Milk in the Iowa Marketing Area; Revision of Pool Supply Plant Shipping Percentage

DEPARTMENT OF AGRICULTURE

7 CFR Part 1079

[DA-96-11]

Milk in the Iowa Marketing Area; Revision of Pool Supply Plant

Shipping Percentage

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This document reinstates certain provisions of the Iowa

Federal milk order indefinitely for the months of September through

November, beginning with October 1996 milk deliveries, and revises

other provisions for the months of December 1996 through March 1997.

This action increases the percentage of a supply plant's receipts that

must be delivered to fluid milk plants to qualify a supply plant for

pooling under the Iowa Federal milk order. The applicable percentage

will be increased by 5 percentage points, from 30 percent to 35

percent, for the months of September through November; and by 10

percentage points, from 20 percent to 30 percent, for the months of

December 1996 through March 1997. The revision is being made in

response to a request by a distributing plant that is regulated under

the order. This action is necessary to assure an adequate supply of

milk for fluid use.

EFFECTIVE DATES:

1. Amendment number 1 is effective October 1, 1996.

2. Amendment number 2 is effective October 1, 1996, and applies

October 1, 1996, through November 30, 1996, and for the September

through November period thereafter.

3. Amendment number 3 is effective December 1, 1996, through March

31, 1997.

4. Amendment number 4 is effective April 1, 1997.

FOR FURTHER INFORMATION CONTACT: Constance M. Brenner, Marketing

Specialist, USDA/AMS/Division, Order Formulation Branch, Room 2968,

South Building, P.O. Box 96456, Washington, DC 20090-6456, (202) 720-

2357.

SUPPLEMENTARY INFORMATION: Prior document in this proceeding:

Notice of Proposed Revision of Rule: Issued August 26, 1996;

published September 4, 1996 (61 FR 46571).

The Department is issuing this final rule in conformance with

Executive Order 12866.

This final rule has been reviewed under Executive Order 12988,

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

effect. This rule will not preempt any state or local laws,

regulations, or policies, unless they present an irreconcilable

conflict with 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 provisions 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 an

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

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

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

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

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

the Secretary's ruling on the petition, provided a bill in equity is

filed not later than 20 days after the date of the entry of the ruling.

This document reinstates the pool supply plant shipping percentage

of 35 percent under the Iowa order for the period October 1 through

November 30, 1996, and the September through November period

thereafter. A reduction from 35 to 30 percent was issued in 1990 (55 FR

41504, published October 12, 1990) effective October 12, 1990, for an

indefinite period. This action increases the percentage by reinstating

the original percentage of 35, thus eliminating the prior 1990 action.

The proposed rule for this action (61 FR 46571, published September 4,

1996) incorrectly stated that the current percentage for the months of

September through November was 35 and would have been increased to 45.

The current issue of the Code of Federal Regulations (CFR) shows

the percentage requirements to be 35 percent for September through

November and 20 percent for December through August because a temporary

change (e.g., 35 percent to 30 percent) is not printed in the CFR.

Small Business Consideration

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et

seq.), the Agricultural Marketing Service has considered the economic

impact of this action on small entities and has certified that this

rule will not have a significant economic impact on a substantial

number of small entities. For the purpose of the Regulatory Flexibility

Act, a dairy farm is considered a ``small business'' if it has an

annual gross revenue of less than $500,000, and a dairy products

manufacturer is a ``small business'' if it has fewer than 500

employees. For the purposes of determining which dairy farms are

``small businesses,'' the $500,000 per year criterion was used to

establish a production guideline of 326,000 pounds per month. Although

this guideline does not factor in additional monies that may be

received by dairy producers, it should be an inclusive standard for

most ``small'' dairy farms. For purposes of determining a handler's

size, if the plant is part of a larger company operating multiple

plants that collectively exceed the 500-employee limit, the plant will

be considered a large business even if the local plant has fewer than

500 employees.

The supply plant shipping percentage provisions are being increased

in the order to assure an adequate supply of milk for the fluid market.

It is expected that producers and their handlers who share in the

benefits of the higher-valued fluid uses of the market through their

participation in a marketwide pool should be required to help supply

milk to fluid milk distributing plants when additional supplies are

needed. As a result of this expectation, order

[[Page 55732]]

provisions based on testimony and data presented at a public hearing in

which all interested parties were encouraged to participate were

promulgated and approved by at least two-thirds of the dairy farmers

whose milk was pooled under the Iowa order.

The Iowa order provides that the pool supply plant shipping

percentages in the order may be increased or reduced by the Director of

the Dairy Division, Agricultural Marketing Service, to assure that an

adequate supply of milk will be made available to distributing plants,

or to avoid excessive costs of hauling and handling milk that may be

moved to distributing plants only to pool plentiful supplies of

producer milk.

For the month of July 1996, 2,995 dairy farmers were producers

under the Iowa milk order. Of these, all but 23 would be considered

small businesses, having under 326,000 pounds of production for the

month. Of the dairy farmers in the small business category, 2,389

produced under 100,000 pounds of milk, 533 produced between 100,000 and

200,000, and 50 produced between 200,000 and 326,000 pounds of milk

during July 1996.

The reports filed on behalf of the slightly more than 20 milk

handlers pooled, or regulated, under the Iowa order in July 1996 were

filed for individual establishments that, for the most part, would meet

the SBA definition of a small business, having less than 500 employees.

However, most of these establishments are part of larger businesses

that operate multiple plants and meet the definition of large entities

on that basis.

This revision will increase the percentage of milk receipts that

handlers are required to move to fluid milk distributing plants. Some

handlers may choose to move increased volumes of their milk supplies

from manufacturing uses to fluid use in order to assure that all of

their producer milk supplies will be able to share in the benefits of

the marketwide pool. Other handlers may elect to not pool some of their

producer milk supplies rather than ship more milk to distributing

plants. Still others may already be moving as much as they will be

required to move under increased percentages and will be unaffected by

the revision.

If the shipping percentages are not increased, the distributing

plant operator requesting the revisions, a large entity based on its

multiple plant operations, may not be able to obtain an adequate supply

of milk at a competitive price to meet its needs. The handlers from

whom the distributing plant handler would be most likely to receive

increased shipments are also, for the most part, large entities.

This revision is issued pursuant to the provisions of the

Agricultural Marketing Agreement Act and the provisions of

Sec. 1079.7(b)(1)of the Iowa order.

Notice of proposed rulemaking was published in the Federal Register

(61 FR 46571) concerning a proposed increase in the percentage of a

supply plant's receipts that must be delivered to fluid milk plants to

qualify a supply plant for pooling under the Iowa Federal milk order.

The revisions were proposed to be effective for the months of September

1, 1996, through March 31, 1997. The public was afforded the

opportunity to comment on the proposed notice by submitting written

data, views, and arguments by September 11, 1996.

Two comments supporting and one opposing the proposed revision were

received.

Statement of Consideration

After consideration of all relevant material, including the

proposal set forth in the aforesaid notice, and other available

information, it is hereby found and determined that the supply plant

shipping percentage set forth in Sec. 1079.7(b) of the Iowa Federal

milk order should be increased by 5 percentage points, from 30 percent

to 35 percent for the months of September through November, effective

October 1, 1996, and should be increased by 10 percentage points, from

20 percent to 30 percent, for the months of December through March.

An increase of 10 percentage points to the supply plant shipping

percentages for the months of September 1996 through March 1997 was

proposed by Anderson-Erickson Dairy Company (A-E), a proprietary

distributing plant that is regulated under the order. The handler

contends that the increase in the shipping standard is necessary to

bring forth an adequate supply of fluid milk for fluid use.

According to A-E, the handler has been and is willing to pay the

announced market price for milk, which includes over-order premiums. A-

E states that the higher-valued uses of fluid milk are not being shared

in the pool. Thus, fluid milk is not being made available to A-E at a

market price which can retain A-E's competitiveness. The handler's

comments state that the federal order for Iowa has at least temporarily

ceased performing its statutorily-mandated functions because it is not

equalizing payments to producers and simultaneously is not assuring the

delivery of fluid milk to fluid handlers. In the absence of increased

shipping percentages, A-E urged the Secretary immediately to suspend

(or terminate) the pricing provisions of the Iowa order until such time

as the pricing actually results in uniform prices to producers and in

the delivery of fluid milk to fluid plants. Comments received from Hy-

Vee Food Stores, Inc., of West Des Moines, Iowa, support A-E's request

for an increase in the percentage of a pool supply plant's receipts to

be shipped to fluid milk plants.

Beatrice Cheese, Inc., is a proprietary manufacturer of dairy

products in Fredericksburg, Iowa, that markets milk for eight small

cooperatives located in Northeast Iowa and Southeast Minnesota.

Beatrice also has its own supply of milk from nonmember producers.

Beatrice Cheese, Inc., strongly opposes the shipping percentage

increases proposed by A-E Dairy. Beatrice claims to have supplied A-E,

on a monthly basis, with what Beatrice estimates to be about fifty

percent of A-E's needs. Beatrice also supplies milk to pool

distributing plants regulated under another Federal order at a level

they claim meets or exceeds current order supply plant shipping

percentages. Beatrice contends that they are supplying the pool

distributing plants in the marketing area with more than a fair share

of the milk pooled by Beatrice. According to Beatrice, if additional

supplies were available to be shipped to A-E without creating a

financial burden on Beatrice, Beatrice would be fulfilling A-E's needs,

but these additional supplies are not available. Based on recent Class

I use percentages, Beatrice contends that if the 45 percent shipping

requirement were adopted, excessive milk supplies could be required to

be shipped to bottlers, necessitating uneconomic shipments back to

other milk users. Beatrice states that the proposed shipping

requirements would put unjust financial pressures on Beatrice, creating

a competitive disadvantage for its dairy farmers. Since January 1996,

Beatrice claims, it has incurred a substantial financial loss due to

current shipping requirements, given the absence of hauling credits

under Order 79. Beatrice states that it may be necessary for pool

distributing plants to go outside their normal procurement avenues to

purchase the extra milk they require at current market prices, without

using the Federal Order system to force shipments.

Market data show that the Class I percentage of milk pooled in the

Iowa marketing area since March 1996 has been significantly higher than

for the same periods in several preceding years.

[[Page 55733]]

For the months of June through August 1996, the percentage of pool milk

used in Class I has increased over the average of the same months of

1993-95 by an average of 10.5 percentage points. The average increase

has grown from 9.3 percentage points for June 1996 compared with June

1993-95, to 12.7 for August 1996 over August 1993-95. Although some of

the increase in the Class I utilization percentage undoubtedly reflects

the effect of customarily-pooled milk that was not pooled because of

Class III and Class III-A pricing differences, these numbers still

indicate that the supply of milk available to the fluid market has

declined in recent months. This revision to increase the percentage of

a supply plant's receipts that must be delivered to fluid milk plants

to qualify a supply plant for pooling under the Iowa Federal milk order

is necessary to attract an adequate supply of milk for fluid use due to

the increasing percentage of milk used in Class I.

Although the proposed revision published September 4, 1996 (61 FR

46571) discussed the possibility of increasing the applicable

percentage from 35 percent to 45 percent for the months of September

through November 1996, the effective shipping percentage for that

period previously had been lowered to 30 percent on October 12, 1990

(55 FR 41504). According to market data, however, it appears that a

reinstatement of the 35-percent shipping percentage would be

appropriate to bring forth an adequate supply of milk for fluid use.

Such a percentage is also within the 10-percent revision limitation

provided for within the order while the proposed 45 percent level would

be greater than that allowable under the 10 percentage point increase

limitation (Sec. 1079.7(b)( 1)). Furthermore, the market data indicates

that a 40 percent standard would provide an excess of Class I milk.

Finally, the market data indicates that the need for increased Class I

milk supplies will continue beyond November 1996 and so it is

appropriate to increase the supply plant shipping percentages for

December 1996 through March 1997.

It is hereby found and determined that 30 days' notice of the

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

public interest in that:

(a) This revision is necessary to reflect current marketing

conditions and to maintain orderly marketing conditions in the

marketing area for the months of October and November, and for December

1996 through March 1997.

(b) This revision does not require of persons affected substantial

or extensive preparation prior to the effective date; and

(c) Notice of the proposed revision was given interested parties

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

arguments concerning this revision.

Two comments supporting and one opposing the proposed revision were

received.

Therefore, good cause exists for making this revision effective

less than 30 days from the date of publication in the Federal Register.

List of Subjects in 7 CFR Part 1079

Milk marketing orders.

For the reasons set forth in the preamble, 7 CFR Part 1079, is

amended as follows:

PART 1079--MILK IN THE IOWA MARKETING AREA

1. The authority for 7 CFR Part 1079 continues to read as follows:

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

Sec. 1079.7 [Amended in Part]

2. In Sec. 1079.7(b), the introductory text is amended by revising

the words ``30 percent'' to read ``35 percent,'' effective October 1,

1996. This amendment applies as of October 1, 1996, through November

30, 1996, and for the months of September through November thereafter.

3. In Sec. 1079.7(b), the introductory text is amended by revising

the words ``20 percent'' to read ``30 percent,'' effective December 1,

1996, through March 31, 1997.

4. In Sec. 1079.7(b), the introductory text is amended by revising

the words ``30 percent'' to read ``20 percent,'' effective April 1,

1997.

Dated: October 23, 1996.

Richard M. McKee,

Director, Dairy Division.

[FR Doc. 96-27723 Filed 10-28-96; 8:45 am]

BILLING CODE 3410-02-P