)(ii) of the New

York-New Jersey order. Thus, according to Pennmarva, a plant which

otherwise qualifies as an Order 2 pool plant can dispose of milk on

routes in the Order 4 marketing area, and such dispositions are

classified under Order 2 as Class I-A. Pennmarva indicated that once

classified as Class I-A, no further distinction is made regarding the

ultimate destination of route sales.

The Pennmarva brief also challenged the Johanna witness' assertion

that all of its transferred milk was ultimately distributed on routes

in the Order 2 marketing area. Pennmarva noted that transfers were made

between Lansdale, PA, and Reddington Farms (an Order 2 pool plant) and

that market administrator statistics indicate that Reddington Farms

enjoyed Class I route disposition in the Order 4 marketing area in

every month between 1991 and 1994.

In response to the Clover Farms' testimony that adoption of

Proposal No. 3 would lead to irreconcilable conflict with Order 2 and

that such conflict would need to be addressed by the Dairy Division,

Pennmarva cited an example of how, through administrative

determination, a pooling issue such as this might be handled. The

Pennmarva brief asserted that it is within the purview of the Act for

proponent cooperatives, which represent volumes in excess of 90 percent

of the Order 4 market, to delete provisions which subjugate the order

to all other orders and to rely on a route disposition test in

determining where a plant should be pooled when it also qualifies for

pooling under another order.

According to the Pennmarva brief, orderly marketing within Order 4

should not be hinged on an accommodation to another order. Pennmarva

does concede that the interplay of adjoining markets, such as Order 2

and 4, must be considered in maintaining orderly marketing but

indicated there is nothing in the record which provides a reason why

Order 4 should be subordinated to Order 2 or any other order. This is

important, according to Pennmarva, because of the economic hardship

brought about through depressed blend prices. Pennmarva indicates that

there is no benefit to Order 4 producers from the application of the

provisions of Sec. 1004.7(f)(2) and that its elimination will not

change the pooling standards of any other Federal order.

In defense of the adequacy of using a route disposition test, the

Pennmarva brief cited a recommended decision applicable to another

Federal order in which a plant that qualifies under more than one order

is regulated under the order which it enjoys the greatest route

disposition. This recommended decision indicated that such application

normally assures that all handlers having principal sales in a market

are subject to the same pricing and other regulatory requirements.

Official Notice is taken of the Final Decision (59 FR 26603, published

May 23, 1994) for the Southern Michigan marketing area in which no

changes were made regarding this issue from the recommended decision.

According to Pennmarva, such an example speaks to a fundamental intent

of milk marketing orders--to regulate handlers that compete for sales

within the specific geographic definition of the marketing area.

A brief filed by Johanna reiterated their opposition to the

adoption of Proposal No. 3.

Reply briefs filed by both Pennmarva and Johanna similarly

reiterated their positions given in testimony and in submitted briefs.

However, Johanna's reply brief takes objection to Pennmarva's

suggestion that Johanna should simply effectuate changes in its

Lansdale operations so as to convert its bulk shipments of fluid milk

to Order 2 into route disposition and thereby preserve the plant as an

Order 2 plant under the strictures of Sec. 1004.7(f)(1). According to

Johanna, this suggestion does not take into account the impracticality

and costs to Johanna of pooling the Lansdale plant to accommodate the

packaging requirements of multiple wholesale customers who presently

receive bulk shipments from the Lansdale plant for packaging and

ultimate route disposition in Order 2.

Johanna also counters the Pennmarva's reference to another

rulemaking proceeding and recommended decision involving a pooling

issue of a Ultra High Temperature (UHT) plant in another Federal order.

While Pennmarva cited this recommended decision as an example of how

administrative intervention could be used to determine where a plant

should be regulated, Johanna views this recommended decision as

providing certainty and orderly conditions for the UHT plant and its

producer on where it will be pooled. In this example, Johanna notes

that the route disposition test, as a single criteria for pooling, is

rejected because of the unique aspects of the marketing conditions

faced by the UHT plant. Such uniqueness should also be recognized for

the Lansdale plant, said Johanna, because it makes Class I bulk

shipments to an order which does not rely solely on a route

distribution pooling test.

At issue regarding Proposal No. 3 is where a plant should be pooled

and regulated when it meets the pooling standards of more than one

order. Both the proponent and opponents to Proposal No. 3 agree that

the market in which fluid sales distributed on routes are greatest is

where a plant should be regulated. Where a plant should be regulated is

a most important feature of

[[Page 36245]]

all Federal milk orders. The basis upon which a marketing area is

determined is founded on the basis of where handlers compete with each

other for fluid sales. An important determinant of handlers competing

with each other for sales is generally made through a measurement of

the route disposition of fluid milk. For the Middle Atlantic marketing

area, the order clearly defines route disposition, and its measurement

can be made with exacting precision every month. However, the New York-

New Jersey marketing order differs from Order 4 in that it provides for

the bulk transfers of fluid milk between plants that is classified as

Class I-A milk. Order 4 specifically excludes such transfers between

plants from meeting its route disposition test.

Opponents of Proposal No. 3 assert, in part, that bulk transfers of

Class I-A between plants are an important feature of the Order 2

marketing area because of the market structure that evolved there over

time. The basis of providing for bulk transfers of Class I-A milk

between plants recognized the market structure and conditions in that

order. Opponent witnesses describe ``up-country'' plants that assemble

and separate the skim fraction of producer milk for subsequent transfer

to ``city'' bottling plants for eventual distribution to retail

outlets, while leaving the cream fraction in country plants to be

further processed into Class II and Class III products, as a unique

characteristic of the Order 2 marketplace.

On its face, it is difficult to conclude that adoption of Proposal

No. 3 somehow threatens the above described market structure that Order

2 handlers have relied upon for a long period of time. Both the

proponent and opponents of Proposal No. 3 recognize and describe

similarly the close relationship between Order 2 and Order 4. The

record reveals that both orders share, to a significant extent, a

common milkshed. The record also reveals that milk movements between

orders have been historically equal until the Lansdale plant switched

regulation from Order 4 to Order 2. The change in the regulatory and

pool status of the Lansdale plant was due to Order 2 allowing for bulk

transfers of Class I-A milk as a fluid use which brought the total

Class I disposition of the plant to have more milk associated with the

New York-New Jersey marketing area than it had with the Middle Atlantic

marketing area. This allowance for bulk transfers under the New York-

New Jersey order, together with the subordinating language of Order 4,

required the regulatory and pool status of the Lansdale plant to shift

to Order 2 even if the Lansdale plant may have had more route sales in

Order 4.

The Lansdale plant is physically located within the Order 4

marketing area and until recently had historically been pooled as an

Order 4 pool distributing plant. Further, the Lansdale plant is clearly

a fluid distributing plant that competes with other handlers for fluid

sales in Order 4. In the New York-New Jersey order, it seems to enjoy,

from the testimony of some opponent witnesses, the status of a

distributing plant while at the same time was inferred to be a

``country'' plant. Nevertheless, Order 2 recognizes the Lansdale plant

as a fluid milk distributing plant with the transferring of milk as a

secondary operation. This distinction is made here because Order 2 also

recognizes processing plants with manufacturing as a secondary

operation. Simply put, the Lansdale plant's primary enterprise is as a

fluid distributing plant.

The effect of the New York-New Jersey order provision of allowing

for bulk transfers of Class I-A milk and its lack of a route

disposition test makes it difficult to determine precisely where the

majority of Landsdale's Class I sales take place that includes the bulk

transferred milk. The record reveals, in testimony by Johanna, that

bulk transfers of Class I-A milk end up eventually as route

disposition, although the record does not reveal how much of such milk

is distributed on routes within Order 2 or in another marketing area.

Pennmarva makes a case from the record evidence that suggests that

there is more route disposition in Order 4. In this regard, Johanna's

claim that fluid milk transfers from the Lansdale plant were in fact

distributed on routes in Order 2 might not be totally accurate on basis

of the record evidence. This conclusion is further supported by

examining the Order 2 provision of what constitutes Class I-A milk,

namely, inclusion of milk distributed on routes in another marketing

area. This decision agrees with Pennmarva that a plant which otherwise

qualifies as an Order 2 pool plant can dispose of milk on routes in the

Order 4 marketing area with such disposition classified as Class I-A,

and then once so classified, no further distinction as to the ultimate

route disposition is made through the transfer chain.

In summary, a conclusion on the basis of the record of where the

greatest route sales of fluid milk are made by Johanna's Lansdale plant

cannot be determined. This is problematic because both proponent and

opponent witnesses indicate that a plant should be pooled where it

enjoys the majority of its Class I disposition, but Order 2 and Order 4

each rely on different forms of measuring this outcome. Due recognition

of the regulatory impact on a plant that meets the pooling standards of

the New York-New Jersey order is warranted because the plant has met

that order's standards. At the same time, Order 4 producers are

required by their order to yield to the pricing provisions of another

order on the terms of measurement that are not its own.

This recommended decision agrees with an opponent witness'

testimony that each marketing order should specify how to resolve

differences and conflicts that arise in the regulation and pooling of

plants. In this regard, opponents to Proposal No. 3 voiced concern that

its adoption would lead to irreconcilable conflict with the provisions

of the New York-New Jersey order. Such conflict probably would not be

the case if an identical definition and standard of measurement, that

is route disposition, existed for both orders.

In short, adoption of Proposal No. 3 would leave determination of

the regulatory and pool status of the Lansdale plant solely to the

Order 4 route disposition test. However, adoption of this proposal has

the effect of causing a change to the New York-New Jersey order which

was not open or noticed in this proceeding. Adoption of Proposal No. 3

provides neither clarity nor a basis, at least with respect to the

relationship between Order 4 and Order 2, to determine in which order a

plant should be pooled.

The apparent intent of Pennmarva's Proposal No. 3 seems clear and

consistent with how milk is regulated and pooled throughout the Federal

milk order system. In this regard, Pennmarva is asking that milk

distributed on routes be the sole test for determining where a plant

should be pooled. Proponents and opponents agree that where a plant has

most of its sales is the most appropriate basis for making such a

determination. Unfortunately, Proposal No. 3 falls short of being able

to accomplish this without causing a change to the New York-New Jersey

order.

The Johanna witness testified that, in part, the purpose of

Proposal No. 3 appeared intended to eliminate the location differential

as an Order 2 plant. This would obviously place Johanna at a

competitive disadvantage against other Order 2 handlers competing in

the market for fluid sales in the Order 2 marketing area. The witness

observed correctly that there is a 24.5-cent difference in the location

adjustment in Order 2 between the Lansdale plant's applicable zone (the

71-75 mile zone) and the nearer zone (the 61-70 mile

[[Page 36246]]

zone). On this point, an examination of the Class I price at the

Lansdale location reveals a disparate price difference between being

regulated under Order 2 or Order 4. Under the provisions of the Middle

Atlantic order, the Class I price applicable at Lansdale is $0.345 more

than what the applicable Class I price would be if it were regulated

under the New York-New Jersey order.

This disparate price difference suggests that the Class I price, at

least at the Lansdale location, could be better aligned. To the extent

that a $0.345 price difference between the pricing provisions of two

adjoining orders may be sufficient to encourage bulk Class I-A milk

transfers, that, together with other forms of milk disposition in the

New York-New Jersey order, provides the Lansdale plant the economic

incentive to meet the pooling standards and pricing provisions of Order

2. If the Class I price at Lansdale were in better alignment, it is

reasonable to suppose that Johanna would likely be indifferent on which

order they sought pricing and regulatory status. On the one hand,

Landsdale is able to attract an adequate supply of fluid milk at a

price lower than what would be applicable if regulated under Order 4.

Further, adoption of Proposal No. 3 would likely cause a shift in the

regulatory status of the Lansdale plant back to Order 4, causing their

cost of milk to increase when they meet the pooling standards of

another order. On the other hand, if the Lansdale plant enjoys its

greatest route disposition in the Order 4 marketing area, they enjoy a

sales advantage against other Order 4 regulated handlers that pay more

for their milk.

It is because of the above discussion of this issue that a

recommendation for or denial of Proposal No. 3 cannot be made on the

basis of this record. Adoption of Proposal No. 3 would have the effect

of causing a change to another order which cannot be accomplished

without a hearing that includes the other order. Further, the apparent

disparate price difference between the pricing provisions of the Middle

Atlantic and New York-Jersey orders suggests that the pooling question

at issue is perhaps a pricing issue. As such, it is not appropriate to

attempt correction of a pricing problem by changing pooling provisions.

Notice is given that the Department expects that interested parties

will investigate and offer proposals that address the Class I price

alignment structure between Order 2 and Order 4. Other features of

marketing order differences, such as that exhibited on the issue

regarding Proposal No. 3, should similarly be considered with the view

to facilitating more orderly marketing conditions.

b. A second proposal that would eliminate the exemption of a pool

plant's regulation under Order 4 when such a plant meets the pool plant

definition of another order from the pool plant definition of the order

should be adopted. This was proposed by Pennmarva (Proposal No. 2 as

published in the hearing notice).

Currently, an Order 4 pool plant can continue to be regulated under

the order as a pool plant for two succeeding months after it fails to

meet certain pooling standards, unless it simultaneously meets the

pooling provisions of another Federal order. This feature of the order

is commonly referred to as the ``lock-in'' provision.

Pennmarva testified that in the recent past, two Order 4 pool

distributing plants changed their status from being regulated under the

Middle Atlantic marketing order to the New York-New Jersey marketing

order (Order 2). In both cases, Pennmarva said, notice of the change of

regulation was provided to cooperative suppliers in a timely fashion so

that the appropriate logistical arrangements could be made. According

to Pennmarva, an important logistical item attended to was the

reassociation of the market's producers whose last shipment to a pool

distributing plant was to one of these plants. Pennmarva said

accomplishing this task was exacting and time consuming.

Pennmarva testified that there is no requirement or certainty for a

handler to give adequate notice to its cooperative suppliers of milk.

Further, said Pennmarva, cooperative suppliers have no independent

knowledge that a plant may change from regulation under the order to

another order. In a worst case scenario, Pennmarva said, a cooperative

supplying milk to a handler changing regulation would not discover this

change until ten days into the following month. Pennmarva indicated the

intent of this proposed amendment is to enhance orderly marketing

rather than keeping a plant pooled permanently under Order 4.

Opposition to Proposal No. 2 was voiced by Dairylea. According to

Dairylea, Proposal No. 2 has no economic or substantive basis. This

witness drew attention to the timely notification to suppliers by the

two plants that shifted regulation to the New York-New Jersey order as

an indicator of the well-functioning current provision of the order.

Thus, Dairylea concluded that the order therefore does not require a

modification to address the issue.

In the interest of promoting more orderly marketing conditions,

Proposal No. 2 has merit because it mitigates a cooperative's lack of

knowledge of a distributing plant's dispositions. Such knowledge is

needed in order for the cooperative to know where a plant is pooled or

when a plant's pool status may change in any given month. It is

reasonable to expect that when a distributing plant does change its

regulatory status under the order, producers supplying the plant should

have the time to make the business changes and adjustments they deem

necessary without the loss of the certainty of where their milk will be

pooled. The record reveals that advance notification was provided to

cooperative suppliers prior to changes of where certain plants would be

regulated in some instances. This is commendable and speaks well to the

interactions between cooperative suppliers of milk and handlers.

However, such notification is clearly voluntary when requiring it would

offer clear advantages without being burdensome. The merit in requiring

advance notification stems from the very real and reasonable need of

cooperatives to have such prior knowledge of where their milk will be

pooled and priced. Finding out after-the-fact that a plant's regulatory

status has changed is tantamount to denying producers access to an

intended market. For this reason, the objections by the opposition

witness from Dairylea have little merit. It also places an unreasonable

economic burden on Order 4 producers because of the order's requirement

to re-associate producer milk in the marketing area so that producers

may enjoy the benefits from being pooled in Order 4.

Because a decision regarding Proposal No. 3 cannot be made on the

basis of this record, the proposed deletion of Sec. 1004.7(a)(4) as

proposed by Pennmarva would not accomplish implementing the intent of

this proposal (Proposal No. 2). Accordingly, this decision modifies the

language of Sec. 1004.7(a)(4) to ensure that the two month ``lock-in''

provisions (as contained in Sec. 1004.7(a)(3)) will apply to plants

that may, in the future, shift regulation to another Federal order or

become a nonpool plant.

4. Discretionary Authority To Revise Pooling Requirements and Producer

Milk Diversion Limits

Two proposals offered by Pennmarva that would provide discretionary

authority for the market administrator to revise pooling requirements

and producer milk diversion limits should be adopted. Proposal No. 5,

as

[[Page 36247]]

published in the hearing notice, would provide the market administrator

the authority to raise or lower the applicable pooling standards for

distributing plants, supply plants, and reserve processing plants.

Proposal No. 8, as published in the Notice of Hearing, would similarly

provide the market administrator the authority to raise or lower the

applicable diversion limits for cooperative associations, federations

of cooperative associations, and handlers with non-member milk

supplies. Adoption of these provisions will provide a procedure for the

order to be modified in a more responsive manner to changes in

marketing conditions than is currently the case. Modification can be

made to encourage the shipment of additional supplies of milk for fluid

use or to prevent the uneconomic shipments of milk that are in excess

of fluid needs.

The order does not currently provide for such discretionary

authority for the market administrator to change pooling requirements

or diversion limitations. Typically, pooling standards may be

temporarily revised or suspended administratively through informal

rulemaking by the Department at a petitioner's request. The Department

investigates the request and determines the need to temporarily revise

or suspend pooling standards. Permanent changes or amendments to

Federal order provisions, as in this proceeding, are accomplished

through formal rulemaking procedures based on a public hearing.

The pool plant definition of Order 4 currently requires that in

meeting pool plant qualification status, a plant must have a Class I

disposition of at least 40 percent of its receipts in the months of

September through February and 30 percent in the months of March

through August. Additionally, at least 15 percent of receipts must be

within the marketing area. Any plant that does not meet this criteria

for pool plant status can still be a pool plant if at least a specified

percentage of its milk receipts is moved during the month to a plant(s)

that meet the Class I disposition requirements and volume of route

disposition within the marketing area indicated above. The applicable

percentage for the months of September through February is 50 percent

of receipts; for the months of March through August, the applicable

percentage is 40 percent. A reserve processing plant operated by a

cooperative association or by a federation of cooperative associations

is a pool plant provided, in part, that at least 30 percent of the

total milk receipts of member producers during the month is moved to

and physically received at a plant that meets the Class I disposition

standards.

The producer definition of Order 4 currently provides that dairy

farmers can be producers under the order even though their milk is

moved from the farm to nonpool plants for manufacturing purposes rather

than to plants for fluid use. Diversion limits apply to handlers

marketing dairy farmer's milk such as cooperative associations,

federations of cooperatives, and handlers marketing non-member milk.

The diversion limit for a cooperative association or a federation of

cooperatives is restricted to 50 percent of the volume of milk of all

members of a cooperative association or federation delivered to, or

diverted from, pool plants during the month. The diversion limit for

handlers with non-member milk supplies is restricted to 40 percent of

the total of non-member milk for which a pool plant operator is the

handler during the month.

Pennmarva testified that granting the market administrator the

authority to raise or lower pooling standards and diversion limits will

enhance orderly marketing by either encouraging needed milk shipments

or preventing the uneconomic movement of milk. Pennmarva indicated that

such administrative authority is granted to market administrators in

other markets, noting for example that the market administrator in the

Upper Midwest marketing area (Order 68) has similar authority.

Before making any revision to the pooling standard or diversion

limits established by the order, Pennmarva offered specific procedures

that would govern the conditions under which revisions might be

warranted. The procedure offered specifies that the market

administrator may increase or decrease the applicable percentages of

either the pool plant definition section or the producer definition

section of the order (Secs. 1004.7 and 1004.12 respectively) if a

revision is necessary to encourage needed shipments or to prevent

uneconomic shipments of milk. Before making such a finding, the order

procedure requires the market administrator to investigate the need for

revision either on the market administrator's own initiative, or at the

request of interested parties. If the investigation shows that a

revision might be appropriate, the proposed order language requires the

market administrator to issue a notice stating that a revision is being

considered and invite data, views, and arguments on whether a revision

is necessary. The procedure also specifies that any request for

revisions be filed with the market administrator no later than the 15th

day of the month prior to the month for which the requested revision is

desired to be effective.

Pennmarva testified that this amendment would provide for more

timely decisions on factors affecting the pool status of dairy farmers.

It was Pennmarva's opinion that the market administrator and staff are

fully appraised of the market conditions in the Middle Atlantic market.

Such working knowledge, said Pennmarva, can decrease the time and

expense needed to respond to a changing market and improve regulatory

efficiency.

Pennmarva maintains that this process is superior to the process

currently used to affect needed changes in pooling standards and

diversion limitations. Pennmarva noted that the Department can

effectuate suspension actions of order provisions that remove

regulatory language, thus reducing the burden on handlers. However, the

witness indicated that deletions of language by informal rulemaking

procedures is too limiting to address changes in marketing conditions.

Pennmarva said that providing the market administrator with a procedure

to make specific percentage changes, either up or down, would be a more

flexible way of changing shipping requirements or diversion limits.

Opposition testimony was received from Dairylea for granting such

discretionary authority to the market administrator for revising

shipping requirements (Proposal No. 5). Dairylea said that while they

have significant faith in market administrators, they see no reason to

abandon long-term practices of having a public hearing or meeting to

discuss the merits of changing applicable shipping standards within an

order. Dairylea is of the view that Proposal No. 5 does not provide for

a public meeting forum but rather simply written arguments almost after

the fact. Dairylea indicated that shipping standards can have a

profound economic impact on farmers, cooperatives, processors and

consumers, and, in fact, are the very essence of the market order

structure. The witness said that changing these standards without

public scrutiny in the form of a public meeting or hearing should not

be allowed. The witness feared that a simple request for a written

response would leave many people out of the discussion and

decisionmaking process.

A witness for Clover Farms testified in opposition to both Proposal

Nos. 5 and 8. Clover Farms opposes these two proposals unless provision

is made for a public forum to aid in the decision

[[Page 36248]]

making process of the market administrator.

A witness for Eastern Milk Producers Cooperative Association

(Eastern) also testified in opposition to Proposal Nos. 5 and 8.

Eastern indicated that it makes sense to provide a degree of

administrative discretion to the market administrator to resolve the

problems that may arise as a result of changes in supply and demand

conditions in the marketplace that would warrant adjustment of shipping

percentages. Nevertheless, before such discretion is exercised, Eastern

maintained that there be notice to the industry and preferably that

there be an opportunity for a public meeting for interested parties to

bring evidence in aiding the market administrator to make a proper

decision. Eastern noted that the ``call'' provision of the New York-New

Jersey marketing order, which requires the market administrator to

conduct a public meeting in setting performance standards on handlers

to ensure that the fluid market needs are adequately served, works

well. Eastern indicated support for a proposal that would be similar in

scope for the Middle Atlantic order.

At issue on the part of those who oppose granting administrative

discretion to the market administrator in adjusting shipping

requirements and diversion limitations is the lack of a public meeting.

Opponents have firm opinions that the public and interested parties

should have a greater degree of participation in the decisional process

than the proposed administrative proceeding would require. However,

opponents take no issue on the ability, impartiality or integrity of

the market administrator to make appropriate administrative decisions

regarding adjustments to shipping requirements and diversion limits.

The issue here is one of procedure.

The informal rulemaking procedure is routinely used for making

temporary suspensions or revisions to pool plant shipping requirements

and diversion limitations. The procedure of public notice and comment

before deciding on the appropriate course of action that is proposed in

Proposals Nos. 5 and 8 follow in identical fashion the procedures

followed by the Department. This informal rulemaking procedure does not

include reliance on public hearings or meetings because of the need for

urgent and expeditious action to address rapidly changing market

conditions. Nevertheless, any interested party has the opportunity to

have their views included in the decision making process.

As the record reveals, such a procedure has been used in the Upper

Midwest Marketing Area since 1990. Since the record does not reveal any

lack of confidence in the ability of market administrators (who are

entrusted with great responsibility in administering the order) to

effectively carry out this duty, it is reasonable to conclude that on

the basis of the broad authorities already entrusted to the market

administrator to provide for the effective administration of the order,

such discretionary authority that would be granted with the adoption of

Proposals Nos. 5 and 8 are consistent with those already given.

Furthermore, these two proposals have the broad support of producers

who represent some 90 percent of the milk associated with the market.

Rulings on Proposed Findings and Conclusions

Briefs and proposed findings and conclusions were filed on behalf

of certain interested parties. These briefs, proposed findings and

conclusions, and the evidence in the record were considered in making

the findings and conclusions set forth above. To the extent that the

suggested findings and conclusions filed by interested parties are

inconsistent with the findings and conclusions set forth herein, the

requests to make such findings or reach such conclusions are denied for

the reasons previously stated in this decision.

General Findings

The findings and determinations hereinafter set forth supplement

those that were made when the Middle Atlantic order was first issued

and when it was amended. The previous findings and determinations are

hereby ratified and confirmed, except where they may conflict with

those set forth herein.

(a) The tentative marketing agreement and the order, as hereby

proposed to be amended, and all of the terms and conditions thereof,

will tend to effectuate the declared policy of the Act;

(b) The parity prices of milk as determined pursuant to section 2

of the Act are not reasonable in view of the price of feeds, available

supplies of feeds, and other economic conditions which affect market

supply and demand for milk in the marketing area, and the minimum

prices specified in the tentative marketing agreement and the order, as

hereby proposed to be amended, are such prices as will reflect the

aforesaid factors, insure a sufficient quantity of pure and wholesome

milk, and be in the public interest; and

(c) The tentative marketing agreement and the order, as hereby

proposed to be amended, will regulate the handling of milk in the same

manner as, and will be applicable only to persons in the respective

classes of industrial and commercial activity specified in a marketing

agreement upon which a hearing has been held.

Recommended Marketing Agreement and Order Amending the Order

The recommended marketing agreement is not included in this

decision because the regulatory provisions thereof would be the same as

those contained in the order, as hereby proposed to be amended. The

following order amending the order, as amended, regulating the handling

of milk in the Middle Atlantic marketing area is recommended as the

detailed and appropriate means by which the foregoing conclusions may

be carried out.

List of Subjects in 7 CFR Part 1004

Milk marketing orders.

For the reasons set forth in the preamble, the following

provision(s) in Title 7, Part 1004, is amended as follows:

PART 1004--MILK IN THE MIDDLE ATLANTIC MARKETING AREA

1. The authority citation for 7 CFR part 1004 continues to read as

follows:

Authority: Secs. 1-19, 48 Stat 31, as amended; 7 U.S.C. 601-674.

2. Section 1004.7 is amended by revising paragraphs (a)(1) and

(a)(4); revising paragraph (d)(1); and by adding a new paragraph (g),

to read as follows:

Sec. 1004.7 Pool plant.

* * * * *

(a) * * *

(1) Milk received at such plant directly from dairy farmers

(excluding milk diverted as producer milk pursuant to Sec. 1004.12, by

either the plant operator or by a cooperative association, and also

excluding the milk of dairy farmers for other markets) and from a

cooperative in its capacity as a handler pursuant to Sec. 1004.9(c); or

* * * * *

(4) A plant's status as an other order plant pursuant to paragraph

(f) of this section will become effective beginning the third month in

which a plant is subject to the classification and pricing provisions

of another order.

* * * * *

(d) * * *

(1) A reserve processing plant operated by a cooperative

association at

[[Page 36249]]

which milk from dairy farmers is received if the total of fluid milk

products (except filled milk) transferred from such cooperative

association plant(s) to, and the milk of member producers physically

received at, pool plants pursuant to Sec. 1004.7(a) is not less than 25

percent of the total milk of member producers during the month.

* * * * *

(g) The applicable shipping percentage of paragraphs (a) and (b) or

(d) of this section may be increased or decreased by the market

administrator if the market administrator finds that such revision is

necessary to encourage needed shipments or to prevent uneconomic

shipments. Before making such a finding, the market administrator shall

investigate the need for revision either on the market administrator's

own initiative or at the request of interested parties. If the

investigation shows that a revision of the shipping percentages might

be appropriate, the market administrator shall issue a notice stating

that the revision is being considered and invite data, views and

arguments. Any request for revision of shipping percentages shall be

filed with the market administrator no later than the 15th day of the

month prior to the month for which the requested revision is desired

effective.

3. Section 1004.12 is amended by revising paragraphs (d)(2)(i) and

(d)(2)(ii); and by adding a new paragraph (g), to read as follows:

Sec. 1004.12 Producer.

* * * * *

(d) * * *

(2) * * *

(i) All of the diversions of milk of members of a cooperative

association or a federation of cooperative associations to nonpool

plants are for the account of such cooperative association or

federation, and the amount of member milk so diverted does not exceed

55 percent of the volume of milk of all members of such cooperative

association or federation delivered to or diverted from pool plants

during the month.

(ii) All of the diversions of milk of dairy farmers who are not

members of a cooperative association diverting milk for its own account

during the month are diversions by a handler in his capacity as the

operator of a pool plant from which the quantity of such nonmember milk

so diverted does not exceed 45 percent of the total of such nonmember

milk for which the pool plant operator is the handler during the month.

* * * * *

(g) The applicable percentages in paragraphs (d)(2)(i) and

(d)(2)(ii) of this section may be increased or decreased by the market

administrator if the market administrator finds that such revision is

necessary to encourage needed shipments or to prevent uneconomic

shipments. Before making such a finding, the market administrator shall

investigate the need for revision either on the market administrator's

own initiative or at the request of interested parties. If the

investigation shows that a revision of the diversion limit percentages

might be appropriate, the market administrator shall issue a notice

stating that the revision is being considered and invite data, views

and arguments. Any request for revision of the diversion limit

percentages shall be filed with the market administrator no later than

the 15th day of the month prior to the month for which the requested

revision is desired effective.

Dated: July 10, 1995.

Lon Hatamiya,

Administrator, Agricultural Marketing Service.

[FR Doc. 95-17282 Filed 7-13-95; 8:45 am]

BILLING CODE 3410-02-P