Milk in the Carolina and Certain Other Marketing Areas; Tentative Decision on Proposed Amendments To Marketing Agreements and Orders

7 CFR Part Marketing area Docket No.

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1005 Carolina................ AO-388-A9

1007 Southeast............... AO-366-A38

1011 Tennessee Valley........ AO-251-A40

1046 Louisville-Lexington- AO-123-A67

Evansville.

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AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This tentative partial decision proposes, on an emergency

basis, amendments to four Federal milk orders in the Southeastern

United States. The amendments would establish a transportation credit

balancing fund from which to reimburse handlers for the cost of

importing bulk milk into these markets for fluid use when milk supplies

that are normally associated with these markets are insufficient to

meet fluid needs. The amendments also would establish a monthly

assessment to maintain the solvency of the fund and a methodology for

computation of the transportation credits. The proposed rules are based

upon proposals that were considered at a public hearing held May 15-16,

1996, in Charlotte, North Carolina. Producers in the affected areas

will have an opportunity to vote on the interim amendments before they

go into effect.

DATES: Comments must be submitted on or before August 19, 1996.

ADDRESSES: Comments (4 copies) should be filed with the Hearing Clerk,

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

Washington, DC 20250.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,

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

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

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 Agricultural Marketing Service has

determined that this rule will not have a significant economic impact

on a substantial number of small entities. No new entities will be

regulated as a result of the proposed rules and any changes experienced

by handlers will be of a minor nature.

The amended orders will promote orderly marketing of milk by

producers and regulated handlers by providing transportation credits to

assist them in bringing supplemental milk to the market for fluid use.

The record of this proceeding indicates that supplemental milk is

regularly imported into the Southeastern United States, that the burden

of cost for providing this service has been increasing, and that it

falls unevenly among the handlers and dairy farmers operating in these

markets.

There will be a modest assessment on handlers to provide funds for

the proposed new transportation credits, which will be used to

reimburse handlers for the costs that they incur, but this assessment

will not exceed 6 cents per hundredweight of Class I producer milk. The

assessment will be reduced or waived completely once the balance in the

transportation credit balancing fund is sufficient to cover the sum of

six months' credits. The 6-cent per hundredweight assessment translates

to about one-half cent per gallon of milk.

At present, all handlers regulated under the 4 milk orders involved

in this proceeding file a monthly report of receipts and utilization

with the market administrator. The proposed amendments resulting from

this proceeding will only add 2 lines of information to this report.

However, only those handlers applying for transportation credits on

supplemental milk will have to provide this additional information to

the market administrator. The estimated time to collect, aggregate, and

report this information, which is already compiled for other uses, is

less than 15 minutes per month.

The net impact of the proposed amendments on dairy farmers should

be insignificant. Some dairy farmers may experience a reduction in

their blend price during the first year that the new rules are in

effect. This reduction, which should amount to less than 5 cents per

hundredweight, will occur only if the balance in the transportation

credit balancing fund is insufficient to cover the current month's

transportation credits. Once the fund has been fully endowed, dairy

farmers would experience no reduction in the uniform price as a result

of transportation credits.

The preamble of this tentative decision clearly explains to all

handlers and dairy farmers in these markets how the new provisions will

work. The market administrator will send a copy of this decision to

each handler, cooperative association, and nonmember dairy farmer

covered by these orders. In addition, the market administrator's office

is accessible by telephone for any additional questions that may arise

during regular business hours.

The amendments proposed herein have been reviewed under Executive

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

retroactive effect. If adopted, this proposed rule will 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 request 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 documents in this proceeding:

Notice of Hearing: Issued May 1, 1996; published May 3, 1996 (61 FR

19861).

Preliminary Statement

A public hearing was held to consider proposed amendments to the

marketing agreements and the orders regulating the handling of milk in

the aforesaid marketing areas. The hearing was held pursuant to the

provisions of the Agricultural Marketing Agreement Act of 1937, as

amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR

Part 900), in Charlotte, North Carolina, on May 15-16, 1996. Notice of

such hearing was issued on May 1,

[[Page 37629]]

1996, and published May 3, 1996 (61 FR 19861).

Interested parties were given until May 28, 1996, to file post-

hearing briefs on the proposals as published in the Federal Register

and as modified at the hearing. Comments also were requested on whether

the proposals should be considered on an emergency basis.

Interested parties may file written exceptions to this tentative

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. Four 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 material issues on the record of the hearing relate to:

1. Transportation credits for supplemental bulk milk received for

Class I use.

2. Deductions from the minimum uniform price to producers.

3. Whether emergency marketing conditions in the 4 regulated

marketing areas warrant the omission of a recommended decision with

respect to Issue No. 1 and the opportunity to file written exceptions

thereto.

This tentative partial decision only deals with Issues 1 and 3.

Issue 2 will be handled through normal rulemaking procedures in a

forthcoming recommended decision.

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. Transportation Credits for Supplemental Bulk Milk Received for Class

I use

Federal Milk Orders 1005, 1007, 1011, and 1046 (hereinafter

referred to as ``the 4 orders'') should be amended to provide a

transportation credit for supplemental bulk milk that is transferred

from an other order plant to a pool plant during the months of July

through December. A credit also should be provided to those handlers

who import supplemental bulk milk for fluid use directly from

producers' farms. For plant milk, the credit should be limited to milk

that is allocated to Class I and should be computed at a rate equal to

3.7 cents per 10 miles per cwt. or fraction thereof from the transferor

plant to the transferee plant. The credit should be reduced to the

extent that the Class I price at the transferee plant exceeds the Class

I price at the transferor plant.

In the case of milk received directly from producers' farms, the

origination point of a bulk tank truck containing more than one

producer's milk should be the city closest to the farm from which the

last farm pickup was made. Alternatively, the origination point may be

the location specified on a certified weight receipt obtained at an

independently operated truck stop after the last farm pickup has been

made. The credit should be computed by multiplying 3.7 cents times the

number of 10-mile increments between the origination point and the

location of the plant receiving the milk, less any positive difference

in the Class I prices at the two points under the order receiving the

milk.

A transportation credit for bulk milk received from an other order

plant for Class I use was proposed by Mid-America Dairymen, Inc., a

cooperative association that represents approximately 50 percent of the

producers in Orders 5, 7, and 11, and nearly one-third of the producers

in Order 46.

A spokesman for Mid-Am testified that: (a) The Southeast states are

chronically short of milk for fluid use at certain times of the year

and this shortage will be particularly acute during the upcoming summer

and fall months; (b) the Federal order Class I pricing structure will

not accommodate the movement of milk from surplus markets to deficit

markets; (c) the burden of supplying the 4 Southeast markets with

supplemental milk for fluid use falls disproportionately on the

cooperative associations serving these markets; (d) the Agricultural

Marketing Agreement Act provides for ``marketwide service payments'' to

provide for greater equity between producers and handlers supplying a

market with supplemental milk during short production months; and (e)

therefore, the Secretary should immediately amend the 4 orders

effective July 1, 1996, to provide relief to those handlers who will be

relied upon to provide supplemental milk to meet the fluid needs of

consumers in the area.

The General Manager of Carolina Virginia Milk Producers Association

(CVMPA), a cooperative association with producers supplying plants

regulated under all 4 orders, testified in support of Mid-Am's proposed

transportation credits but stated that the proposal should be expanded

to include supplemental milk received directly from producers' farms.

The spokesman testified that during the period from July through

December 1995, CVMPA imported more than 19 million pounds of plant milk

at a transportation cost of 307 thousand dollars. During that same

period, however, CVMPA imported more than 38 million pounds of

supplemental producer milk directly from farms at a cost of 528

thousand dollars, he said.

The CVMPA spokesman testified that supplemental milk shipped

directly from producers' farms can often be purchased at lower cost

than plant milk. He also noted that this farm-shipped milk is often of

better quality because it requires less handling. He concluded that the

orders should be amended to give handlers the economic incentive to

transport milk in the most efficient manner.

A spokesman for Milk Marketing, Inc. (MMI), a cooperative

association supplying handlers under Orders 11 and 46, testified in

opposition to the Mid-Am proposal as it relates to Order 46. The MMI

spokesman stated that MMI opposed the proposal on the basis that over-

order charges would be a better method of obtaining reimbursement for

the costs associated with importing milk into the market for fluid use.

Also, he said that MMI did not support the proposal because it did not

provide a transportation credit for bulk supplemental milk shipped

directly from producers' farms to plants. However, he said that if the

Department should adopt Mid-Am's proposal, it should be expanded to

include supplemental milk received directly from producers' farms.

Receiving milk in this manner, he explained, would encourage hauling

efficiencies, improve milk quality, eliminate pump-over expenses, and

reduce product loss due to handling.

Select Milk Producers, Inc., a New Mexico dairy cooperative that

provides supplemental milk to the Southeast markets, endorsed the

suggestion of CVMPA and MMI to provide transportation credits for farm-

to-plant milk as well as plant-to-plant milk.

The Mid-Am proposal also received a qualified endorsement from

Fleming Dairy. The spokesman for Fleming, which operates pool

distributing plants in Nashville, Tennessee, and Baker, Louisiana,

suggested that Mid-Am's proposal be modified to restrict transportation

credits to the months of July through October instead of July through

December. He also suggested eliminating the provision proposed by Mid-

Am that would permit credits during the months of January through June

if the Class I utilization during the month is higher than 80 percent.

[[Page 37630]]

The Fleming spokesman stated that during the months when

transportation credits are in effect, Class III-A pricing in these

markets and in the surrounding markets should be suspended. At the

present time, he said, the presence of Class III-A pricing in these

markets significantly adds to the cost of obtaining supplemental milk

because cooperatives and fluid milk processors have to bid this

supplemental milk away from butter-powder plants.

A spokesman for Land O' Sun Dairies, Kingsport, Tennessee, Milkco,

Inc., Asheville, North Carolina, and Hunter Farms, Charlotte and High

Point, North Carolina, also offered constructive criticism of the Mid-

Am proposal. The spokesman suggested that handlers seeking

reimbursement for transportation costs should be required to show that

they, in fact, incurred the cost. If the actual transportation cost was

less than the credit provided in the order, a handler should only

receive reimbursement for the cost actually incurred. He also

questioned whether the proposed 3.9 cents per 10 miles accurately

represented the cost of transporting bulk milk and he criticized the

proposal for not restricting transportation credits on the movement of

bulk milk between the 4 orders involved in this proceeding. Finally,

the witness suggested borrowing funds from the producer-settlement fund

reserve, instead of the marketwide pool, when the proposed

transportation credit balancing fund contains an insufficient balance

to cover a month's transportation credits.

Several proprietary handlers testified in opposition to the

proposed transportation credits. The president of Southern Belle Dairy,

Somerset, Kentucky, stated that handlers make choices in arranging for

their milk supplies and the Federal order program should not be called

upon to ``absolutely level the playing field.'' He said the proposed 6-

cent assessment for the transportation credit balancing fund would put

Southern Belle at a competitive disadvantage with its competitors in

Indiana, Virginia, West Virginia, and Ohio. He also stated that it will

promote inefficient movements of milk by giving regional cooperatives

the opportunity to divert regional milk supplies to Florida and then

replace those supplies with supplemental milk at handlers' expense.

Finally, he criticized the proposal for not including the suspension of

Class III-A pricing.

The Director of Milk Procurement for Dean Foods Company, Franklin

Park, Illinois, also testified in opposition to the Mid-Am proposal. He

said that negotiation between buyer and seller was the best vehicle to

recover costs and that proprietary handlers that purchase all or part

of their milk supply from independent producers should not be expected

to pay into a transportation pool to assure a milk supply for

processors who choose to purchase their milk from a ``marketing

agency.'' The proposed amendments, he said, could create false

shortages and force fluid processors to make unnecessary payments into

a transportation pool for the sole benefit of cooperatives.

The vice president of finance for Holland Dairies, Holland,

Indiana, also testified in opposition to the proposal. The witness

stated Holland Dairies has developed its own milk supply from

independent producers and, as a result, carries the risk of balancing

this milk supply during the flush and short seasons of production. He

said that while the proposed transportation credits would cost Holland

Dairy a considerable amount of money, it would provide no apparent

benefit to Holland Dairy. He concluded that suppliers of milk in the

Southeast voluntarily chose to do business in that region and should

therefore be required to manage their business accordingly.

Briefs. Several briefs were filed following the hearing. A brief

from the Kroger Company indicates Kroger's opposition to the

transportation credit proposal. Kroger states in its brief that ``* * *

a temporary situation should not be used as justification for a

permanent change in the order which would allow the use of pool money

to cover the cost of transportation * * * the current system has worked

in the past and will continue to do so in the future.''

Holland Dairies, Inc., in its brief, reiterated its opposition to

the transportation credit proposal. Holland stated that ``it is

completely unfair to independent handlers and processors to legislate

that they are required to pay into a fund that only a cooperative can

draw funds from.'' (It appears from this statement that Holland has

misconstrued the proposal. As proposed, and as adopted herein,

transportation credits would be available to any handler that brings

supplemental milk into the market. Accordingly, should Holland Dairy

run short of milk during the months of July through December, it could

import milk from Wisconsin or Michigan, for example, and receive a

transportation credit for such milk.)

While conceding that the Southeast has always been in a deficit

position, Holland maintains that handlers should pay for supplemental

milk through premiums outside of the order. Holland is also concerned

that stair stepping of milk to markets farther south will occur and

that normal deliveries should be excluded from receiving a

transportation credit.

Holland also argues in its brief that handlers should have a choice

of buying milk from a cooperative association or from independent

producers. It states that the proposed transportation credits would

eliminate this choice.

Holland contends that Order 46 should not be part of the proposed

transportation credit because it is far removed from deficit areas in

Georgia and Florida. Finally, it states that if a transportation credit

is implemented, it should not apply for the first 250 miles.

A brief filed on behalf of the Fleming Company states that the

proposed transportation credits are compellingly supported by the

evidence in this proceeding. Fleming, however, reiterates its

suggestion that the credits be limited to the months of July through

October and suggests a further limitation based upon mileage or source

of supply. The handler again expresses a concern about Class III--A

pricing and suggests that it be suspended when supplemental milk is

needed in the Southeast. Fleming urges the Secretary to act on an

emergency basis to adopt the proposal.

A brief was also filed on behalf of Land O' Sun Dairies, Milkco,

Inc., and Hunter Farms. The plants of these handlers are regulated

under Orders 5 and 11.

These handlers note in their brief that ``the record discloses a

disturbing trend in raw milk production and fluid consumption in the

Southeastern United States * * * raw milk production has not been

keeping pace with consumption in the Southeast.'' While desiring to

maintain a local dairy industry in the Southeast, they recognize that

``some considerations must be made for obtaining fluid milk supplies

from non-local sources when that milk is needed.''

The brief of these handlers indicates that they are not opposed to

adoption of a modified transportation credit proposal. They are

concerned, however, that the provision not be abused. For this reason,

they offer several suggestions to prevent abuse. One suggestion is to

exclude bulk shipment of milk between the 4 orders from receiving any

transportation credits. (This suggestion has been adopted in this

decision.)

Another suggestion of these handlers is to establish historical

movements of milk from these 4 orders to the 3 Florida orders. If a

handler or a cooperative association shipped anything more than these

historical shipments to Florida

[[Page 37631]]

and, at the same time, imported milk into the market from which these

Florida shipments originated, the new or replacement milk would not

qualify for a transportation credit.

These 3 handlers state that they are opposed to a provision in the

Mid-Am proposal that would permit transportation credits during the

months of January through June if a market's Class I utilization

exceeds 80 percent. The basis for their opposition, according to their

brief, is that some parties may try to manipulate the Class I

utilization in one or more of these markets, causing some handlers to

pay an assessment for transportation credits while their competitors in

one or more of the other 4 markets involved in this proceeding do not.

Taken to its logical conclusion, the position of these 3 handlers

seems to be that this provision should be administered as if the 4

separate markets were, in fact, one market. This would have to be so

because the only way that the assessment for the transportation credits

can be uniform among the 4 individual orders is if the transportation

credits given out each month are proportionately the same in each

market. It is unlikely that this will be the case since the Class I

utilization does vary among the 4 markets. It is conceivable that

during some months Orders 5, 7, or 11 may need supplemental milk, while

Order 46 may not. Thus, transportation credits and assessments for

transportation credits would be applicable under Orders 5, 7, and/or

11, but not Order 46.

The 3 handlers also state that transportation credits should not

apply for the first 100 miles of shipment and that the credit should be

something less than the proposed 3.9 cents per 10 miles. They also

suggest borrowing money from the producer-settlement fund reserve,

rather than the producer-settlement fund itself, when transportation

credits exceeds the available funds in the transportation credit

balancing fund. In support of this idea, they state that local milk

production has suffered enough and payments to producers should not be

reduced further by taking money out of the producer-settlement fund.

The brief of the 3 handlers supports the proposal of CVMPA to allow

farm-to-plant supplemental milk to qualify for a transportation credit.

However, they suggest limiting this milk to dairy farms located outside

of the 4 marketing areas.

Finally, the 3 handlers express their concern about the possible

exclusion of Order 46 from the transportation credit proposal. If this

were to happen, they state, it would disrupt the competitive

relationship among competing handlers in Orders 5, 11, and 46.

A brief was received on behalf of Select Milk Producers (SMP), a

cooperative association based in Artesia, New Mexico. The brief states

that SMP expects to market milk in the Southeast marketing area in the

fall of 1996 and therefore requests that transportation credits be

extended to farm-to-plant milk as well as to plant-to-plant milk.

SMP states that they concur with MMI's suggestion regarding the

application of transportation credits for farm-to-plant supplemental

milk. SMP suggests that supplemental milk be defined as milk that was

not associated with any of the 4 markets during the prior months of

January through July.

Southern Belle Dairy, Somerset, Kentucky, reiterated their

opposition to the transportation credit proposal for Order 11 in its

brief. Southern Belle states that it bears the full cost of its milk

supply and that it has made private arrangements to solve any problem

that might arise. It also contends that the proposal would reduce their

competitive relationship vis-a-vis handlers in other markets and that

the Tennessee Valley order does not need the transportation credits.

Finally, it states that Florida is an integral part of the deficit

problem in the Southeast and, accordingly, should be included in the

solution to the problem.

Southern Belle concludes that the proposed transportation credits

are simply a money-shifting scheme whereby dairies such as itself that

have developed an independent supply of milk over a long period of time

will be forced to subsidize other dairies who have not invested in

these relationships which would ensure a steady supply of milk.

Gold Star Dairy, Little Rock, Arkansas, also filed a brief in

opposition to the proposed transportation credits. This handler

maintains that there is no need for supplemental milk in the western

part of the Southeast market, and that, in those parts of the marketing

area where supplemental milk is being brought in, cooperatives are now

being compensated through over-order charges.

Gold Star argues that it has little in common with plants in the

eastern part of the marketing area; it does not share a common supply

area with them; it is only technically part of the Southeast market

because it is within the defined marketing area; it is already paying

for marketwide services through over-order charges; and that if,

notwithstanding these arguments, the Secretary should adopt the

proposed transportation credits, the assessment to fund the credits

should not be based on Class I sales made outside the marketing area.

In its brief, Carolina-Virginia Milk Producers Association offers

several suggestions for implementing its modified proposal, which would

provide transportation credits for supplemental milk supplied to the

market directly from producers' farms. The cooperative supports a

prohibition on credits for milk moving between the 4 markets, as well

as the proposed hauling rate of 3.9 cents per 10 miles. CVMPA also

endorses a suggestion made at the hearing to borrow funds from the

producer-settlement fund reserve, rather than the producer-settlement

fund itself, when there are insufficient funds in the transportation

credit fund to cover a current months' credits. It states that the

reserve fund could be paid back in future months for the money that is

borrowed.

With respect to the mechanics of providing transportation credits

for farm-to-plant milk, CVMPA suggests defining ``supplemental milk''

as the milk of dairy farmers which is pooled only during the period of

market shortage. Specifically, it suggests that transportation credits

not be available to a dairy farmer who was a producer on any of the 4

markets ``for more than 35 days during more than 8 months in the

previous July-June period.''

To determine the origination point for farm-to-plant milk, CVMPA

suggests using the county courthouse closest to the farm of the last

producer whose milk is on the load. It also suggests subtracting any

positive difference between the Class I price at the receiving pool

plant and the Class I price at the origination point in computing the

net transportation credit. This treatment would make the transportation

credit computation virtually identical for transfers of plant milk and

direct farm-to-plant deliveries.

Finally, CVMPA suggested the requirement that receiving handlers

provide the market administrator with a list of the producers for whom

transportation credits are requested.

Milk Marketing, Inc., filed a brief reiterating its opposition to

the transportation credit proposal for Order 46 only. It maintains that

over-order pricing is the best method for handling additional costs

associated with importing milk to the market for fluid use. MMI states

that if the Department should nevertheless adopt a transportation

credit provision for Order 46, the provision should include an

extension of the credit to cover supplemental milk shipped directly

from farm to plant. Several of the

[[Page 37632]]

safeguards mentioned in the brief are similar to those already

described with respect to CVMPA's brief.

Mid-America Dairymen, Inc., submitted a lengthy brief setting forth

the historical background for the hearing, pertinent facts and figures

brought out in the hearing record, the legislative history for the

marketwide service payment provision contained in the Agricultural

Marketing Agreement Act, a review of past agency decisions concerning

transportation credits, and a comprehensive review of the arguments

supporting its proposal.

Several points brought out in Mid-Am's brief are particularly

noteworthy and should be emphasized. Mid-Am points out once again that

a disproportionate share of the supplemental milk that is brought into

the Southeast markets is brought in by the cooperative associations

serving these markets. It argues that the costs incurred in importing

this milk cannot simply be passed on to their customers because it

would put these customers at a competitive disadvantage with other

handlers who are fortunate enough to have adequate supplies of locally-

produced milk to meet their needs.

Mid-Am contends that the cost of supplying these markets with

surplus milk puts their member producers at a disadvantage compared to

non-member producers who do not share in this cost. The cooperative

also points out that when these markets are short of milk, it shuts

down its manufacturing plants, which adds to its cost. It notes, for

instance, that during the months of July through December 1995, it shut

down its facilities in Louisville, Kentucky, Lewisburg, Tennessee, and

Franklinton, Louisiana.

In its review of the legislative history of the Food Security Act

of 1985, the foundation for the marketwide service provision in

Sec. 608c(5)(J) of the Act, Mid-Am notes that Congress sought to

achieve equity between producers or handlers who bear service costs

that benefit the market and those who do not. It included an excerpt

from one of the committee reports (reprinted at 1985 U.S. Code

Congressional and Administrative News 1103), which appears to be

particularly relevant to the proposal at hand. It reads: ``* * * At the

moment, there are three major problems with respect to the operation of

the Federal order systems: (1) minimum Federal order Class I prices are

not adequate to attract the necessary supply to meet the Class I needs

in deficit areas; (2) handlers who must go outside their territory to

acquire additional milk incur greater costs for milk than handlers who

obtain all of their milk from the local area; and (3) those producers

who assume the responsibility of supplying the needs of the market have

to pay the cost of transporting supplemental milk, resulting in

producers not receiving uniform prices.'' Mid-Am argues that its

proposal for transportation credits conforms to the equity-promoting

goals described in the legislative history.

Mid-Am also argues that its proposal conforms with past agency

decisions. Among many quotes included in its brief is the following

from a final decision issued October 8, 1987, incorporating permanent

transporting credits in the Chicago Regional order (52 FR 38240): ``* *

* a major purpose of the order program is to assure an adequate supply

of pure and wholesome milk for the fluid market and to establish and

maintain orderly marketing conditions. This includes adopting order

provisions to facilitate securing adequate supplies of milk to meet the

market's fluid needs. The record shows that obtaining adequate milk for

those needs is not being accomplished in an orderly and equitable

fashion under the current order provisions.''

Mid-Am states that the suggested modifications of MMI and CVMPA to

provide transportation credits for farm-to-plant milk should be given

favorable consideration by the Secretary. It urges the Secretary to

incorporate appropriate safeguards, however, to ensure that no

artificial economic advantage is created for supplies that are not

normally associated with the market.

Mid-Am notes that the supply/demand situation in the Southeast has

become particularly acute in recent months. It emphasizes that the

shortage this summer and fall will likely be even worse than in 1995,

pointing to reduced production during the first 4 months of 1996,

compared to a year earlier, especially in Tennessee and Kentucky, 2

important supply areas for the Southeast. It also notes that the

Olympic Games that will be held in Atlanta this summer will likely

increase consumer demand for fluid milk. It urges the Secretary to

issue an expedited decision that would allow the transportation credits

to be effective by July 1, 1996.

Conclusion. Testimony and exhibits introduced at the hearing

indicate that the Southeastern United States has a chronic shortage of

milk for fluid use in the summer and fall months, which often extends

into the winter months. This shortage has been worsening over time as

milk production has declined and population has increased, and this

trend is likely to continue, exacerbating the problem of obtaining a

sufficient supply of milk for fluid use in an orderly and equitable

manner. Under current arrangements, the costs of obtaining an

increasing supply of supplemental milk are not being borne equally by

all handlers and producers in each of the 4 orders. The service

provided by handlers, particularly, cooperative associations, in

obtaining sufficient supplies of milk is a service of marketwide

benefit for which the Secretary is authorized to include provisions in

Federal milk orders to compensate handlers. The record of this hearing

demonstrates that disorderly marketing conditions exist because of the

significantly different costs that are incurred by handlers who provide

the additional service versus those who do not. The increasing

magnitude of the disproportionate sharing of costs is jeopardizing the

delivery of adequate supplies of milk for fluid use. Thus, the record

justifies the adoption of these provisions to restore stability and

order in providing adequate supplies of milk for fluid use for Orders

5, 7, 11, and 46, as explained below.

Data in the record of this hearing show that the area covered by

Orders 5, 7, 11, and 46 is a highly seasonal, deficit milk production

area. As shown in Table 1, milk production in the 12 Southeast states

of Arkansas, Louisiana, Mississippi, Tennessee, Kentucky, Alabama,

Georgia, Florida, South Carolina, North Carolina, Virginia, and West

Virginia has fallen from 15.4 billion pounds in 1988 to 14.5 billion

pounds in 1995. Based upon this trend, production in the year 2000 is

expected to be 13.1 billion pounds.

Table 1.--Milk Production and Population in 12 Southeastern States 1988-

2010

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

Year Population Production (lbs.)

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

1988................................... 57,961,000 15,432,000,000

1989................................... 58,732,000 15,356,000,000

1990................................... 59,266,000 15,505,000,000

1991................................... 60,265,000 15,362,000,000

1992................................... 61,090,000 15,499,000,000

1993................................... 61,926,000 15,310,000,000

1994................................... 62,767,000 14,994,000,000

1995................................... 63,573,000 14,554,000,000

2000................................... 66,876,000 13,114,000,000

2005................................... 70,471,000 11,603,000,000

2010................................... 74,066,000 10,092,000,000

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

Source: Population--U.S. Bureau of the Census.

Milk Production--Milk Production, NASS, USDA, Washington, DC.

The bar graph below compares quarterly production in the 12

Southeastern states during the past 4 years. It shows that quarterly

production is down from the previous year's quarter

[[Page 37633]]

for the past 4 years. The graph also shows that not only has production

decreased for 4 consecutive years, but that such decreases have

occurred at an accelerating rate. Furthermore, the graph demonstrates

that the degree of seasonality between the relatively flush and short

production months has also been increasing.

BILLING CODE 3410-02-P

[[Page 37634]]

[GRAPHIC] [TIFF OMITTED] TP18JY96.000

BILLING CODE 3410-02-C

[[Page 37635]]

While production in the Southeast has been declining, the

population of this area has been rising. As shown in Table 1, the

population of the 12 Southeastern states rose from 57.9 million in 1988

to 63.5 million in 1995. By the year 2000, population is expected to

reach 66.8 million.

Data in the record indicates that the per capita consumption of all

dairy products in the 12 Southeastern states has grown in the past 7

years, from 568 pounds (milk equivalent) per capita in 1988 to 582

pounds in 1995. Conservatively estimating no growth in the per capita

consumption of fluid milk products in the next 10 years, the deficit in

Southeast milk production will grow significantly based upon population

growth alone. According to Census Bureau data, 16 states will gain more

than 1 million persons by the year 2020; 7 of these states are covered

at least in part by the milk orders involved in this proceeding. There

clearly is no question concerning the continuing--and, in fact,

growing--need to import supplemental milk into the Southeastern United

States for fluid use.

The record shows that the production decline and the population

increase has resulted in an increasing Class I utilization in these 4

markets. During the period from April 1995 to April 1996, producer milk

pooled under the 4 orders decreased by 42 million pounds. At the same

time, the Class I utilization of producer milk under the 4 orders

increased by almost 13 percentage points to 77.5 percent. It

undoubtedly would have increased even more except for the fact that the

milkshed continues to expand in a northerly and westerly direction to

more and more distant farms. In this regard, it should be noted that

milk has been regularly flowing into the Southeast markets from Texas

and New Mexico, and there are indications that such shipments will

start sooner than ever this summer.

These markets are tightest during the late summer and fall months.

The Class I utilization reached 86.1%, 85.5%, 83.7%, and 80.2% in

Orders 5, 7, 11, and 46, respectively, during August 1995. This

compares to 84.0%, 83.3%, 85.1%, and 73.8%, respectively, one year

earlier. Percentages of this magnitude indicate a very tight market

situation when taking into consideration the bottling schedule of fluid

milk plants, the desire of handlers to make some Class II products

locally, and the unavoidable need to process some local milk into

storable manufactured products, particularly on weekends when it is not

needed for fluid use.

It is impossible to reveal precisely the total amount of

supplemental milk needed by these markets because of restrictions on

the release of confidential data (i.e., data represented by less than 3

handlers). In addition, much of the supplemental milk that is needed

entered these markets directly from the farms of dairy farmers who are

not regular suppliers of these markets. With these shortcomings taken

into consideration, market administrator data entered in the record for

Orders 5, 11, and 46 show that bulk receipts of other order milk for

Class I use increased from 13.1 million pounds in 1993 to 49.6 million

pounds in 1995. For these 3 markets, the data also show that first

quarter receipts of bulk other order milk for Class I use is running at

more than 10 times the level of 1995.

It is difficult to compare similar data for Order 7 to earlier

periods because several markets were merged into the present Southeast

marketing area in July 1995. Thus, shipments which formerly would have

been other order bulk transfers are now transfers between pool plants

within the order. Nevertheless, treating the merged order as if it were

still 5 separate orders and comparing the other order bulk receipts for

Class I use in 1995 to 1993 indicates a more than twofold increase in

such receipts.

Data entered into the record by Mid-Am shows that during the months

of July through December 1995 more than 100 million pounds of other

order bulk receipts were transferred into Orders 5, 7, 11, and 46.

According to Mid-Am, the cooperative also brought in supplemental

producer milk on a direct-ship basis. The record data also show that

while Mid-Am represents 47 percent of the producer milk pooled under

the 4 markets, it accounted for more than 70 percent of the other order

bulk milk that was brought into these markets during the months of July

through December 1995.

Exhibits entered by CVMPA show that the cooperative imported more

than 19 million pounds of other order plant milk during the months of

July through December 1995, while at the same time bringing in more

than 38 million pounds of supplemental milk directly from producers'

farms. The exhibits show that the transportation cost for these

supplemental purchases were nearly one million dollars.

A detailed breakdown of Mid-Am's interorder transfers during the

months of July and August 1995 shows the location of the transferor

plant and the transferee plant, the mileage between the two plants, the

total cost of hauling the milk, and the freight rate broken down into

10-mile increments. During July and August 1995, the exhibit shows that

the average hauling cost for this milk was 3.7 cents per 10 miles.

The Mid-Am spokesman testified that Mid-Am was proposing a hauling

credit of 3.9 cents per 10 miles due to increasing fuel costs in recent

months, justifying a slightly higher credit.

After carefully reviewing the record testimony and data, it is

concluded that a transportation credit for supplemental milk during the

seasonally short period of July through December is fully justified for

this year's milk shortage and on a continuing basis, as needed, for

future years. Such a credit will restore market order and provide the

opportunity for all handlers to bring in supplemental milk when needed

for fluid use.

While handlers opposed to the incorporation of these credits in the

orders argue that reimbursement for transportation costs should be

handled outside the order, experience has shown that this is not always

possible. The absence of reimbursement for the costs of providing

supplemental milk by cooperatives in this area last summer and fall

demonstrate very well what can happen in a competitive market

situation. Over-order pricing does not always ensure either stability

or uniform costs among handlers. Also, premiums can disappear as

quickly as they are introduced even when markets are desperately short

of milk because of the pressure to maintain uniform costs among

competing handlers.

Over-order pricing has been used in these markets in the past to

equalize costs among handlers, but the industry was much different than

it is today. There are now far fewer, but larger, fluid processing

plants operating in these markets, creating daily and weekly demands to

which the market's suppliers must react. On the supply side, the number

of cooperative associations has decreased dramatically in the last

decade. Consequently, only a few organizations are incurring costs in

providing balancing services for these markets and the amount of milk

being handled is far greater than the quantity of milk handled by any

single cooperative in prior years. For this reason, it is imperative

that the cooperatives and handlers providing balancing services for the

benefit of the entire market be fairly compensated for these costs to

ensure that an adequate supply of milk is available for fluid use.

In fact, the current market is not meeting the standard of orderly

marketing. Markets which, at times, are short of milk must have some

structure to provide for sharing the costs in the movement of

supplemental milk to processors. Otherwise, orderly

[[Page 37636]]

marketing conditions can deteriorate and all handlers will not be

competing for a supply of milk on an equal footing.

Under current market conditions, producers supplying these markets

are also negatively affected. Producers who are members of cooperative

organizations incurring the costs of supplemental milk are forced to

bear the costs unfairly relative to nonmember producers.

The Agricultural Marketing Agreement Act recognized that disorderly

markets can occur in a market when there are no standards which all

segments of the market must satisfy. In this case, such standards must

apply to all milk supplied to the regulated market. When the market

fails to provide this equity, it becomes necessary for the order

structure to provide the system.

As indicated, over-order premiums may be used to serve this

purpose. This record clearly indicates, however, that such is not the

case in these markets. The record, in fact, clearly indicates that the

supplemental milk supplies, as they are currently being handled, are

creating disorder. It is, therefore, proper that the regulations be

amended to restore order to the system by equitably allocating the

costs associated with obtaining supplemental milk supplies.

The adoption of transportation credits will enable handlers to make

decisions involving supplemental milk supplies with a greater degree of

certainty and be assured that the equity required by the Act is

provided.

Congress recognized the inequities that can and do occur in

supplying markets with supplemental milk and provided the Secretary of

Agriculture with certain tools to handle these problems. The record of

this hearing clearly demonstrates a need for these remedies in the 4

orders involved in this proceeding. Moreover, the production and

population statistics justify the incorporation of these tools on a

permanent basis so that they can be used when needed. The alternative

approach, which some handlers appear to favor, is to hold a hearing and

temporarily amend the orders each time a crisis occurs. However, as

last fall's crisis demonstrated, it is very difficult to hold hearings

and amend orders after these problems already have occurred. It is much

better to anticipate the problems and have provisions that can be used

as needed. Accordingly, the permanent incorporation of provisions to

facilitate the importation of supplemental milk to these deficit

markets is the most prudent course of action to follow and is fully

supported by the record of this hearing.

The amendments adopted in this tentative decision are similar to

those proposed by Mid-Am, but also differ in several respects. First,

the transportation credits should be limited to the months of July

through December. It should not include other months when the Class I

utilization is over 80 percent because handlers would not know until

after the month is over whether or not they would be eligible for a

transportation credit on bulk milk brought into the market.

A better approach during the months of January through June would

be to simply give the market administrator the authority to expand the

transportation credit period if market conditions indicate that

producer milk for Class I use will be in short supply and the

marketwide Class I utilization is likely to exceed 80 percent. The

market administrator is in an excellent position to review such a

request, which should be made in writing at least 15 days prior to the

beginning of the month for which it is to be effective.

Upon receiving a request to extend the transportation credit

period, the market administrator will notify the Director of the Dairy

Division and all handlers in the market that an extension is being

considered and invite written data, views, and arguments. The market

administrator's notice to interested parties also may invite comments

on other remedies that may be available including, but not limited to,

an increase in the supply plant shipping percentage as provided in

Secs. 1005.7(b), 1007.7(f), and 1011.7(b)(4) and, in the case of Order

7, the desirability of adjusting diversion limitations as provided in

Sec. 1007.13(d)(9). Any decision to extend the transportation credit

period must be issued in writing prior to the first day of the month

for which the extension is to be effective.

The provisions adopted in this decision also differ slightly from

Mid-Am's proposal with respect to plant-to-plant shipments that are

eligible for transportation credits. As proposed by Mid-Am, Class I

bulk transfers from any other order plant would qualify for

transportation credits. As adopted in this decision, however, the

credits are limited to plants that are outside of the marketing areas

of Orders 5, 7, 11, and 46.

There was a great deal of concern expressed at the hearing about

``stair stepping'' milk from one market to another. For instance, if

milk from Order 11 was transferred to Order 7 while at the same time

supplemental milk was brought into Order 11 from Order 46, handlers in

Order 11 conceivably could be contributing funds to replace milk that,

if not sent to Order 7, would have been available to Order 11 handlers.

This issue can be quite complex, particularly in large markets,

such as the Southeast market. It may very well make economic sense to

ship surplus milk from one part of a market (for example, southern

Louisiana in the Order 7 marketing area) to another market that is

short of milk (for example, the Upper Florida market) while during the

same day bring in bulk milk for a handler in another part of the

marketing area (for example, Fleming Dairy in Nashville) from another

order plant (other than from one of the 4 orders involved in this

proceeding). Given the order's current pricing structure, it is

unrealistic to expect milk from southern Louisiana, where the Class I

differential price is $3.58, to be shipped north to Nashville, where

the Class I differential price is $2.55.

The attached order amendments place no restriction on the the

interorder shipment of milk among the 4 markets, but they do not

provide transportation credits for such shipments. The record of this

hearing supports a restriction of credits to milk that is truly

supplemental to the market. For this reason, transportation credits

should be restricted to bulk shipments from plants outside of these 4

marketing areas. Data and testimony in the record indicate that nearly

all of the supplemental milk needed for these 4 markets comes from

plants located outside of the 4 marketing areas anyway, so that the

restriction should not be a major problem for handlers in locating

supplemental milk. Moreover, handlers may still obtain plant milk from

within the 4 orders; they simply would not be able to get a

transportation credit for such milk.

Another departure from the original Mid-Am proposal concerns the

milk eligible for the transportation credit. It was apparent from

hearing testimony and briefs that other cooperatives operating in these

markets are more apt to supply the market with supplemental milk on a

direct-ship basis rather than transferring milk from an other order

plant. Such cooperatives include CVMPA, MMI, and Select Milk Producers.

The testimony was convincing that permitting a credit on such imports

would be more equitable to those organizations that are unable to

import plant milk, would promote efficiencies in bringing supplemental

milk directly from producers' farms, would result in better quality

milk because unnecessary pumpovers are eliminated, and would result in

less milk lost due to reduced handling.

[[Page 37637]]

While the inclusion of farm-to-plant milk is a logical extension of

the transportation credit concept, there are some practical problems to

overcome in implementing such a provision. One of the first problems

that arises in constructing a transportation credit on farm-to-plant

milk is distinguishing a market's regular producer milk from its

supplemental producer milk on which the credit would apply.

A primary consideration in distinguishing the market's regular

producers from the supplemental producers is the location of producers'

farms. It is reasonable to conclude that the markets' regular producers

are located reasonably close to the plants receiving their milk. Thus,

such producers' farms are likely to be within the geographic marketing

areas defined in each order. Accordingly, transportation credits should

not apply to any producer whose farm is located within any of the 4

marketing areas. This provision was suggested by MMI and should be

adopted.

Not all of the pool distributing plants regulated under these

orders are located within the defined marketing areas. For example, a

pool distributing plant regulated under Order 5 is located in

Lynchburg, Virginia, which is outside of the Order 5 marketing area. In

such a case, some other location criteria is needed to distinguish a

regular producer from a supplemental producer.

In its suggested language, MMI proposed restricting supplemental

producers to those who are more than 85 miles from Louisville or

Lexington, Kentucky, or Evansville, Indiana. This proposal should be

adopted but expanded to cover all pool distributing plants within or

outside of the 4 marketing areas. In other words, farm-to-plant milk

that is eligible for a transportation credit must be produced on a farm

that is outside of the 4 marketing areas and at least 85 miles away

from the plant to which the milk is delivered.

In addition to considering the geographic location of a dairy farm

for the purpose of determining whether milk from that farm is

supplemental to a market's needs, attention should be focused on

whether milk from that farm is regularly associated with the market or

is shipped to the market as needed.

As noted earlier, MMI in its brief stated that transportation

credits should not apply to the milk of a dairy farmer who was a

producer under Orders 5, 6, 7, 11, 12, 13, or 46 during more than 8

months in the previous July through June period or if more than 32

days' production of the producer was received as producer milk under

these orders during the entire 12-month period. CVMPA's brief contained

a similar proposal but did not include Orders 6, 12, and 13 (the 3

Florida orders) and specified 35 days' production, rather than 32, for

the prior 12-month period.

These proposals should not be adopted. As proposed, if a dairy

farmer was a producer on one of these markets for more than 8 months in

the previous July through June period, the dairy farmer could not be

considered as a supplemental producer under another one of the 4

markets. For example, if a dairy farmer from Texas was a producer under

Order 11 during the months of January through September 1996, that

dairy farmer would be ineligible to receive a transportation credit

under Order 7 in October 1996, even though the dairy farmer's farm

meets the location criteria set forth in this decision for a

supplemental producer and the dairy farmer was never previously

associated with Order 7.

It is questionable whether the provisions of one order should be

based on a dairy farmer's association with another order. Each order

should stand on its own. Accordingly, the determination as to whether a

producer is regularly associated with a market or is, in fact, only

seasonally associated with the market should be based on the dairy

farmer's association with that market alone.

Since the need for supplemental milk generally drops off sharply

after the month of December--1996 being an exception--in all of these

markets and does not reappear, usually, until the month of July, it is

reasonable to conclude that the milk of a producer who is located

outside of any of these marketing areas generally would not be needed

during the months of January through June, but might be needed starting

in July. It is also logical that the milk of a supplemental producer

would not be needed each day but perhaps once or twice a week.

Accordingly, if a dairy farmer was a regular supplier of the market

during January through June--i.e., a ``producer'' on the market for

more than 4 of those months--the milk of such a dairy farmer should not

be considered supplemental milk during the following months of July

through December. It would be unduly restrictive to disqualify a dairy

farmer for shipping a limited amount of milk during one or two months

of the January through June period, however, because even the months of

January and June can be short months in the Southeast. Therefore, the

provision should be flexible enough to accommodate some shipments to

the market during the January through June period. Specifically, a

dairy farmer should not lose his/her status as a supplemental producer

if his/her milk is shipped to a market for not more than 2 months of

the January through June period. However, shipments during this period

should be of a limited duration, so not more than 32 days' production

may have been received as producer milk during the two months of the

January through June period in which the dairy farmer was a producer on

the market.

Having established the criteria to distinguish a supplemental

producer from a regular producer, attention must now focus on the

provisions needed to establish the transportation credit for farm-to-

plant supplemental milk. The first question that arises in this regard

is the determination of the origination point for the load of milk. Two

problems arise. First, there may be more than one dairy farmer's milk

on the truck. Second, even if a dairy farmer can fill up an entire

truck with milk, his or her farm may be impossible to pinpoint on a

map.

This decision adopts two alternatives to determine the origination

point for a load of farm-to-plant milk. First, after filling the tank

truck with farm milk, the hauler may elect to stop at an independently

operated truck stop to obtain a certified weight receipt identifying

the truck, the gross weight of the loaded truck, the time and date, and

the location of the truck stop. This certificate would be turned over

to the pool plant operator receiving this load of milk and, in turn, be

made available to the market administrator for verification of the

information. Truck stops with scales are commonly found along major

highways and in small towns and cities. Thus, it would be neither time-

consuming nor expensive to fulfill this requirement.

Alternatively, if the hauler does not obtain a certified weight

receipt to establish an origination point, the market administrator

will determine the location of the farm of the last load of milk that

was added to the truck, locate the nearest city, and compute the

mileage from that city to the receiving pool plant for purposes of

determining the mileage. If this alternative understates the mileage

involved to the plant, the hauler can easily obtain a certified weight

receipt if that would result in a more accurate transportation credit.

Traditionally, provisions in Federal milk orders have used the

county courthouse as a basing point to determine mileage. In their

briefs, MMI and CVMPA suggested using the county courthouse closest to

the farm of the last producer on the route to establish the

[[Page 37638]]

origination point for a load of farm-to-plant milk. The reason for not

adopting this suggestion is that there are now more precise ways of

measuring the mileage between various points using any of several

computer mapping programs that are available in addition to more

traditional standard highway mileage guides that are available to the

market administrator. By specifying ``city'' rather than ``county

courthouse,'' in conjunction with providing the option of establishing

location based upon a certified weight receipt, we hope to achieve

greater precision in establishing the mileage between the last

producer's farm and the plant to which the milk is delivered.

This decision adopts the proposed transportation credit balancing

fund concept proposed by Mid-Am, as well as a monthly assessment on

Class I milk to provide revenue for the fund. It differs from the

proposal, however, in using the higher of the hauling credits

distributed in the immediately preceding 6 months or in the preceding

July-December period for purposes of determining the current month's

assessment level in Sec. 100X.81(a). This was done to ensure that the

fund will have a sufficient balance to meet the markets' needs when

credits start to be distributed in the month of July. As proposed by

Mid-Am, if no credits were distributed during the months of January

through June, no new assessment would be warranted. Therefore, the

yardstick to measure the assessment level would begin to decline in

January and, if no new credits were given out, would be zero by July.

This depletion of the fund could jeopardize its usefulness and require

the market administrator to transfer funds for transportation credits

from the producer-settlement fund.

This should only be done as a last resort. It will be less likely

to occur by using the alternative yardstick approach adopted in this

decision for determining the minimum balance needed in the

transportation credit balancing fund.

The market administrator is authorized to maintain the

transportation credit balancing fund, deposit assessments into it, and

distribute transportation credits from it. Payments due from a handler

will be offset against payments due to a handler.

The use of a transportation credit balancing fund will permit

assessments that are needed for the transportation credits to be spread

out throughout the year. This will permit the assessment rate to be

kept at a lower and more stable level. It will also allow handlers to

reflect the assessment in their pricing plans. At the maximum level

permitted, the 6-cent assessment represents about one-half cent of the

raw product cost of a gallon of milk.

In its brief, Gold Star Dairy suggested exempting from the

assessment Class I sales made outside of the 4 marketing areas. This

suggestion should not be adopted. While such an exemption might put

Gold Star in a more favorable position with competitors in other

markets, such as the Texas marketing area, it would not be fair to

those handlers with whom Gold Star competes in the Southeast marketing

area, its primary sales territory. Moreover, if supplemental milk is

brought into any one of the 4 markets to supply a handler, there is no

reason why that handler should not bear its fair share of the

transportation costs for such milk, regardless of where the handler may

eventually sell it.

The market administrator will announce the assessment for the

transportation credit balancing fund on the 5th day of the month

preceding the month to which it applies. Accordingly, on the 5th day of

December, the assessment would be announced for January. An exception

to this rule should be made during the first month that transportation

credits are in effect because otherwise all of the first month's

transportation credits would have to come out of pool funds.

Accordingly, for the first month that these rules are in effect, the

assessment for the transportation credit balancing fund will be

announced no later than the Federal Register publication date of the

interim order amending the orders. For example, if the interim order

amending the orders is published on July 1, 1996, handlers will be

notified of the assessment for July on, or a few days before, that day.

On July 5, handlers will be notified of the assessment for August.

For the first 3 months that these amendments are effective, the

assessment for the transportation credit balancing fund should be 6

cents per hundredweight. It is necessary to specify a rate in Section

81(c) of the attached orders because there is no 6-month credit

distribution history from which to determine it, as provided in

paragraph (a) of Section 81.

It is possible that during the first year that these provisions are

in effect, and possibly thereafter under unusual conditions, it may be

necessary to transfer funds from the producer-settlement fund to pay

the transportation credits that are distributed. Transferring funds

from the producer-settlement fund will result in lower uniform prices

to producers. For this reason, several parties suggested, instead,

borrowing from the producer-settlement fund reserve and paying back the

reserve fund in future months from transportation credit assessments

that are collected.

The market administrator maintains a producer-settlement fund (psf)

reserve equal to approximately 4-5 cents per hundredweight of producer

milk in the pool. This reserve is used to pay audit adjustments and

other unforseen expenses.

The suggestion to borrow from the reserve is no doubt well-

intentioned, but the alternative of transferring funds from the psf

itself is the better approach for several reasons.

First, the reserve fund is maintained as a cushion to provide ready

cash for audit adjustments and other unforseen expenses that arise.

Depleting this reserve to pay for transportation credits, even for a

temporary period of time, would not be prudent.

Second, we appreciate the concerns of those who do not want to

reduce the blend price to producers to pay for transportation credits,

but we believe that this transfer of funds may only be necessary during

the first year that this provision is in effect. Thereafter, there

should be adequate funds in the transportation credit balancing fund to

pay for future transportation credits.

Third, by transferring funds from the psf, rather than borrowing

the funds from the psf reserve, it will not be necessary to postpone

the disbursement of credits, as might be necessary under the

alternative approach suggested by Milkco and others. To the extent that

reimbursement for transportation expenses is postponed, certain

handlers will be disadvantaged relative to others who did not incur

such expenses.

Finally, by transferring funds from the psf, rather than borrowing

the funds from the psf reserve, producers will be sharing with handlers

the cost of supplying the market with supplemental milk. This will help

to minimize the assessment to handlers during months when

transportation credits are not needed because the current month's

assessments will not be used to pay back funds borrowed from the psf

reserve for prior months but, instead, will be used to pay only current

months' credits or to build up the transportation credit balancing fund

for future months.

At this hearing, concern was once again expressed about the

difficulty of obtaining supplemental milk when the Class III-A price is

allegedly providing a profitable market for manufacturers of nonfat dry

milk. A proposal was made to suspend Class III-A pricing while

transportation credits are in effect.

[[Page 37639]]

As noted earlier, Mid-Am testified that it shut down its butter-

powder plants in these 4 markets during the months of July through

December 1995. Therefore, to the extent that handlers were competing

with butter-powder plants for supplemental milk, it was not

supplemental milk in these 4 markets.

The proposal to suspend Class III-A pricing in other markets goes

beyond the scope of this hearing. Therefore, the proposals to suspend

such pricing must be denied.

Several handlers criticized the proposed transportation credits for

not including the Florida markets. They argued that since the Florida

markets are the markets most in need of supplemental milk, it is unfair

that handlers in those markets do not have to pay the assessment for

the transportation credit balancing fund.

There was no testimony at this hearing concerning the current

premium structure in the Florida markets. It is a known fact, however,

that the Florida markets are 100 percent cooperatively supplied and

that the premium structure in those markets as of the September 1995

hearing was markedly different (and much higher) than the premium

structure prevailing in Orders 5, 7, 11, and 46.

Whether or not the Florida markets have the type of transportation

credits adopted in this decision is immaterial to the need for such

provisions in Orders 5, 7, 11, and 46. Given the tight supply situation

prevailing in the Florida markets, it is unlikely that any Florida

handler would have a pricing advantage over a handler regulated under

one of the 4 markets involved in this proceeding. Moreover, since

cooperative associations control the entire supply of milk in the

Florida markets, those markets do not have to deal with the difficult

issue of unequal sharing of the cost of supplying the market with

supplemental milk (i.e., the member versus nonmember issue).

The absence of a transportation credit in Florida does not mean

that handlers in Orders 5, 7, 11, and 46 will bear the cost of

providing supplemental milk to Florida. To the extent that milk is

shipped to Florida from any of the 4 markets involved in this

proceeding, such milk likely would have been shipped with or without

Florida's participation in the current hearing.

3. Whether Emergency Marketing Conditions in the Four Regulated Areas

Warrant the Omission of a Recommended Decision and the Opportunity to

File Written Exceptions Thereto With Respect to Issue 1

The omission of a recommended decision was proposed by the Mid-Am

spokesman. He also requested that the issue be handled on an expedited

basis, but suggested that the Secretary may wish to issue a tentative

final decision to provide another opportunity for comments and

adjustments to the amendments. No testimony was received in opposition

to the request.

The due and timely execution of the functions of the Secretary

under the Act imperatively and unavoidably require the omission of a

recommended decision and an opportunity for written exceptions with

respect to Issue No. 1. The continued orderly marketing of milk in the

respective areas requires that the attached order be made effective as

soon as possible, since the amount of supplemental milk needed for

Class I use in each of the four orders is expected to increase

significantly during the summer and fall months. Handlers, cooperative

associations, and others should know promptly and with certainty how

the Department is proposing to facilitate the importation of

supplemental milk so that arrangements may be made.

It is therefore found that good cause exists for omission of a

recommended decision and the opportunity for filing exceptions to it.

As noted earlier, however, this decision is being issued as a tentative

final decision. What this means is that producers will vote on the

amendments to the 4 orders just as they would with a normal final

decision. However, interested parties will have 30 days from the

Federal Register publication of this tentative final decision to

comment on it. After the comment period is over, the Department will

then issue a final decision, and producers will again have an

opportunity to vote on the orders as amended.

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 aforesaid orders were first issued and

when they were amended. The previous findings and determinations are

hereby ratified and confirmed, except where they may conflict with

those set forth herein.

The following findings are hereby made with respect to each of the

aforesaid tentative marketing agreements and orders:

(a) The tentative marketing agreements and orders, as hereby

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

will tend to effectuate the declared policy of the Act;

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

of the Act are not reasonable 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 aforesaid marketing areas, and the

minimum prices specified in the tentative marketing agreements and the

orders, 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 are in the public interest; and

(c) The tentative marketing agreements and the orders, 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, marketing

agreements upon which a hearing has been held.

Interim Marketing Agreement and Interim Order Amending the Orders

Annexed hereto and made a part hereof is an Interim Order amending

the orders regulating the handling of milk in the aforesaid marketing

areas, which has been decided upon as the detailed and appropriate

means of effectuating the foregoing conclusions. It is hereby ordered

that this entire decision and order amending the orders be published in

the Federal Register. Parties who desire to enter into a marketing

agreement covering the terms and conditions of the attached interim

order may request a marketing agreement from the market administrator

of the respective order.

[[Page 37640]]

Determination of Producer Approval and Representative Period

April 1996 is hereby determined to be the representative period for

the purpose of ascertaining whether the issuance of the orders, as

amended and as hereby proposed to be amended, regulating the handling

of milk in the aforesaid marketing areas is approved or favored by

producers, as defined under the terms of the individual orders (as

amended and as hereby proposed to be amended), who during the

representative period were engaged in the production of milk for sale

within the aforesaid marketing areas.

It is hereby directed that a referendum be conducted to ascertain

producer approval in the Louisville-Lexington-Evansville marketing

area. The referendum must be conducted and completed on or before the

30th day from the date that this decision is issued in accordance with

the procedure for the conduct of referenda (7 CFR 900.300-311), to

determine whether the issuance of the attached order as amended, and as

hereby proposed to be amended, regulating the handling of milk in the

Louisville-Lexington-Evansville marketing area is approved or favored

by producers, as defined under the terms of the order, as amended and

as hereby proposed to be amended, who during such representative period

were engaged in the production of milk for sale within the marketing

area.

The agent of the Secretary to conduct such referendum is hereby

designated to be Arnold M. Stallings.

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

Milk marketing orders.

Dated: July 12, 1996.

Michael V. Dunn,

Assistant Secretary, Marketing and Regulatory Programs.

Interim Order Amending the Orders Regulating the Handling of Milk in

Certain Specified Marketing Areas

This interim order shall not become effective unless and until the

requirements of Sec. 900.14 of the rules of practice and procedure

governing proceedings to formulate marketing agreements and marketing

orders have been met.

Findings and Determinations

The findings and determinations hereinafter set forth supplement

those that were made when the orders were first issued and when they

were amended. The previous findings and determinations are hereby

ratified and confirmed, except where they may conflict with those set

forth herein.

(a) Findings. A public hearing was held upon certain proposed

amendments to the tentative marketing agreements and to the orders

regulating the handling of milk in the aforesaid marketing areas. The

hearing was held pursuant to the provisions of the Agricultural

Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the

applicable rules of practice and procedure (7 CFR Part 900).

Upon the basis of the evidence introduced at such hearing and the

record thereof, it is found that:

(1) The said orders as hereby amended, and all of the terms and

conditions thereof, will tend to effectuate the declared policy of the

Act;

(2) 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 aforesaid marketing areas. The

minimum prices specified in the orders as hereby 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

(3) The said orders as hereby amended regulate the handling of milk

in the same manner as, and are applicable only to persons in the

respective classes of industrial or commercial activity specified in,

marketing agreements upon which a hearing has been held.

Proposed Interim Order Relative to Handling

It is therefore ordered that on and after the effective date

hereof, the handling of milk in each of the specified marketing areas

shall be in conformity to and in compliance with the terms and

conditions of the orders, as amended, and as hereby amended, as

follows:

The authority citation for 7 CFR Parts 1005, 1007, 1011, and 1046

is revised to read as follows:

Authority: 7 U.S.C. 601-674.

PART 1005--MILK IN THE CAROLINA MARKETING AREA

1. In Sec. 1005.30, paragraphs (a) and (c) are revised to read as

follows:

Sec. 1005.30 Reports of receipts and utilization.

* * * * *

(a) Each handler, with respect to each of its pool plants, shall

report the quantities of skim milk and butterfat contained in or

represented by:

(1) Receipts of producer milk, including producer milk diverted

from the pool plant to other plants;

(2) Receipts of milk from handlers described in Sec. 1005.9(c);

(3) Receipts of fluid milk products and bulk fluid cream products

from other pool plants;

(4) Receipts of other source milk;

(5) Receipts of bulk milk from a plant regulated under another

Federal order, except Federal Orders 1007, 1011, and 1046, for which a

transportation credit is requested pursuant to Sec. 1005.82;

(6) Receipts of producer milk described in Sec. 1005.82(c)(2),

including the identity of the individual producers whose milk is

eligible for the transportation credit pursuant to Sec. 1005.82(c)(2);

(7) Inventories at the beginning and end of the month of fluid milk

products and products specified in Sec. 1005.40(b)(1); and

(8) The utilization or disposition of all milk, filled milk, and

milk products required to be reported pursuant to this paragraph (a).

* * * * *

(c) Each handler described in Sec. 1005.9 (b) and (c) shall report:

(1) The quantities of all skim milk and butterfat contained in

receipts of milk from producers;

(2) The utilization or disposition of all such receipts; and

(3) With respect to milk for which a cooperative association is

requesting a transportation credit pursuant to Sec. 1005.82, all of the

information required in paragraphs (a) (5) and (6) of this section.

* * * * *

2. Section 1005.61 is amended by redesignating paragraphs (a)(4),

(a)(5), (b)(5), and (b)(6) as paragraphs (a)(5), (a)(6), (b)(6), and

(b)(7), respectively, amending paragraph (b)(3) by revising ``(a)(3)''

to read ``(a)(4)'' and ``(a)(4)(ii)'' to read ``(a)(5)(ii)'', amending

newly designated paragraphs (b)(6) by revising ``(b)(4)'' to read

``(b)(5)'', amending newly designated paragraph (b)(7) by revising

``(b)(5)'' to read ``(b)(6)'', and adding new paragraphs (a)(4) and

(b)(5) to read as follows:

Sec. 1005.61 Computation of uniform price (including weighted average

price and uniform prices for base and excess milk).

(a) * * *

(4) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1005.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1005.80;

* * * * *

[[Page 37641]]

(b) * * *

(5) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1005.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1005.80;

* * * * *

3. Following Sec. 1005.78, a new undesignated center heading and

Secs. 1005.80, 1005.81, and 1005.82 are added to read as follows:

Marketwide Service Payments

Sec. 1005.80 Transportation credit balancing fund.

The market administrator shall maintain a separate fund known as

the Transportation Credit Balancing Fund into which shall be deposited

the payments made by handlers pursuant to Sec. 1005.81 and out of which

shall be made the payments due handlers pursuant to Sec. 1005.82.

Payments due a handler shall be offset against payments due from the

handler.

Sec. 1005.81 Payments to the transportation credit balancing fund.

(a) On or before the 12th day after the end of the month, each

handler shall pay to the market administrator a transportation credit

balancing fund assessment determined by multiplying the pounds of Class

I milk assigned pursuant to Sec. 1005.44 by $0.06 per hundredweight or

such lesser amount as the market administrator deems necessary to

maintain a balance in the fund equal to the higher of the following

amounts:

(1) The total transportation credits dispensed during the prior

July-December period; or

(2) The total transportation credits dispensed during the

immediately preceding 6-month period.

(b) On or before the 13th day after the end of the month, the

market administrator shall credit the transportation credit balancing

fund, from the producer-settlement fund, any amount deducted pursuant

to Sec. 1005.61 (a)(4) or (b)(5).

(c) The market administrator shall announce publicly on or before

the 5th day of the month the assessment pursuant to paragraph (a) of

this section for the following month, except that for the first month

that this section is effective the assessment shall be announced no

later than [the publication date of the final rule in the Federal

Register] and for the first 3 months that this section is effective the

assessment pursuant to paragraph (a) of this section shall be 6 cents

per hundredweight.

Sec. 1005.82 Payments from the transportation credit balancing fund.

(a) On or before the 13th day after the end of each of the months

of July through December and any other month in which transportation

credits are in effect pursuant to paragraph (b) of this section, the

market administrator shall pay to each handler that received, and

reported pursuant to Sec. 1005.30 (a)(5), bulk milk transferred from an

other order plant as described in paragraph (c)(1) of this section or

that received, and reported pursuant to Sec. 1005.30(a)(6), bulk milk

directly from producers' farms as specified in paragraph (c)(2) of this

section an amount determined pursuant to paragraph (d) of this section.

In the event that a qualified cooperative association is the

responsible party for whose account such milk is received and written

documentation of this fact is provided to the market administrator

pursuant to Sec. 1005.30(c)(3) prior to the date payment is due, the

transportation credits for such milk computed pursuant to this section

shall be made to such cooperative association rather than to the

operator of the pool plant at which the milk was received.

(b) The market administrator may extend the period during which

transportation credits are in effect (i.e., the transportation credit

period) to any of the months of January through June if the market

administrator receives a written request to do so 15 days prior to the

beginning of the month for which the request is made and, after

conducting an independent investigation, finds that such extension is

necessary to assure the market of an adequate supply of milk for fluid

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

notify the Director of the Dairy Division and all handlers in the

market that an extension is being considered and invite written data,

views, and arguments. Any decision to extend the transportation credit

period must be issued in writing prior to the first day of the month

for which the extension is to be effective.

(c) The transportation credit described in paragraph (a) of this

section shall apply to the following milk:

(1) Bulk milk received from a plant regulated under another Federal

order, except Federal Orders 1007, 1011, and 1046, and allocated to

Class I milk pursuant to Sec. 1005.44; and

(2) Bulk milk classified pro rata as Class I milk pursuant to

Sec. 1005.44 received directly from the farms of dairy farmers at pool

distributing plants under the following conditions:

(i) The dairy farmer was not a ``producer'' under this order during

more than 2 of the immediately preceding months of January through June

and not more than 32 days' production of the dairy farmer was received

as producer milk under this order during that period; and

(ii) The farm on which the milk was produced is not located within

the specified marketing area of this order or the marketing areas of

Federal Orders 1007, 1011, or 1046, and, is not within 85 miles of the

plant to which its milk is delivered.

(d) Transportation credits shall be computed as follows:

(1) For milk described in paragraph (c)(1) of this section, the

market administrator shall:

(i) Determine the shortest hard-surface highway distance between

the transferor plant and the transferee plant;

(ii) Multiply the number of miles computed in paragraph (d)(1)(i)

of this section by 0.37 cents;

(iii) Subtract the other order's Class I price applicable at the

transferor plant's location from the Class I price applicable at the

transferee plant as specified in Sec. 1005.53;

(iv) Subtract any positive difference computed in paragraph

(d)(1)(iii) of this section from the amount computed in paragraph

(d)(1)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(1)(iv) of this

section by the hundredweight of milk described in paragraph (c)(1) of

this section.

(2) For milk described in paragraph (c)(2) of this section:

(i) Each milk hauler that is transporting the milk of producers

described in paragraph (c)(2) of this section may stop at the nearest

independently-operated truck stop with a truck scale and obtain a

weight certificate indicating the weight of the truck and its contents,

the date and time of weighing, and the location of the truck stop. The

location of the truck stop shall be used as a starting point for the

purpose of measuring the distance to the pool plant receiving that load

of milk. If a weight certificate for a supplemental load of milk for

which a transportation credit is requested is not available, the market

administrator shall use the nearest city to the last producer's farm

from which milk was picked up for delivery to the receiving pool plant;

(ii) For each bulk tank load of milk received pursuant to paragraph

(d)(2)(i) of this section, the market administrator shall determine the

shortest hard-surface highway distance between the receiving pool plant

and the truck stop or city, as the case may be;

[[Page 37642]]

(iii) Multiply the number of miles computed in paragraph (d)(2)(ii)

of this section by 0.37 cents;

(iv) Multiply the number computed in paragraph (d)(2)(iii) of this

section by the hundredweight of milk described in paragraph (c)(2) of

this section;

(v) Subtract this order's Class I price applicable at the

origination point determined pursuant to paragraph (d)(2)(ii) of this

section from the Class I price applicable at the distributing plant

receiving the milk; and

(vi) Subtract any positive difference computed in paragraph

(d)(2)(v) of this section from the amount computed in paragraph

(d)(2)(iv) of this section.

PART 1007--MILK IN THE SOUTHEAST MARKETING AREA

4. The authority citation for part 1007 continues to read as

follows:

Authority: 7 U.S.C. 601-674.

4a. In Sec. 1007.30, paragraphs (a) and (c) are revised to read as

follows:

Sec. 1007.30 Reports of receipts and utilization.

* * * * *

(a) Each handler, with respect to each of its pool plants, shall

report the quantities of skim milk and butterfat contained in or

represented by:

(1) Receipts of producer milk, including producer milk diverted by

the handler from the pool plant to other plants;

(2) Receipts of milk from handlers described in Sec. 1007.9(c);

(3) Receipts of fluid milk products and bulk fluid cream products

from other pool plants;

(4) Receipts of other source milk;

(5) Receipts of bulk milk from a plant regulated under another

Federal order, except Federal Orders 1005, 1011, and 1046, for which a

transportation credit is requested pursuant to Sec. 1007.82;

(6) Receipts of producer milk described in Sec. 1007.82(c)(2),

including the identity of the individual producers whose milk is

eligible for the transportation credit pursuant to Sec. 1007.82(c)(2);

(7) Inventories at the beginning and end of the month of fluid milk

products and products specified in Sec. 1007.40(b)(1); and

(8) The utilization or disposition of all milk, filled milk, and

milk products required to be reported pursuant to this paragraph (a).

* * * * *

(c) Each handler described in Sec. 1007.9 (b) and (c) shall report:

(1) The quantities of skim milk and butterfat contained in receipts

of milk from producers;

(2) The utilization or disposition of all such receipts; and

(3) With respect to milk for which a cooperative association is

requesting a transportation credit pursuant to Sec. 1007.82, all of the

information required in paragraphs (a) (5) and (6) of this section.

* * * * *

5. Section 1007.61 is amended by redesignating paragraphs (a)(4),

(a)(5), (b)(5), and (b)(6) as paragraphs (a)(5), (a)(6), (b)(6), and

respectively, (b)(7), amending (b)(3) by revising ``(a)(3)'' to read

``(a)(4)'' and ``(a)(4)(ii)'' to read ``(a)(5)(ii)'', amending newly

designated paragraph (b)(6) by revising ``(b)(4)'' to read ``(b)(5)'',

amending newly designated paragraph (b)(7) by revising ``(b)(5)'' to

read ``(b)(6)'', and adding new paragraphs (a)(4) and (b)(5) to read as

follows:

Sec. 1007.61 Computation of uniform price (including weighted average

price and uniform prices for base and excess milk).

(a) * * *

(4) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1007.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1007.80;

* * * * *

(b) * * *

(5) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1007.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1007.80;

* * * * *

6. Following Sec. 1007.78, a new undesignated center heading and

Secs. 1007.80, 1007.81, and 1007.82 are added to read as follows:

Marketwide Service Payments

Sec. 1007.80 Transportation credit balancing fund.

The market administrator shall maintain a separate fund known as

the Transportation Credit Balancing Fund into which shall be deposited

the payments made by handlers pursuant to Sec. 1007.81 and out of which

shall be made the payments due handlers pursuant to Sec. 1007.82.

Payments due a handler shall be offset against payments due from the

handler.

Sec. 1007.81 Payments to the transportation credit balancing fund.

(a) On or before the 12th day after the end of the month, each

handler shall pay to the market administrator a transportation credit

balancing fund assessment determined by multiplying the pounds of Class

I milk assigned pursuant to Sec. 1007.44 by $0.06 per hundredweight or

such lesser amount as the market administrator deems necessary to

maintain a balance in the fund equal to the higher of the following

amounts:

(1) The total transportation credits dispensed during the prior

July-December period; or

(2) The total transportation credits dispensed during the

immediately preceding 6-month period.

(b) On or before the 13th day after the end of the month, the

market administrator shall credit the transportation credit balancing

fund, from the producer-settlement fund, any amount deducted pursuant

to Sec. 1007.61 (a)(4) or (b)(5).

(c) The market administrator shall announce publicly on or before

the 5th day of the month the assessment pursuant to paragraph (a) of

this section for the following month, except that for the first month

that this section is effective the assessment shall be announced no

later than [the publication date of the final rule in the Federal

Register] and for the first 3 months that this section is effective the

assessment pursuant to paragraph (a) of this section shall be 6 cents

per hundredweight.

Sec. 1007.82 Payments from the transportation credit balancing fund.

(a) On or before the 13th day after the end of each of the months

of July through December and any other month in which transportation

credits are in effect pursuant to paragraph (b) of this section, the

market administrator shall pay to each handler that received, and

reported pursuant to Sec. 1007.30(a)(5), bulk milk transferred from an

other order plant as described in paragraph (c)(1) of this section or

that received, and reported pursuant to Sec. 1007.30(a)(6), bulk milk

directly from producers' farms as specified in paragraph (c)(2) of this

section an amount determined pursuant to paragraph (d) of this section.

In the event that a qualified cooperative association is the

responsible party for whose account such milk is received and written

documentation of this fact is provided to the market administrator

pursuant to Sec. 1007.30(c)(3) prior to the date payment is due, the

transportation credits for such milk computed pursuant to this section

shall be made to such cooperative association rather than to the

operator of the pool plant at which the milk was received.

(b) The market administrator may extend the period during which

transportation credits are in effect (i.e., the transportation credit

period) to any

[[Page 37643]]

of the months of January through June if the market administrator

receives a written request to do so 15 days prior to the beginning of

the month for which the request is made and, after conducting an

independent investigation, finds that such extension is necessary to

assure the market of an adequate supply of milk for fluid use. Before

making such a finding, the market administrator shall notify the

Director of the Dairy Division and all handlers in the market that an

extension is being considered and invite written data, views, and

arguments. Any decision to extend the transportation credit period must

be issued in writing prior to the first day of the month for which the

extension is to be effective.

(c) The transportation credit described in paragraph (a) of this

section shall apply to the following milk:

(1) Bulk milk received from a plant regulated under another Federal

order, except Federal Orders 1005, 1011, and 1046 allocated to Class I

milk pursuant to Sec. 1007.44; and

(2) Bulk milk classified pro rata as Class I milk pursuant to

Sec. 1007.44 received directly from the farms of dairy farmers at pool

distributing plants under the following conditions:

(i) The dairy farmer was not a ``producer'' under this order during

more than 2 of the immediately preceding months of January through June

and not more than 32 days' production of the dairy farmer was received

as producer milk under this order during that period; and

(ii) The farm on which the milk was produced is not located within

the specified marketing area of this order or the marketing areas of

Federal Orders 1005, 1011 or 1046, and, is not within 85 miles of the

plant to which its milk is delivered.

(d) Transportation credits shall be computed as follows:

(1) For milk described in paragraph (c)(1) of this section, the

market administrator shall:

(i) Determine the shortest hard-surface highway distance between

the transferor plant and the transferee plant;

(ii) Multiply the number of miles computed in paragraph (d)(1)(i)

of this section by 0.37 cents;

(iii) Subtract the other order's Class I price applicable at the

transferor plant's location from the Class I price applicable at the

transferee plant as specified in Sec. 1007.52;

(iv) Subtract any positive difference computed in paragraph

(d)(1)(iii) of this section from the amount computed in paragraph

(d)(1)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(1)(iv) of this

section by the hundredweight of milk described in paragraph (c)(1) of

this section.

(2) For milk described in paragraph (c)(2) of this section:

(i) Each milk hauler that is transporting the milk of producers

described in paragraph (c)(2) of this section may stop at the nearest

independently-operated truck stop with a truck scale and obtain a

weight certificate indicating the weight of the truck and its contents,

the date and time of weighing, and the location of the truck stop. The

location of the truck stop shall be used as a starting point for the

purpose of measuring the distance to the pool plant receiving that load

of milk. If a weight certificate for a supplemental load of milk for

which a transportation credit is requested is not available, the market

administrator shall use the nearest city to the last producer's farm

from which milk was picked up for delivery to the receiving pool plant;

(ii) For each bulk tank load of milk received pursuant to paragraph

(d)(2)(i) of this section, the market administrator shall determine the

shortest hard-surface highway distance between the receiving pool plant

and the truck stop or city, as the case may be;

(iii) Multiply the number of miles computed in paragraph (d)(2)(ii)

of this section by 0.37 cents;

(iv) Multiply the number computed in paragraph (d)(2)(iii) of this

section by the hundredweight of milk described in paragraph (c)(2) of

this section;

(v) Subtract the order's Class I price applicable at the

origination point determined pursuant to paragraph (d)(2)(ii) of this

section from the Class I price applicable at the distributing plant

receiving the milk; and

(vi) Subtract any positive difference computed in paragraph

(d)(2)(v) of this section from the amount computed in paragraph

(d)(2)(iv) of this section.

PART 1011--MILK IN THE TENNESSEE VALLEY MARKETING AREA

7. In Sec. 1011.30, paragraphs (a) and (c) are revised to read as

follows:

Sec. 1011.30 Reports of receipts and utilization.

* * * * *

(a) Each handler, with respect to each of his pool plants, shall

report the quantities of skim milk and butterfat contained in or

represented by:

(1) Receipts of producer milk, including producer milk diverted

from the pool plant to other plants;

(2) Receipts of milk from handlers described in Sec. 1011.9(c);

(3) Receipts of milk from handlers described in 1011.9(d);

(4) Receipts of fluid milk products and bulk fluid cream products

from other pool plants;

(5) Receipts of other source milk;

(6) Receipts of bulk milk from a plant regulated under another

Federal order, except Federal Orders 1005, 1007, and 1046, for which a

transportation credit is requested pursuant to Sec. 1011.82;

(7) Receipts of producer milk described in Sec. 1011.82(c)(2),

including the identity of the individual producers whose milk is

eligible for the transportation credit pursuant to Sec. 1011.82(c)(2);

(8) Inventories at the beginning and end of the month of fluid milk

products and products specified in Sec. 1011.40(b)(1); and

(9) The utilization or disposition of all milk, filled milk, and

milk products required to be reported pursuant to this paragraph (a).

* * * * *

(c) Each handler described in Sec. 1011.9(b), (c) and (d) shall

report:

(1) The quantities of all skim milk and butterfat contained in

receipts of milk from producers;

(2) The utilization or disposition of all such receipts; and

(3) With respect to milk for which a cooperative association is

requesting a transportation credit pursuant to Sec. 1011.82, all of the

information required in paragraphs (a) (6) and (7) of this section.

* * * * *

8. Section 1011.61 is amended by redesignating paragraphs (a)(4),

(a)(5), (b)(5), and (b)(6) as paragraphs (a)(5), (a)(6), paragraph

(b)(6) and (b)(7), respectively amending paragraph (b)(3) by revising

``(a)(3)'' to read ``(a)(4)'' and ``(a)(4)(ii)'' to read

``(a)(5)(ii)'', amending newly designated paragraph (b)(6) by

revising``(b)(4)'' to read ``(b)(5)'', amending newly designated

paragraph (b)(7) by revising ``(b)(5)'' to read ``(b)(6)'', and adding

new paragraphs (a)(4) and (b)(5) to read as follows:

Sec. 1011.61 Computation of uniform price (including weighted average

price and uniform prices for base and excess milk).

(a) * * *

(4) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1011.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1011.80;

* * * * *

(b) * * *

(5) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1011.82 exceeds

the available balance

[[Page 37644]]

in the transportation credit balancing fund pursuant to Sec. 1011.80;

* * * * *

9. Following Sec. 1011.78, a new undesignated center heading and

Secs. 1011.80, 1011.81, and 1011.82 are added to read as follows:

Marketwide Service Payments

Sec. 1011.80 Transportation credit balancing fund.

The market administrator shall maintain a separate fund known as

the Transportation Credit Balancing Fund into which shall be deposited

the payments made by handlers pursuant to Sec. 1011.81 and out of which

shall be made the payments due handlers pursuant to Sec. 1011.82.

Payments due a handler shall be offset against payments due from the

handler.

Sec. 1011.81 Payments to the transportation credit balancing fund.

(a) On or before the 12th day after the end of the month, each

handler shall pay to the market administrator a transportation credit

balancing fund assessment determined by multiplying the pounds of Class

I milk assigned pursuant to Sec. 1011.44 by $0.06 per hundredweight or

such lesser amount as the market administrator deems necessary to

maintain a balance in the fund equal to the higher of the following

amounts:

(1) The total transportation credits dispensed during the prior

July-December period; or

(2) The total transportation credits dispensed during the

immediately preceding 6-month period.

(b) On or before the 13th day after the end of the month, the

market administrator shall credit the transportation credit balancing

fund, from the producer-settlement fund, any amount deducted pursuant

to Sec. 1011.61 (a)(4) or (b)(5).

(c) The market administrator shall announce publicly on or before

the 5th day of the month the assessment pursuant to paragraph (a) of

this section for the following month, except that for the first month

that this section is effective the assessment shall be announced no

later than [the publication date of the final rule in the Federal

Register] and for the first 3 months that this section is effective the

assessment pursuant to paragraph (a) of this section shall be 6 cents

per hundredweight.

Sec. 1011.82 Payments from the transportation credit balancing fund.

(a) On or before the 13th day after the end of each of the months

of July through December and any other month in which transportation

credits are in effect pursuant to paragraph (b) of this section, the

market administrator shall pay to each handler that received, and

reported pursuant to Sec. 1011.30(a)(6), bulk milk transferred from an

other order plant as described in paragraph (c)(1) of this section or

that received, and reported pursuant to Sec. 1011.30(a)(7), bulk milk

directly from producers' farms as specified in paragraph (c)(2) of this

section an amount determined pursuant to paragraph (d) of this section.

In the event that a qualified cooperative association is the

responsible party for whose account such milk is received and written

documentation of this fact is provided to the market administrator

pursuant to Sec. 1011.30(c)(3) prior to the date payment is due, the

transportation credits for such milk computed pursuant to this section

shall be made to such cooperative association rather than to the

operator of the pool plant at which the milk was received.

(b) The market administrator may extend the period during which

transportation credits are in effect (i.e., the transportation credit

period) to any of the months of January through June if the market

administrator receives a written request to do so 15 days prior to the

beginning of the month for which the request is made and, after

conducting an independent investigation, finds that such extension is

necessary to assure the market of an adequate supply of milk for fluid

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

notify the Director of the Dairy Division and all handlers in the

market that an extension is being considered and invite written data,

views, and arguments. Any decision to extend the transportation credit

period must be issued in writing prior to the first day of the month

for which the extension is to be effective.

(c) The transportation credit described in paragraph (a) of this

section shall apply to the following milk:

(1) Bulk milk received from a plant regulated under another Federal

order, except Federal Orders 1005, 1007, and 1046, and allocated to

Class I milk pursuant to Sec. 1011.44; and

(2) Bulk milk classified pro rata as Class I milk pursuant to

Sec. 1011.44 received directly from the farms of dairy farmers at pool

distributing plants under the following conditions:

(i) The dairy farmer was not a ``producer'' under this order during

more than 2 of the immediately preceding months of January through June

and not more than 32 days' production of the dairy farmer was received

as producer milk under this order during that period; and

(ii) The farm on which the milk was produced is not located within

the specified marketing area of this order or the marketing areas of

Federal Orders 1005, 1007, or 1046, and, is not within 85 miles of the

plant to which its milk is delivered.

(d) Transportation credits shall be computed as follows:

(1) For milk described in paragraph (c)(1) of this section, the

market administrator shall:

(i) Determine the shortest hard-surface highway distance between

the transferor plant and the transferee plant;

(ii) Multiply the number of miles computed in paragraph (d)(1)(i)

of this section by 0.37 cents;

(iii) Subtract the other order's Class I price applicable at the

transferor plant's location from the Class I price applicable at the

transferee plant as specified in Sec. 1011.52;

(iv) Subtract any positive difference computed in paragraph

(d)(1)(iii) of this section from the amount computed in paragraph

(d)(1)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(1)(iv) of this

section by the hundredweight of milk described in paragraph (c)(1) of

this section.

(2) For milk described in paragraph (c)(2) of this section:

(i) Each milk hauler that is transporting the milk of producers

described in paragraph (c)(2) of this section may stop at the nearest

independently-operated truck stop with a truck scale and obtain a

weight certificate indicating the weight of the truck and its contents,

the date and time of weighing, and the location of the truck stop. The

location of the truck stop shall be used as a starting point for the

purpose of measuring the distance to the pool plant receiving that load

of milk. If a weight certificate for a supplemental load of milk for

which a transportation credit is requested is not available, the market

administrator shall use the nearest city to the last producer's farm

from which milk was picked up for delivery to the receiving pool plant;

(ii) For each bulk tank load of milk received pursuant to paragraph

(d)(2)(i) of this section, the market administrator shall determine the

shortest hard-surface highway distance between the receiving pool plant

and the truck stop or city, as the case may be;

(iii) Multiply the number of miles computed in paragraph (d)(2)(ii)

of this section by 0.37 cents;

(iv) Multiply the number computed in paragraph (d)(2)(iii) of this

section by

[[Page 37645]]

the hundredweight of milk described in paragraph (c)(2) of this

section;

(v) Subtract this order's Class I price applicable at the

origination point determined pursuant to paragraph (d)(2)(ii) of this

section from the Class I price applicable at the distributing plant

receiving the milk; and

(vi) Subtract any positive difference computed in paragraph

(d)(2)(v) of this section from the amount computed in paragraph

(d)(2)(iv) of this section.

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

AREA

10. The authority citation for part 1046 continues to read as

follows:

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

674).

10 a. In Sec. 1046.30, paragraphs (a) and (c) are revised to read

as follows:

Sec. 1046.30 Reports of receipts and utilization.

* * * * *

(a) Each handler, with respect to each of his pool plants, shall

report the quantities of skim milk and butterfat contained in or

represented by:

(1) Receipts of producer milk, including producer milk diverted by

the handler from the pool plant to other plants;

(2) Receipts of milk from handlers described in Sec. 1046.9(c);

(3) Receipts of fluid milk products and bulk fluid cream products

from other pool plants;

(4) Receipts of other source milk;

(5) Receipts of bulk milk from a plant regulated under another

Federal order, except Federal Orders 1005, 1007, and 1011, for which a

transportation credit is requested pursuant to Sec. 1046.82;

(6) Receipts of producer milk described in Sec. 1046.82(c)(2),

including the identity of the individual producers whose milk is

eligible for the transportation credit pursuant to Sec. 1046.82(c)(2);

(7) Inventories at the beginning and end of the month of fluid milk

products and products specified in Sec. 1046.40(b)(1); and

(8) The utilization or disposition of all milk, filled milk, and

milk products required to be reported pursuant to this paragraph (a).

* * * * *

(c) Each handler described in Sec. 1046.9 (b) and (c) shall report:

(1) The quantities of all skim milk and butterfat contained in

receipts of milk from producers;

(2) The utilization or disposition of all such receipts; and

(3) With respect to milk for which a cooperative association is

requesting a transportation credit pursuant to Sec. 1046.82, all of the

information required in paragraphs (a) (5) and (6) of this section.

* * * * *

11. Section 1046.61 is amended by redesignating paragraphs (a)(4),

(a)(5), (b)(5), and (b)(6) as paragraphs (a)(5), (a)(6), (b)(6), and

(b)(7), respectively, amending paragraph (b)(3) by revising ``(a)(3)''

to read ``(a)(4)'' and ``(a)(4)(ii)'' to read ``(a)(5)(ii)'', amending

newly designated paragraph (b)(6) by revising ``(b)(4)'' to read

``(b)(5)'', amending newly designated paragraph (b)(7) by revising

``(b)(5)'' to read ``(b)(6)'', and adding new paragraphs (a)(4) and

(b)(5) to read as follows:

Sec. 1046.61 Computation of uniform price (including weighted average

price and uniform prices for base and excess milk).

(a) * * *

(4) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1046.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1046.80;

* * * * *

(b) * * *

(5) Deduct the amount by which the amount due from the

transportation credit balancing fund pursuant to Sec. 1046.82 exceeds

the available balance in the transportation credit balancing fund

pursuant to Sec. 1046.80;

* * * * *

12. In Sec. 1046.73, paragraph (f)(2) is revised to read as

follows:

Sec. 1046.73 Payments to producers and to cooperative associations.

* * * * *

(f) * * *

(2) On or before the 10th day after the end of the following month

for milk received during the month an amount computed at not less than

the value of such milk at the minimum prices for milk in each class, as

adjusted by the butterfat differential specified in Sec. 1046.74

applicable at the location of the receiving handler's pool plant and

any transportation credit that is due the cooperative association

pursuant to Sec. 1046.82(a), less the payment made pursuant to

paragraph (f)(1) of this section.

13. Following Sec. 1046.78, a new undesignated center heading and

Secs. 1046.80, 1046.81, and 1046.82 are added to read as follows:

Marketwide Service Payments

Sec. 1046.80 Transportation credit balancing fund.

The market administrator shall maintain a separate fund known as

the Transportation Credit Balancing Fund into which shall be deposited

the payments made by handlers pursuant to Sec. 1046.81 and out of which

shall be made the payments due handlers pursuant to Sec. 1046.82.

Payments due a handler shall be offset against payments due from the

handler.

Sec. 1046.81 Payments to the transportation credit balancing fund.

(a) On or before the 12th day after the end of the month, each

handler shall pay to the market administrator a transportation credit

balancing fund assessment determined by multiplying the pounds of Class

I milk assigned pursuant to Sec. 1046.44 by $0.06 per hundredweight or

such lesser amount as the market administrator deems necessary to

maintain a balance in the fund equal to the higher of the following

amounts:

(1) The total transportation credits dispensed during the prior

July-December period; or

(2) The total transportation credits dispensed during the

immediately preceding 6-month period.

(b) On or before the 13th day after the end of the month, the

market administrator shall credit the transportation credit balancing

fund, from the producer-settlement fund, any amount deducted pursuant

to Sec. 1046.61 (a)(4) or (b)(5).

(c) The market administrator shall announce publicly on or before

the 5th day of the month the assessment pursuant to paragraph (a) of

this section for the following month, except that for the first month

that this section is effective the assessment shall be announced no

later than [the publication date of the final rule in the Federal

Register] and for the first 3 months that this section is effective the

assessment pursuant to paragraph (a) of this section shall be 6 cents

per hundredweight.

Sec. 1046.82 Payments from the transportation credit balancing fund.

(a) On or before the 13th day after the end of each of the months

of July through December and any other month in which transportation

credits are in effect pursuant to paragraph (b) of this section, the

market administrator shall pay to each handler that received, and

reported pursuant to Sec. 1046.30(a)(5), bulk milk transferred from an

other order plant as described in paragraph (c)(1) of this section or

that received, and reported pursuant to Sec. 1046.30(a)(6), bulk milk

directly from producers' farms as specified in paragraph (c)(2) of this

section an amount determined pursuant to

[[Page 37646]]

paragraph (d) of this section. In the event that a qualified

cooperative association is the responsible party for whose account such

milk is received and written documentation of this fact is provided to

the market administrator pursuant to Sec. 1046.30(c)(3) prior to the

date payment is due, the transportation credits for such milk computed

pursuant to this section shall be paid to such cooperative association

by the pool plant operator pursuant to Sec. 1046.73(f)(2).

(b) The market administrator may extend the period during which

transportation credits are in effect (i.e., the transportation credit

period) to any of the months of January through June if the market

administrator receives a written request to do so 15 days prior to the

beginning of the month for which the request is made and, after

conducting an independent investigation, finds that such extension is

necessary to assure the market of an adequate supply of milk for fluid

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

notify the Director of the Dairy Division and all handlers in the

market that an extension is being considered and invite written data,

views, and arguments. Any decision to extend the transportation credit

period must be issued in writing prior to the first day of the month

for which the extension is to be effective.

(c) The transportation credit described in paragraph (a) of this

section shall apply to the following milk:

(1) Bulk milk received from a plant regulated under another Federal

order, except Federal Orders 1005, 1007, and 1011, and allocated to

Class I milk pursuant to Sec. 1046.44; and

(2) Bulk milk classified pro rata as Class I milk pursuant to

Sec. 1046.44 received directly from the farms of dairy farmers at pool

distributing plants under the following conditions:

(i) The dairy farmer was not a ``producer'' under this order during

more than 2 of the immediately preceding months of January through June

and not more than 32 days' production of the dairy farmer was received

as producer milk under this order during that period; and

(ii) The farm on which the milk was produced is not located within

the specified marketing area of this order or the marketing areas of

Federal Orders 1005, 1007, or 1011, and, is not within 85 miles of the

plant to which its milk is delivered.

(d) Transportation credits shall be computed as follows:

(1) For milk described in paragraph (c)(1) of this section, the

market administrator shall:

(i) Determine the shortest hard-surface highway distance between

the transferor plant and the transferee plant;

(ii) Multiply the number of miles computed in paragraph (d)(1)(i)

of this section by 0.37 cents;

(iii) Subtract the other order's Class I price applicable at the

transferor plant's location from the Class I price applicable at the

transferee plant as specified in Sec. 1046.52;

(iv) Subtract any positive difference computed in paragraph

(d)(1)(iii) of this section from the amount computed in paragraph

(d)(1)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(1)(iv) of this

section by the hundredweight of milk described in paragraph (c)(1) of

this section.

(2) For milk described in paragraph (c)(2) of this section:

(i) Each milk hauler that is transporting the milk of producers

described in paragraph (c)(2) of this section may stop at the nearest

independently-operated truck stop with a truck scale and obtain a

weight certificate indicating the weight of the truck and its contents,

the date and time of weighing, and the location of the truck stop. The

location of the truck stop shall be used as a starting point for the

purpose of measuring the distance to the pool plant receiving that load

of milk. If a weight certificate for a supplemental load of milk for

which a transportation credit is requested is not available, the market

administrator shall use the nearest city to the last producer's farm

from which milk was picked up for delivery to the receiving pool plant;

(ii) For each bulk tank load of milk received pursuant to paragraph

(d)(2)(i) of this section, the market administrator shall determine the

shortest hard-surface highway distance between the receiving pool plant

and the truck stop or city, as the case may be;

(iii) Multiply the number of miles computed in paragraph (d)(2)(ii)

of this section by 0.37 cents;

(iv) Multiply the number computed in paragraph (d)(2)(iii) of this

section by the hundredweight of milk described in paragraph (c)(2) of

this section;

(v) Subtract this order's Class I price applicable at the

origination point determined pursuant to paragraph (d)(2)(ii) of this

section from the Class I price applicable at the distributing plant

receiving the milk; and

(vi) Subtract any positive difference computed in paragraph

(d)(2)(v) of this section from the amount computed in paragraph

(d)(2)(iv) of this section.

[FR Doc. 96-18227 Filed 7-15-96; 3:34 pm]

BILLING CODE 3410-02-P