Milk in the Carolina and Certain Other Marketing Areas; Partial Final Decision

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1005, 1007, 1011, and 1046

[Docket No. AO-388-A9, et al.; DA-96-08]

Milk in the Carolina and Certain Other Marketing Areas; Partial

Final Decision

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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 final decision would modify interim amendments which

established transportation credit provisions in 4 Federal milk orders

in the Southeastern United States. The interim amendments were based

upon proposals that were considered at a public hearing held in

Charlotte, North Carolina. The proposed modifications to the interim

amendments are based upon additional testimony heard at a reopened

hearing held in Atlanta, Georgia. The major modifications would

increase the maximum assessment by one cent or less in two of the

orders to pay for transportation costs and eliminate the reduction of

blend prices to producers to pay for transportation costs. The

amendments adopted in this decision will become effective if approved

by the producers in the affected markets.

FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,

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

Building, P. O. Box 96456, Washington, DC 20090-6456 (Tel:202/690-1932;

E-mail:[email protected]).

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.

This final rule has been reviewed under Executive Order 12988,

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

effect, and it will not preempt any state or local laws, regulations,

or policies, unless they present an irreconcilable conflict with the

rule.

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

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

exhausted before parties may file suit in court. Under section

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

the Secretary a petition stating that the order, any 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.

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

proposed 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.

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 farmers. 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 milk of approximately 8,600 producers is pooled on the

Carolina, Southeast, Tennessee Valley and Louisville-Lexington-

Evansville milk orders. Of these producers, 95 percent produce below

the 326,000-pound production guideline and are considered to be small

businesses.

There are 43 handlers operating pool plants under the four orders.

Of these handlers, 22 have fewer than 500 employees and qualify as

small businesses.

The proposed rules amending the transportation credit provisions

will promote orderly marketing of milk by producers and regulated

handlers operating within the 4 marketing areas. This decision

eliminates the provision which provides for the transfer of funds from

the producer-settlement fund to the transportation credit balancing

fund when the latter is insufficient to cover the amount of credits to

be distributed to handlers for a given month. Thus, the possibility of

a reduction of uniform prices to producers resulting from

transportation credits will no longer exist.

This decision also modestly increases the handler assessment from 6

cents to 6.5 cents per hundredweight of Class I producer milk in the

Carolina market and to 7 cents per hundredweight in the Southeast

market, but maintains the current 6-cent assessment in the Tennessee

Valley and Louisville-Lexington-Evansville markets. A 6-cent per

hundredweight assessment translates to approximately one-half cent per

gallon of milk. The one-half to one-cent assessment increase in Federal

Orders 1005 and 1007 may negatively impact some small businesses, as

any price increase would, but it may also positively impact other small

businesses by providing more funds for transportation credits.

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

in this

[[Page 27526]]

proceeding file a monthly report of receipts and utilization with the

market administrator. The proposed amendments will not significantly

add to the amount of information required to be reported by those

handlers requesting transportation credits. The estimated time to

collect, aggregate, and report this information will vary directly with

the amount of milk for which credits are requested, but should not be

significant.

Prior Documents in This Proceeding

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

19861).

Tentative Partial Final Decision: Issued July 12, 1996; published

July 18, 1996 (61 FR 37628).

Interim Amendment of Orders: Issued August 2, 1996; published

August 9, 1996 (61 FR 41488).

Extension of Time for Filing Comments: Issued August 16, 1996;

published August 23, 1996 (61 FR 43474).

Extension of Time for Filing Comments: Issued October 18, 1996;

published October 25, 1996 (61 FR 55229).

Notice of Reopened Hearing: Issued November 19, 1996; published

November 25, 1996 (61 FR 59843).

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, and in

Atlanta, Georgia, on December 17-18, 1996. Notice of the May hearing

was issued on May 1, 1996, and published May 3, 1996 (61 FR 19861).

An interim order amending the orders was issued on August 2, 1996,

and published on August 9, 1996 (61 FR 41488). The interim amendments

became effective on August 10, 1996.

Following 3 months' experience with the interim amendments, the

industry requested, and the Department agreed, to reopen the hearing to

receive additional evidence concerning their impact. This hearing was

held in Atlanta, Georgia, on December 17-18, 1996, following a notice

of such reopened hearing that was issued on November 19, 1996, and

published on November 25, 1996 (61 FR 59843).

Interested parties were given until January 24, 1997, to file post-

hearing briefs on proposals following the reopened hearing.

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.

4. The definition of producer.

This partial final decision only deals with Issue 1. Issue 3 was

discussed in the tentative partial final decision that was issued July

12, 1996, and is now moot. Issues 2 and 4 will be handled through

normal rulemaking procedures in a forthcoming recommended decision.

Summary of Changes to the Interim Amendments

This final decision differs from the tentative decision in several

respects. The key changes in the order amendments are as follows:

1. The provision providing for a transfer of funds from the

producer-settlement fund to the transportation credit balancing fund

when the latter fund has an insufficient balance to pay for the month's

transportation credits has been removed. Instead, the available balance

in the transportation credit balancing fund each month will be prorated

to handlers applying for transportation credits for that month. See

Sec. 100X.82(a).

2. The assessment for the transportation credit balancing fund has

been raised from 6 cents to 6.5 cents per hundredweight for the

Carolina order and to 7 cents per hundredweight for the Southeast

order. See Secs. 1005.81(a) and 1007.81(a).

3. The per mile rate for computing the transportation credit has

been reduced from 0.37 cent to 0.35 cent per hundredweight of milk. See

Sec. 100X.82(d)(2)(ii) and (d)(3)(iv).

4. A net shipment provision has been added to each of the 4 orders.

This provision reduces the pounds of milk eligible for a transportation

credit at a pool plant by the amount of milk transferred from that pool

plant to a nonpool plant on the same calendar day the supplemental milk

was received. See Sec. 100X.82(d)(1).

5. The computation of the transportation credit for producer milk

has been changed to more closely match the way the transportation

credit is computed for milk that is transferred from an other order

plant. In particular, if the farm ``origination point'' is within

another Federal order's marketing area, the Class I price at the

origination point shall be the price that would apply at that location

under the provisions of the order covering that area. See

Sec. 100X.82(d)(3)(v). In addition, in computing the credit for farm-

to-plant milk there is a deduction of 85 miles from the distance

between the farm origination point and the receiving plant. See

Sec. 100X.82(d)(3)(iii). Finally, the proportion of producer milk that

is eligible for the transportation credit has been changed to more

closely reflect the proportion of other order plant milk that would

receive the credit. See Sec. 100X.82(c)(2)(i).

6. The restricted area from which producer milk would be considered

ineligible to receive a transportation credit has been revised to

include six Kentucky counties--Allen, Barren, Metcalfe, Monroe,

Simpson, and Warren--in addition to the specified marketing areas of

Federal Orders 1005, 1007, 1011, or 1046. See Sec. 100X.82(c)(2)(iii).

7. The months during which the market administrator may extend

transportation credits have been changed from January through June to

January and June. See Sec. 100X.82(b).

8. The limitation on the amount of milk that may be delivered as

producer milk without being disqualified for transportation credits has

been changed from 32 days of production to 50 percent of the dairy

farmer's total production during not more than 2 months of January

through June when the dairy farmer was a producer. See

Sec. 100X.82(c)(2)(ii).

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. The tentative decision issued on July 12, 1996, concluded

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

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

transportation credits for supplemental bulk milk that is transferred

from an other order plant to a pool plant and for supplemental bulk

milk imported directly from producers' farms during the months of July

through December. Additionally, the decision concluded that a handler

assessment on the total pounds of Class I producer milk should be added

to each order to fund the transportation credits.

[[Page 27527]]

This final decision reaffirms the conclusions of the earlier

decision, but also recommends changes to that decision based upon the

testimony of the reopened hearing. This decision consists of four

parts. Part 1 is a brief summary of the testimony and briefs resulting

from the initial hearing; part 2 is a summary of the interim amendments

that were adopted in the July 12, 1996, tentative decision; part 3 is a

summary of the testimony and briefs resulting from the reopened

hearing; and part 4 explains why the interim amendments should be

modified.

A Brief Summary of Testimony and Briefs Resulting From the May 15-16,

1996 Hearing

A transportation credit for bulk milk received from an other order

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

Am), 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. According to Mid-Am, the Southeast States are

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

namely the late summer and fall months. Mid-Am stated that the costs of

supplying handlers with an adequate supply of fluid milk fall

disproportionately on cooperative associations serving these markets.

Arguing that 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, Mid-

Am testified that the Secretary should immediately amend the 4 orders

to incorporate transportation credits into the 4 orders on milk that is

transferred from other order plants.

Carolina Virginia Milk Producers Association (CVMPA), a cooperative

association with producers supplying plants regulated under all 4

orders, stated that the Mid-Am proposal should be expanded to also

include supplemental milk received directly from producers' farms.

CVMPA noted that it imported far more supplemental milk directly from

producers' farms than from other order plants during the months of July

through December 1995.

The proposal to include supplemental milk shipped directly from

producers' farms was endorsed by both handlers and other cooperative

associations. Receiving milk in this manner, it was argued, would

encourage hauling efficiencies, improve milk quality, eliminate pump-

over expenses, and reduce product loss due to handling.

Fleming Dairy, a handler operating in Tennessee and Louisiana,

supported the transportation credit concept, but argued for a shorter

transportation credit period than was proposed by Mid-Am. Fleming

stated that extension of the transportation credit period should be

removed from the proposal.

Several witnesses suggested that the rate of 0.39 cent per mile

that was proposed by Mid-Am for computing a transportation credit was

too high. Testimony was also given regarding the necessity of

restricting transportation credits on bulk milk transfers between the 4

orders.

Several proprietary handlers testified in opposition to the

proposed transportation credits by arguing that the assessments would

create competitive disadvantages among handlers. The record indicated

that several handlers feared that marketing practices, such as stair-

stepping milk from one market to another, would result in false

shortages in the shipping market and, thus, that the cost of obtaining

additional milk supplies would not be shared equitably among handlers.

Briefs filed by various handlers reiterated their reservations

regarding transportation credits. It was maintained that the milk

shortage situation in the Southeast should be dealt with through means

outside of the order system, such as over-order premiums. Issues such

as Class III-A pricing and stair-stepping of milk were addressed as

concerns which could jeopardize the true intent of transportation

credits to compensate handlers for costs incurred in obtaining

supplemental supplies of milk for fluid use.

While acknowledging that sufficient testimony and record evidence

was offered in support of transportation credits, additional briefs

submitted by interested parties cautioned the Department against

potential abuse. Offsetting milk shipments into and out of the

marketing areas, establishing historical milk movements, and limiting

the amount of credits available (e.g. deducting the first 100 miles)

were all addressed as areas of concern.

One handler opposed the incorporation of transportation credits in

total, claiming that such credits were money-shifting schemes proposed

by those who have made no efforts to develop business relationships to

ensure a steady supply of milk. The brief of another handler suggested

limiting assessments to Class I sales made within the 4 marketing

areas.

Several of the post-hearing briefs argued that supplemental

producer milk, as well as plant-to-plant milk, should be eligible for

credits. CVMPA offered a definition of ``supplemental milk'' as the

milk of dairy farmers which is only pooled during the months of short

production. Suggestions for supplemental producer ineligibility were

offered to distinguish such producers from those normally associated

with subject markets. Recommendations on how to determine an

origination point for producer milk were also proposed, including

taking into consideration differences in Class I prices at the

receiving plant and the origination point.

In its post-hearing brief, Mid-Am emphasized that cooperatives were

bearing a disproportionate burden in supplying these markets with

supplemental milk. It argued that the cost associated with such milk

cannot be passed along to their customers and that absorbing this cost

placed their member producers at a competitive disadvantage relative to

non-member producers who do not share in this cost. Mid-Am also pointed

out that the incorporation of transportation credits would conform with

past agency decisions and would facilitate securing adequate supplies

of milk to meet the markets' fluid needs. It indicated that its

proposal should be expanded to provide transportation credits for

producer milk as well as plant milk.

Interim Amendments Effective August 10, 1996

Following the May hearing, interim amendments providing for

transportation credits became effective for the 4 orders on August 10,

1996. The amendments provided transportation credits to pool plant

operators and cooperative associations for Class I bulk milk received

from an other order plant and for milk received directly from

producers' farms and used in Class I.

Handlers and cooperative associations are required to report to the

market administrator receipts of bulk milk from other order plants and

receipts of producer milk, including the identity of individual

producers, for which transportation credits are requested pursuant to

Section 30 of the orders.

For plant milk, the credit is limited to milk that is allocated to

Class I. It is computed at a rate equal to 0.37 cent per mile per cwt.

based on the distance from the transferor plant to the transferee

plant. The resulting number is reduced to the extent that the Class I

price at the receiving plant exceeds the Class I price at the shipping

plant to arrive at the transportation credit for that load of milk.

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

origination

[[Page 27528]]

point of a bulk tank truck containing more than one producer's milk is

either the city closest to the farm from which the last farm pickup was

made or 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 is computed by multiplying 0.37 cent times the

number of miles 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.

Transportation credits are limited to the months of July through

December; however, an extension may be requested for any of the months

of January through June. During the months of January through June, the

market administrator has 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. Such a request must be made

in writing at least 15 days prior to the beginning of the month for

which it is to be effective and requires the market administrator to

issue a decision on the request by the first day of the month for which

it is to be effective.

Pursuant to the interim amendments, the credits are limited to

transfers from other order plants that are not regulated under Orders

5, 7, 11, or 46. This provision was added in response to concerns

expressed at the hearing that handlers in one of these 4 markets could

be required to pay for transporting milk into another of these markets

in the absence of any such restriction.

Certain location restrictions are also provided for supplemental

producer milk. Transportation credits do not apply to the milk of any

producer whose farm is located within any of the 4 marketing areas. In

addition, the farm must be at least 85 miles away from the plant to

which the milk is delivered.

In order to receive credits on producer milk, the producer cannot

be normally associated with the market in which the credit is

requested. A producer's milk is eligible to receive such credits as

long as the dairy farmer was not a producer under the order during more

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

not more than 32 days' production of such farmer was received as

producer milk on the market.

The interim amendments adopted a transportation credit balancing

fund, as well as a 6-cent per hundredweight (or lesser amount) monthly

assessment on Class I producer milk to provide revenue for the fund.

The higher of the hauling credits distributed in the immediately

preceding 6 months or in the preceding July-December period is used to

determine the current month's assessment level. 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 are offset

against payments due to a handler. The assessment for the

transportation credit balancing fund is announced on the 5th day of the

month preceding the month to which it applies.

In the event that the transportation credit balancing fund is

insufficient to cover the cost of the transportation credits to be

distributed, the difference is deducted from the producer-settlement

fund.

Testimony and Briefs Resulting From the Reopened Hearing

At the reopened hearing, Mid-Am testified that it supports the

continuation of transportation credits in the 4 orders, but that

certain modifications should be made to fine-tune the provisions. Mid-

Am testified that changes should be made in the provisions applicable

to producer milk, but that no changes were needed with respect to the

provisions applicable to other order plant transfers.

Mid-Am testified that: (a) the credits applicable to a load of

producer milk should be comparable to those applicable to milk received

from an other order plant; (b) the mileage for computing credits should

be reduced by 85 miles from the origination point to the receiving

plant; (c) the transportation credit computation on producer milk

should reflect the difference between the shipping order's Class I

price at the origination point and the receiving order's Class I price

at the receiving plant; and (d) the geographic area from which

producers would be ineligible to receive credits on their milk should

be further expanded and clarified, including basing points found on the

edges of the marketing areas. In addition, Mid-Am proposed a revision

to Section 78, Charges on Overdue Accounts, in the Carolina, Southeast,

and Louisville-Lexington-Evansville orders to include payments of

transportation credit assessments due pursuant to Section 81 of the

orders.

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 proposal to modify the

transportation credits. CVMPA testified that, like Mid-Am, it believes

that the interim amendments are in need of some fine-tuning so that the

credits available on producer milk are comparable to those available on

plant milk. Also, CVMPA said that Mid-Am's proposed changes will reduce

the total amount of credits available on producer milk, thereby

lessening the probability that the value of the credits distributed

will exceed available funds.

Associated Milk Producers, Inc. (AMPI), a cooperative association

representing producers in the South and Southwest which also operates

manufacturing facilities in various states, testified in support of the

basic concept proposed by Mid-Am and CVMPA, but stated that certain

modifications to such proposals should be considered. AMPI testified

that it supports the proposal regarding the equalization of

transportation credits granted to producer milk imports and plant milk

shipments, but opposes the institution of basing points and the 85-mile

exclusion rule to establish producer milk ineligibility for

transportation credits. AMPI argued that the ineligibility requirement

would cause the uneconomical movement of milk because supplemental

supply sources in relatively close areas, such as eastern Texas, would

be passed over since supplemental producer milk from that area would

not receive any transportation credits. AMPI testified that it does not

oppose other aspects of Mid-Am's proposed modifications, such as

deducting the first 85 miles from the hauling distance to compute the

transportation credit value and having the credit cover only that

portion of a producer's load that is allocated to Class I.

AMPI also suggested including a net shipment provision as it

pertains to transportation credits on a daily or monthly basis. AMPI

argued that transportation credits should not be available on milk

received by a plant when on the same day the same milk may be diverted

or transferred to other order plants. While being unaware of any such

abuse currently, AMPI said that inclusion of such a provision would

prevent the encouragement of future abuse.

AMPI also testified that the transportation credits, as currently

structured, have created disorderly marketing conditions by

establishing an incentive for handlers to solicit producers away from

cooperatives during the transportation credit period. Although AMPI

contended that it had not lost producer membership, AMPI testified that

other cooperatives had lost some membership.

[[Page 27529]]

Testimony was also offered by a spokesman on behalf of Piedmont

Milk Sales, an organization that markets the milk of 277 dairy farmers

to handlers in the Southeast. Piedmont testified that the provision

which permits funds to be transferred from the producer-settlement fund

to the transportation credit balancing fund when the latter fund has an

insufficient balance to pay the month's transportation credits has been

detrimental to dairy farmers in the Southeast. Piedmont testified that

the loss of income to producers reflected in their reduced blend prices

is contrary to the economic philosophy relied on in half a century of

Federal order and price support administration.

Piedmont pointed out that the May 1996 hearing record indicated

that the impact on the blend price would be less significant than has

actually occurred, suggesting, perhaps, that abuse of the

transportation credits has occurred and will continue to occur in the

absence of any modification of the provision. In order to curtail

abuse, Piedmont suggested that transportation credits be prorated on

the basis of available funds collected from handlers and deposited into

the transportation credit balancing fund.

Piedmont also called for the restriction of credits on producer

milk by including a provision which would eliminate credits on milk

shipped directly from distant farms unless such milk was diverted

between markets; it should then be treated as if it were plant milk. In

essence, Piedmont argued for the tightening of the transportation

credit provisions to prevent the uneconomic movement of milk from

sources as far as California. The rate of 0.37 cent/mile also was

criticized as being too high; however, no specific alternative rate was

offered.

Piedmont supported a net shipment provision which would reduce the

amount of transportation credits obtained by a handler if that handler

shipped milk to a plant not regulated under any of the 4 orders. While

conceding that some transfers and diversions were justified and did not

constitute abuse, Piedmont contended that it is the responsibility of

the handler to demonstrate that supplemental milk actually moved into

such order(s) if a credit is requested.

In response to questions regarding the computation of the credits

for the various orders, Piedmont stated that currently under the

interim amendments the procedure used to compute such credits is not

identical for each of the orders with respect to location adjustments.

In order to promote greater equity, Piedmont suggested that the

procedures used in Orders 11 and 46 for such computation should be used

for all 4 orders.

Several Southeastern dairy farmers testified at the reopened

hearing to oppose and voice their concerns over the reduction in blend

prices resulting from the implementation of the transportation credits.

One dairy farmer stated that he does not understand why Class I

utilization rates have dropped in his marketing area in recent months,

while, at the same time, supplemental milk is being imported and is

eligible for transportation credits. Many of the farmer witnesses

complained that by deducting the difference between the amount of

credits to be paid out and the amount of funds available to cover these

credits from the producer-settlement fund, dairy farmers are penalized

and handlers are provided an incentive to continue to bring in milk

whether it is needed or not.

One dairy farmer stated that the importation of supplemental milk

would contribute to the demise of the dairy industry in the South. He

contended that hauling in supplemental milk does not benefit local

suppliers of feed or fertilizer and will eventually harm the

Southeastern economy. He also expressed concern about price uncertainty

which, he said, is exacerbated as a result of the transportation

credits. One dairy farmer maintained that producers already have to

contend with a number of variable factors affecting their blend price

(including the weather and drought) and should not be subject to any

additional uncertainties which may further reduce their blend price. He

stated that once the blend price is reduced, the dairy farmer has no

way to recoup the loss and cannot pass that cost along to anybody else.

Another dairy farmer testified that it is unfair and illogical to

reduce the blend price in the Southeast to bring in supplemental milk

when milk is also moving out of the area. He stated that he welcomes

competition from dairy farmers outside the Southeast area, but that

Southeast dairy farmers should not be responsible in any way for

hauling their distant competitors' milk into the area. He said that, in

essence, this has occurred with the implementation of the

transportation credit provisions.

Kraft, Inc. (Kraft), which operates manufacturing plants in several

states, testified that it is generally not opposed to ``cautious and

conservative use of transportation credits where necessary to assure

that milk required for Class I use is equitably and adequately

supplied.'' Kraft contended that the transportation credit provisions

adopted in the interim amendments appear to provide a financial

incentive to acquire distant supplemental producer milk rather than

plant milk by absorbing some of the hauling charges that would normally

be paid by the supplying producer. Kraft testified that the credits

should be continued, but that there should be an equalization of

incentives and/or disincentives with respect to plant milk versus

producer milk.

Kraft also testified that if a net shipment provision is to be

incorporated into the transportation credit program, it should only

include milk which has been transferred or diverted for Class I use to

another handler.

Milk Marketing, Inc. (MMI), speaking on behalf of its member

producers whose milk is pooled under Order 46, testified that it

supports Mid-Am's and CVMPA's proposal to modify the interim

amendments. MMI contended that such proposed modifications are needed

to resolve issues of equity involving producer milk and plant milk. In

addition, MMI stated that it firmly believes that producer milk

normally associated with the market should continue to be ineligible to

receive transportation credits.

Fleming Dairy, which operates pool distributing plants in

Nashville, Tennessee, and Baker, Louisiana, testified that it opposes

any increase of the current 6-cent assessment rate that is charged to

handlers regulated under the 4 orders. Fleming also addressed the issue

of net hauling provisions by stating that this is an area which needs

to be examined more thoroughly.

When asked about funds taken from the producer-settlement fund to

supplement the transportation credit balancing fund, Fleming testified

that Mid-Am's and CVMPA's proposals to reduce the amount of credits

given out will most likely result in a situation where a 6-cent

assessment will be enough to cover the value of the credits. Fleming

testified, however, that transportation credits primarily benefit dairy

farmers and, for this reason, it is appropriate to have all producers

supplement the funds available for credits by a reduction in the blend

price. In conclusion, Fleming testified that without transportation

credits, it would have had less money available within the company to

pay premiums to independent dairy farmers. Thus, according to Fleming

Dairy, dairy farmers have benefited from the incorporation of

transportation credits.

A witness representing Dairy Fresh Corp. and Barber Pure Milk Co.,

two handlers operating pool plants regulated under Order 7, also

supported

[[Page 27530]]

transportation credits as a concept, but opposed increasing the handler

assessment rate from 6 to 7 cents. Addressing the issue of the credit

rate, and in response to a question asked earlier at the hearing, the

witness stated that the 0.37 cent/mile rate should not be decreased as

the distance hauled increases. He argued that this would not be

appropriate because at times it is necessary to seek distant sources of

available milk supplies. Finally, the witness testified that Mid-Am's

proposal involving the 85-mile ineligibility requirement would

discourage handlers from obtaining milk directly from producers' farms

and thereby discourage greater efficiency and better quality milk.

Post-hearing briefs were filed by various interested parties. While

changes to the current transportation credit provisions have been

recommended throughout such briefs, the concept of transportation

credits was not opposed by any of the submitting parties, with the

exception of one handler recommending that the credits be eliminated

from Order 11.

In its brief, Southern Belle, a handler regulated under Order 11,

opposes any assessment on Class I producer milk for transportation

credits in Order 11, reiterating its position following the initial

hearing. Southern Belle restated the argument that many of its

competitors are pooled under an order which does not require such

assessment; therefore, the assessment places Southern Belle at a

competitive disadvantage. Furthermore, such brief stated the current 6-

cent assessment negatively impacts the Southern Belle's sales of

bottled milk.

A brief submitted by Kraft Foods, Inc., stated that Kraft does not

oppose transportation credits, but suggested that these provisions

should be modified to equalize the costs of supplying fluid milk

supplies to the Southeast. The brief stated that Kraft is at a

disadvantage in procuring milk for Class II use because credits are

available to those handlers with fluid milk plants which compete with

Kraft in their ancillary Class II operations. Kraft also expressed

concern over a net shipments provision and urged the Department to be

cautious in its adoption of any such provision by having shipment

limitations apply only when Class I milk (eligible for a transportation

credit) received in any of the markets has replaced Class I milk

(ineligible for a transportation credit) shipped out of the same market

if the receiving plant is not within the 4-market area. Kraft's brief

also reiterated its recommendation that the incentive and disincentives

regarding transportation credits on supplemental plant milk versus

supplemental producer milk should be equalized.

In its brief, Fleming Companies strongly supported the continuation

of transportation credits, but stated that a few minor adjustments may

be necessary. Fleming also restated its position that it opposes any

increase in the handler assessment rate. Additionally, the brief stated

that it is not inequitable for producers to share in the cost of the

transportation credits since such cost provides services of marketwide

benefit. As long as the contribution of handlers through assessments

exceeds the amount of contribution by producers, then, according to

Fleming, no increase in the assessment rate is justified.

Piedmont Milk Sales also submitted a post-hearing brief on behalf

of the 277 dairy farmers who ship through Piedmont and regulated

handlers, Land O'Sun, Inc., Hunter Farms, and Milkco, Inc. In its

brief, Piedmont conceded that transportation credits are needed in the

Southeast; however, Piedmont also recommended that certain changes are

necessary regarding transportation credits in order to curtail abuse or

potential abuse. According to Piedmont, several areas need to be

modified, including: (1) Producer milk eligibility, (2) the January

through June extension period for transportation credits, (3) the

deduction of funds from the producer-settlement fund resulting in blend

price reductions, and (4) the inclusion of a net shipment provision.

Piedmont suggests that credits have been given on milk which was

imported for Class I use into the 4-market area, while at the same time

milk was being shipped out of this area into Florida. Handlers and

producers, it was stated, paid to bring in replacement milk from as far

away as California when the milk could have been obtained from closer

sources. Piedmont argued that the current transportation credits create

an incentive to acquire milk on the basis of the generosity of the

credits as opposed to the most efficient movement of milk.

Piedmont's brief also suggested that the market administrator's

responsibility should be expanded to monitor transportation credit

requests to determine whether milk that was imported was actually

supplemental milk. The brief explains that the market administrator

should be required to verify that the credits due a handler do not

exceed the actual costs of hauling. In addition, Piedmont reiterated

its request for a net shipment provision to ensure that shipments from

these 4 markets to other order plants are not occurring simultaneously

with the importation of supplemental milk to replace these exports.

In its brief, Piedmont also strongly opposed any reduction in the

blend price of producers. A recommendation to prorate the available

funds to be paid out to handlers was supported.

According to Piedmont, if the Department does not eliminate

producer milk from being eligible for transportation credits, certain

restrictions should be placed on it. While supporting the proposed

amendment to assign producer milk to Class I in the same manner as

transferred milk, Piedmont opposes the other proposed changes involving

producer milk. Piedmont stated in its brief that when computing the

transportation credit, such credit should be reduced by 125 miles and

that it should also be reduced by an increment of 5% for each 100 miles

over 250 miles. In addition, Piedmont supports a reduction in the

credit rate of 0.37 cent per mile per hundredweight that is used in the

calculation of the credits. The rate decided upon should ensure that

handlers have an economic incentive to reduce the cost of transporting

milk.

A brief submitted by CVMPA supports a continuation of

transportation credits for the 4 markets, but also recommended that

certain modifications be adopted to the current provisions. In its

brief, CVMPA stated that the marketing situation which prompted the

need for transportation credits in the Southeast has not changed, and

any return to the pre-transportation credit situation would result in

disorderly marketing and irreparable harm to producers in certain

groups.

CVMPA stated that the credits available on supplemental producer

milk should be comparable to credits available on other order plant

milk. It suggests that one way of accomplishing this is to use the same

marketwide Class I utilization percentage to determine the proportion

of transferred milk and producer milk that is eligible for the credit.

A second change supported by CVMPA involves the adjustment of the

credit by the difference between the shipping point Class I price and

the receiving plant Class I price whether it is a producer load or an

other order plant transferred load. This will further equate the amount

of credits available on supplemental producer milk versus supplemental

plant milk.

In its brief, CVMPA restated its support of the reduction of the

first 85 miles in computing the transportation credit. Such a

reduction, CVMPA argued, would serve as a proxy for the

[[Page 27531]]

normal distance milk moves from farm to plant. This reduction is

appropriate, according to CVMPA, because the producer should be

responsible for the cost of farm-to-market hauling. This modification,

it adds, will further equate credits on producer milk and plant milk.

CVMPA's brief supports the proposal to have a producer's milk

ineligible for credits if the producer's farm is located within 85

miles of the plant receiving the milk, is within the 4 marketing areas,

is within 85 miles of certain cities on the periphery of the 4-market

area, or is located within certain states in the southeastern United

States. CVMPA argued that expansion of the geographic area would tend

to curtail the incentive to move milk uneconomically. CVMPA also

refuted certain arguments brought up during the reopened hearing which

maintained that such an expansion would result in the procurement of

milk from further distances so that credits could be earned. This,

CVMPA argued, is false logic.

Regarding the assessment rates, CVMPA argued in its brief that

assessments should be raised to a level high enough to ensure that

there will be no insufficiencies in the transportation credit balancing

fund. No justification exists for reducing the blend price to

producers, according to CVMPA; therefore, no deductions should be made

from the producer-settlement fund. CVMPA's brief also stated that any

other alternative, such as over-order pricing, will result in inequity

or uncertainty.

Finally, CVMPA opposed the installation of a net shipment provision

for reducing transportation credits received by a plant that also ships

out Class II or Class III milk during the same month that

transportation credits are received by such plant. In its brief, CVMPA

argued that seasonal, monthly, and weekly balancing of customer needs

is very important to a cooperative association such as itself. While

some operators of supply plants have the ability to reshuffle supplies

through the week and weekend to help with weekly balancing,

cooperatives which do not have manufacturing plants lack such

opportunity. According to CVMPA, it is untenable to reduce

transportation credits on supplemental milk simply because a

cooperative is balancing the daily and weekly need of distributing

plants by diverting producer milk.

Mid-Am also submitted a post-hearing brief in support of the

continuation of transportation credits under the 4 orders, but with the

modifications summarized earlier. Mid-Am reiterated its support for a

modification of the interim provisions that would ensure that credits

given on producer milk are comparable to credits given on plant milk.

Mid-Am pointed out in its brief that if the proposed modifications

to the interim amendments concerning credits on producer milk are

adopted, the amount of credits paid out will be significantly reduced;

therefore, for Orders 5, 11, and 46, the current assessment rate of 6

cents per hundredweight should be sufficient to cover the costs of

credits due. However, Mid-Am stated that in order to prevent funds from

being deducted from the producer-settlement fund, an increase of the

assessment to 7 cents in Order 7 would be necessary. Mid-Am also

reiterated its opposition to the adoption of a net shipment provision

for reducing transportation credits. According to Mid-Am, no

justification exists for the incorporation of such a provision. Milk

Marketing Inc. also submitted a brief in support of the continuation of

transportation credits.

MMI stated that it fully supports the positions of CVMPA and Mid-Am

with respect to the modification of the interim amendments. According

to MMI, the proposed modifications will result in the transportation

credit provisions being administered in a more equitable and uniform

manner.

A brief filed by AMPI also supported modifications of the current

transportation credit provisions so that the credits available on

producer milk are more comparable to the credits available on other

order plant milk. According to AMPI, such modifications would result in

the elimination of the transportation credit advantage of producer milk

over plant milk which causes disorderly procurement activities by

various handlers.

In its brief, AMPI opposes the modification proposed by Mid-AM and

CVMPA that would render ineligible for credits that milk shipped from

producers' farms located outside the 4 marketing areas, but within 85

miles of certain basing points. AMPI argues that such a restriction

would result in the uneconomical movement of milk, thereby creating

additional transportation costs in the Southeast.

AMPI's brief also recommends the inclusion of a net shipment

provision to guard against abuse of the transportation credits by

various handlers. AMPI's brief stated that it is unreasonable to base

such a net shipment provision on monthly transfers and diversions; it

suggested that netting shipments that occur within the same 24-hour

period would be more appropriate.

Barber Pure Milk Company and Dairy Fresh Corporation also submitted

a post-hearing brief opposing certain modifications of the current

transportation credit provisions. Barber and Dairy Fresh stated that

they are concerned over issues of inequity which may result from any

changes to the current provisions.

In their brief, Barber and Dairy Fresh oppose any proposal to have

credits on supplemental producer milk be contingent upon the lower of

the marketwide Class I utilization or the Class I utilization of the

receiving plant. By making the credits on producer milk and plant milk

comparable, they argue, other inequities would be created.

Additionally, they note that the proposed modifications, including the

proposal to subtract 85 miles from the total farm-to-plant mileage,

would encourage the importation of other order plant milk rather than

producer milk, which is more efficient.

According to Barber and Dairy Fresh, the interim orders should

remain as they are with respect to adjustments involving Class I prices

applicable at the origination point and the receiving plant. Any

modification to the current computation would not have sufficient

justification, according to the commentors. Any change to the

geographic area from which producers' milk is ineligible to receive

credits was opposed by Barber and Dairy Fresh because restrictions

would be placed on producer milk which would not apply to milk from

other order plants.

In their brief, Barber and Dairy Fresh also opposed decreasing the

amount of credits available as the distance increases. This, it was

argued, would force the uneconomical movement of milk. Any increase in

the assessment rate was opposed by the commentors also. They maintain

that producers also must share some responsibility for supplying the

Class I milk needs of the markets. Finally, Barber and Dairy Fresh

suggest that a net shipment provision be incorporated in the orders to

prevent milk from being brought into one order for the transportation

credit, while simultaneously milk is being shipped by the same handler

to another market. According to the commentors, the Florida markets are

benefiting from the transportation credit provisions at the expense of

the 4 southeastern markets.

Gold Star Dairy also submitted a post-hearing brief opposing any

assessments on Class I prices in order to fund transportation credits

under Order 7 and maintains its position as stated in its brief

following the May 1996 hearing. Gold Star Dairy also opposes any

modifications of the orders regarding

[[Page 27532]]

the interim amendments claiming that proper notice had not been given.

Select Milk Producers, Inc., submitted a brief in support of the

continuation of transportation credits without modification. In

addition to reiterating its position from an earlier brief submitted

after the May 1996 hearing, Select stated that proposals to limit

transportation credits based on distance would result in an inequitable

situation by placing the burden of transporting milk from further

distances on cooperatives servicing the southeast markets.

Additionally, Select maintained that the small reduction in producer

pay prices resulting from the credits will end once the funds in the

transportation credit balancing funds are built up; therefore, these

past reductions do not justify changing the current provisions. Select

also argued that proper notice had not been given to interested parties

prior to the reopened hearing.

A brief was also filed by a producer from Tennessee who expressed

concern that transportation credits place southeastern producers at a

competitive disadvantage. In his brief, he also questioned why

southeast producers have been paying to have distant milk hauled into

their markets.

Conclusion

Testimony and exhibits introduced at both sessions of 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. 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 the arrangements that existed in these markets prior to the

adoption of the interim amendments, the costs of obtaining an

increasing supply of supplemental milk were not being borne equally by

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

indicates that disorderly marketing conditions existed because of the

significantly different costs that were incurred by handlers who

provide the additional service versus those who do not. It also

indicates that the disproportionate sharing of costs was jeopardizing

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

upon the record of the first session of the hearing in these matters,

interim amendments were adopted to restore stability and order in

providing adequate supplies of milk for fluid use. The reasons for

adopting the interim amendments were thoroughly explained in the

tentative decision and the provisions that were adopted have been

summarized above. Therefore, the discussion that follows will not

reiterate the reasons for adopting the interim amendments, but instead

will focus on the reasons for changing them based upon the new

information presented at the December hearing.

The interim amendments provided for transportation credits during

the months of July through December and included all of the months of

January through June in a ``discretionary transportation credit

period.'' Under those provisions, a handler may request that

transportation credits be extended to any of the months of January

through June by filing such a request with the market administrator 15

days prior to the beginning of the month for which the request is made.

After providing notice of such a request to interested parties and

conducting an independent study of the situation, the market

administrator has the ultimate authority to grant or deny the request

but must notify handlers of the decision by the first day of the month.

The complete procedure to be followed is described in Sec. 100X.82(b)

of the order language.

This final decision changes the discretionary period from the

months of January through June to January and June only. Outside of the

July through December period, January and June are likely to be the

months when these markets are most in need of supplemental milk for

fluid use. Class I utilization generally begins to drop in February and

milk supplies are usually adequate for fluid use until June.

The reasons for changing these discretionary months are twofold.

First, including all of the months of January through June in the

discretionary period could result in a situation where transportation

credits are provided on nearly a year-round basis. Were this to happen,

it would destroy the concept of a supplemental producer because a dairy

farmer conceivably could be shipping milk to one of these markets on a

year-round basis. Moreover, under the provisions provided in this

decision, if a dairy farmer were to supply milk for more than 2 months

of the January through June period, the producer's milk would be

ineligible for transportation credits beginning in July. Hence, these

provisions would be in conflict with each other. A second reason for

restricting the discretionary period to January and June is to give the

transportation credit balancing fund a chance to build up so that funds

will be available when the markets are most in need of supplemental

milk starting in July.

The interim amendments provided for a transfer of funds from the

producer-settlement fund to the transportation credit balancing fund

when the latter fund had an insufficient balance to pay the month's

transportation credits. When this provision was adopted, it was assumed

that it would only be needed for the first year that these provisions

were in effect and that, thereafter, the transportation credit

balancing fund would maintain a sufficient balance to preclude such a

transfer of funds. Experience has indicated otherwise, particularly

with respect to the Southeast and Carolina markets. Data introduced by

the market administrators' offices show that all 4 orders had an

insufficient balance in the transportation credit balancing fund during

every month that transportation credits have been in effect, with the

exception of Order 46 in November 1996. The data also show that the

transfer of funds from the producer-settlement fund to the

transportation credit balancing fund reduced blend prices to producers

by varying amounts during the 4-month period of August through November

1996, ranging from 1 cent for Order 46 to as much as 21 cents in

October for Order 7.

To cope with the milk shortage of the past year, action had to be

taken to provide handlers with adequate milk supplies to meet their

fluid needs as equitably as possible. Since the transportation credit

provisions did not become effective until August 10, 1996, there was no

opportunity to accumulate funds with which to pay all of the

transportation credits. Therefore, as a short-term measure, provision

was made for taking funds from the producer-settlement fund. The logic

behind this provision was that if transportation credits could not be

paid fully from funds collected from handlers, the next best

alternative was to have all of a market's producers contribute to

making up the difference; otherwise, certain producers (i.e., members

of cooperative associations) would bear a disproportionate share of the

cost of bringing in supplemental milk.

Based on the experience with transportation credits during the past

4 months, it can be concluded with some certainty that, under present

conditions, the transportation credit balancing fund of Orders 5 and 7

would contain insufficient funds to pay for all of the transportation

credits that are likely to be accrued during the months of July through

December 1997 and that, based upon the current 6-cent assessment rate,

funds would have to be transferred from

[[Page 27533]]

the producer-settlement fund to the transportation credit balancing

fund by fall 1997 if these provisions remain unchanged.

We agree with the proponents of transportation credits that the

cost of bringing supplemental milk to a market generally should be

shared among all of a market's handlers. However, from the data for the

last 4 months, it can now be concluded with reasonable certainty that

to fully cover handlers' costs for the Southeast and Carolina markets

under the present provisions, the assessment rate would have to be

raised significantly. A better approach, we believe, is to address the

revenue problem from both ends: slightly increase revenue, but more

significantly reduce payouts. This would ensure that only necessary

imports are made, and would encourage the most cost effective methods

of procurement. At the same time, it would provide handlers with

significant, if not total, recoupment of costs.

In particular, based upon the record of this hearing and the

experience with transportation credits during the months of August

through November 1996, several changes should be made to the

transportation credit provisions to correct certain problems that have

become evident.

First, the transfer of funds from the producer-settlement fund to

the transportation credit balancing fund should be eliminated. This

temporary measure is no longer needed. Transportation credits should be

paid out each month to the extent possible from the available funds in

the transportation credit balancing fund. If the credits exceed the

balance in the transportation credit balancing fund, the available

funds should be prorated to handlers based upon the transportation

credits that are due to each handler.

Second, the per mile transportation credit rate should be reduced

to 0.35 cent per hundredweight per mile from the present level of 0.37

cent. This reduction is consistent with the testimony of several

witnesses who warned during the course of the hearings that it is

better to under-compensate handlers for supplemental milk costs rather

than overcompensate them. In this way, handlers will only import milk

that is truly needed because their costs may not be fully covered. This

argument makes sense and, in view of the need to conserve funds, this

suggestion should be adopted.

Third, the proposal by Mid-Am to exclude 85 miles from the mileage

when computing credits for supplemental producer milk should be

adopted. Mid-Am is correct in arguing that producers should be expected

to bear their normal farm to plant hauling cost, and the 85-mile figure

proposed appears to be a reasonable approximation of the distance used

in computing such cost. This modification will also help significantly

to reduce transportation credits.

Fourth, certain changes should be made in the proportion of

supplemental producer milk eligible for transportation credits and in

the formula for computing those credits. These changes are explained

below.

Finally, the maximum assessment for the transportation credit

balancing fund should be increased slightly for Orders 5 and 7. It is

likely that, even with the changes adopted above and others yet-to-be

discussed, there will be a shortfall in funds to pay for all of the

projected transportation credits if production patterns continue as

they have for the past 3 years. A modest rate increase will help narrow

this gap. Therefore, the maximum assessment rate for Order 5 should be

increased to 6.5 cents per hundredweight of Class I producer milk and

the rate for Order 7 should be increased to 7 cents per hundredweight.

The rate should remain at 6 cents per hundredweight for Orders 11 and

46, however.

This modest increase in the assessment rates for Orders 5 and 7

will help to avoid having to prorate available funds to handlers in

these markets. It should be kept in mind that this rate is the maximum

rate that can be charged. If production increases and/or supplemental

milk imports decrease and less money is needed for the transportation

credit balancing fund, these changes will trigger an automatic

reduction in this assessment.

The current 6-cent assessment for Orders 11 and 46 is likely to

meet all of the anticipated transportation credits for 1997. In fact,

by the first half of 1998 it may be possible to maintain a sufficient

balance in the transportation credit balancing fund with a rate below 6

cents per hundredweight for these 2 markets.

In conjunction with the limit on the disbursement of transportation

credits, as explained above, a new procedure should be implemented for

receiving the required information, computing the credits to be

disbursed, and making final settlement for appropriate adjustments.

Experience with the transportation credit provisions during the

months of August through December 1996 has demonstrated a handler/

cooperative association problem in getting complete and accurate

transportation credit documents to the market administrator by the 7th

day of the month, when such information must be received for purposes

of computing the uniform price. Because of difficulties in obtaining

timely information, the market administrators have accepted late

submissions of supplementary information.

Now that the possibility exists that transportation credits may

have to be disbursed on a prorata basis, fixing the time for the final

submission of requests and for final payment based upon such requests

is even more of a necessity. If the submission of supplemental

information were left open-ended, the procedure for prorating credits

could get hopelessly complicated with endless recalculations based on

tardy information. Therefore, the procedure should be clear,

reasonable, and unalterable once in place.

When the market administrator receives handlers' reports of

receipts and utilization by the 7th day of the month, the market

administrator will determine whether there are sufficient funds in the

transportation credit balancing fund to cover the requests for

transportation credits. If there is not a sufficient balance, the

market administrator will compute a preliminary proration percentage by

dividing the balance in the fund by the total amount of transportation

credits requested. The prorated credits so computed will be disbursed

along with any payments from the producer-settlement fund on or before

the 13th day of the month with respect to Orders 5, 7, and 11 (16th day

of the month in the case of Order 46).

Handlers will be given the opportunity to correct and file complete

documentation of their initial transportation credit requests for the

preceding month by filing updated information with the market

administrator by the 20th day of the month. After such date, the market

administrator will conduct a preliminary audit of the requests and will

then compute a final proration percentage based upon the revised

numbers. Handlers then will be notified of any additional credits due

them or of any payments due from them and such payments will be

completed the following month when payments are next due.

At the May 1996 hearing, Mid-Am proposed permitting transportation

credits for bulk transfers of milk for Class I use from any other order

plants. The interim amendments restricted such transfers to plants

regulated under Federal orders other than Orders 5, 7, 11, and 46. The

reason for excluding plants under these 4 orders from transportation

credits was to avoid

[[Page 27534]]

potential abuses from undue movements of milk among the orders to take

advantage of transportation credits. In particular, handlers were

concerned that milk could be stair-stepped from Order 46 to Order 7,

for example, thereby creating a shortage of milk in Order 46. Order 46

handlers then would have to import replacement milk, and their

assessments for transportation credits would be used to cover

transportation costs for such replacement milk when, some argued, Order

7 handlers should have borne the full cost of importing milk from the

ultimate source. At the reopened hearing, there were no problems

mentioned in connection with the provisions applicable to plant

transfers, except for concern that milk could be moved or stair-stepped

among orders to obtain credits. As a result, the provisions that

prohibit credits to receipts of transferred milk among the four orders

should remain unchanged in the final amendments.

Currently, producer milk is eligible to receive transportation

credits as discussed above. At the reopened hearing, there was no

testimony suggesting that transportation credits be eliminated for

producer milk. In fact, the available data shows that during the months

of August through November 1996 far more supplemental milk was received

directly from producers' farms than from other order plants. Several

suggestions were made concerning how to compute such credits in a more

equitable and efficient manner. Since most of these suggestions have

merit, modifications to the interim amendments involving producer milk

are provided.

The thrust of the testimony was that the present method for

computing transportation credits for producer milk resulted in an

overly generous credit as compared to the method used for plant milk

and, therefore, provided an artificial incentive to receive producer

milk directly from farms rather than milk transferred from an other

order plant. The testimony, as summarized earlier, was quite

convincing, with the exception of Mid-Am's proposal to exclude the milk

of a producer who is within 85 miles of the perimeter of any of the 4

marketing areas from transportation credit eligibility. Such proposal

should not be adopted.

In the interim amendments, producer milk was not eligible for a

transportation credit if the producer's farm was located within one of

the 4 marketing areas or if the farm was within 85 miles of the plant

to which milk from the farm was delivered. The tentative decision

concluded that it was ``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.''

At the reopened hearing, Mid-Am proposed expanding this restriction

to include producers whose farms are: (a) Within the States of Florida,

Georgia, Alabama, Louisiana, Mississippi, Arkansas, Tennessee, South

Carolina, North Carolina, or Kentucky; or (b) within 85 miles of the

City Hall in the nearer of Lake Charles or Shreveport, Louisiana;

Little Rock, Arkansas; Evansville, Indiana; Fulton, Louisville, or

Lexington, Kentucky; Bristol, Tennessee; or Reidsville, or Roanoke

Rapids, North Carolina.

Mid-Am's 10-state exclusion area would randomly exclude many

counties in Arkansas and Kentucky that are outside of any of the 4

marketing areas and should not be adopted. It would be difficult to

justify the exclusion of a county from transportation credits simply

because of its location within a particular state. For example, under

the Mid-Am proposal, many counties in northwest Arkansas and northeast

Kentucky would be excluded from transportation credits. These counties

may or may not be part of the regular supply for the 4 markets. By

randomly excluding all territory within a state, certain counties

outside of the 4 marketing areas may be unfairly excluded. The

exclusion of territory from transportation credits should be based upon

whether that territory is a regular source of supply for the markets

involved in this proceeding. It must be noted, however, that simply

because a county is within one of the 4 marketing areas does not

necessarily make it a regular source of supply for these 4 markets. By

the same token, simply because a county is just outside these marketing

areas does not mean it is not a regular source of supply either.

However, it is reasonable and appropriate to use such marketing area

boundaries to define the exclusionary area since it is apparent that

most of the producers located within these areas supply plants

regulated under these orders. Furthermore, other performance measures

are used to distinguish between producers who are or who are not

regular suppliers of these markets. Thus, the exclusionary area need

not be overly restrictive as proposed by Mid-Am.

The interim amendments excluded the area within the 4 marketing

areas from transportation credits. However, the use of the marketing

area definition failed to exclude several unregulated counties within

the State of Kentucky where producers are located and who could qualify

for transportation credits. These counties are completely encircled by

the Order 7 and Order 46 marketing areas and are an integral part of

the milk supply for those 2 markets. There can be no doubt that these

counties-- Allen, Barren, Metcalfe, Monroe, Simpson, and Warren--

clearly should be part of the area excluded from transportation credits

because the surrounding markets are clearly the regular outlets for

this milk. Accordingly, the order language should be modified to

include these 6 counties in Sec. 100X.82(c)(2)(iii).

The proposal of Mid-Am to exclude the territory within 85 miles of

the cities mentioned above should not be adopted. This proposal would

exclude many producers who are located in counties adjacent to the 4

marketing areas. These producers may, for the most part, be regular

suppliers of other markets. For example, there may be dairy farmers in

East Texas who are within 85 miles of Lake Charles or Shreveport,

Louisiana, from whose farms milk is delivered on a supplemental basis

to other plants within the Southeast market that may be hundreds of

miles away. It would make no sense to exclude these farms from

transportation credits and thereby force cooperative associations and

plant operators to bring in supplemental milk from even farther

distances when this closer milk is available.

Not all of the pool distributing plants regulated under these

orders are located within the 10-state area specified above. For

example, a pool distributing plant regulated under Order 5 is located

in Lynchburg, Virginia. The interim amendments dealt with this problem

by specifying that a farm had to be more than 85 miles from the plant

to be eligible for a transportation credit. This provision was based

upon a suggestion made by MMI at the May 1996 hearing restricting

supplemental producers to those who are more than 85 miles from

Louisville or Lexington, Kentucky, or Evansville, Indiana.

As explained above, the amendments provided in this decision would

subtract 85 miles from the transportation credit computation for

producer milk. In view of this adjustment, it is no longer necessary to

specify that a producer must be more than 85 miles from the plant

because a transportation credit would not be given for that distance

anyway. In effect, the origination point for producer milk has to be at

least 85 miles from the plant of receipt before milk from that point

would receive a transportation credit. Thus, the language now contained

in Sec. 100X.82(c)(2)(ii) of the interim

[[Page 27535]]

amendments referring to 85 miles has not been carried forward to the

comparable revised paragraph, Sec. 100X.82(c)(2)(iii), of the attached

final amendments.

Mid-Am also proposed certain changes to the way transportation

credits are computed for producer milk. As provided in the interim

amendments, all producer milk classified as Class I milk is eligible

for the credit. At present, the proportion of such milk that receives a

Class I classification is approximately equal to the utilization of the

plant receiving the milk. Receipts of transferred milk from other order

plants, on the other hand, are allocated to Class I based upon the

lower of the receiving handler's Class I utilization or the marketwide

Class I utilization. This difference in classifying supplemental milk,

according to Mid-Am, has provided an incentive for a high Class I

utilization handler to receive supplemental producer milk rather than

supplemental milk transferred from an other order plant in order to

receive credits on a greater proportion of the supplemental milk.

To correct this bias, Mid-Am proposed that supplemental milk from

producers should be assigned to Class I in the same proportion as other

order supplemental milk to determine the proportion of such milk that

is eligible for the transportation credit. This modification should be

adopted. Supplemental producer milk should be assigned to Class I, for

transportation credit purposes, by adding a paragraph--(c)(2)(i)--to

Section 82 (``Payments from the transportation credit balancing

fund''). This new paragraph states that the quantity of producer milk

that is eligible for the transportation credit shall be determined by

multiplying the total pounds of supplemental producer milk received at

the plant by the lower of the marketwide Class I utilization of all

handlers for the month or the Class I utilization of the pool plant

operator receiving the milk after all of the handler's receipts have

been allocated to classes of utilization in Section 44 of the

respective order.

Another change that should be made to the transportation credit for

producer milk has to do with the way the gross credit is adjusted by

the difference in Class I price at the receiving plant and the

origination point for the load of milk. At the present time, even

though a farm and an other order plant may be identically located in

another order's marketing area, there may be a difference in the

transportation credit that would apply to milk coming from those

identically-located points under the provisions of Orders 5, 11, and

46. The Class I price, adjusted for location, under Orders 5, 11, and

46, applicable to a plant in the marketing area of some other order is

not necessarily the same as the Class I price, adjusted for location,

applicable to that plant pursuant to the provisions of that other

order. For example, the Class I price to any plant under the Eastern

Ohio-Western Pennsylvania order is $2.00 plus the basic formula price

under the provisions of the Eastern Ohio-Western Pennsylvania order,

but the Class I price that would apply to a plant located in the

Eastern Ohio-Western Pennsylvania marketing area under the provisions

of the Carolina order would be based upon mileage from specified basing

points in North Carolina; it could be greater or less than $2.00 plus

the basic formula price. Under the Southeast order, by contrast, the

Class I price applicable to a plant that is located in the marketing

area of some other order is the Class I price that would apply to that

plant under the provisions of the order covering that marketing area.

Therefore, under the Southeast order the transportation credit for a

plant or farm identically located in another Federal order marketing

area is the same, but for Orders 5, 11, and 46 it may not be.

In computing transportation credits for plant milk, the gross

credit (i.e., the mileage times 0.35 cent) is adjusted by subtracting

the Class I price applicable to the plant under the other order from

the Class I price applicable to the plant receiving the milk. For

producer milk, however, the gross credit is adjusted by subtracting

this order's Class I price at the origination point from this order's

Class I price at the receiving plant. As a result, there could be a

difference in the transportation credit applicable to plant milk versus

producer milk, even though the plant and farm are adjacent to each

other.

This can and should be corrected for plants and farms located in

Federal order marketing areas by changing the way the credit is

computed for producer milk. The adjustment to the gross credit for

producer milk should be computed as if the origination point for the

producer milk were a plant location. Specifically, if the origination

point is in another order's marketing area, the other order Class I

price applicable at the origination point should be subtracted from the

receiving order's Class I price at the receiving plant. This change is

provided in Sec. 100X.82(d)(3)(v) of the order language.

A complication arises in the case of an origination point that is

not located within any Federal order marketing area. While the other

order Class I price that would apply to an other order plant that is

located in unregulated territory is known, the same cannot be said for

a farm location (i.e., an origination point for a load of supplemental

producer milk). In view of this uncertainty, the most reasonable

treatment for such milk is to price it under the provisions of the

order receiving the milk. For example, if an Order 5 plant in Raleigh,

North Carolina, received supplemental producer milk from a farm in an

unregulated county in central Pennsylvania, the gross transportation

credit for that load of milk would be adjusted by subtracting from the

credit the difference between the Order 5 Class I price at the

Pennsylvania origination point and the Order 5 Class I price at

Raleigh.

Another issue, not addressed at the hearing, must be discussed. It

is possible that milk may be transferred from an other order plant that

is located in one Federal order marketing area but is regulated under a

different order. For example, a plant may be located in the Eastern

Ohio-Western Pennsylvania marketing area but may be regulated under the

Ohio Valley order. In such a case, a question may arise concerning

which order's Class I price to use in computing the transportation

credit. In this situation, the market administrator should use the

Class I price that applies at that plant under the order in which the

plant is regulated. Thus, in the example given, the Class I price at

the plant would be the applicable Class I price under the Ohio Valley

order. This treatment will ensure that the transportation credit

properly reflects the difference in the Class I prices applicable to

the shipping handler and the receiving handler.

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.

Since the need for supplemental milk generally drops off sharply

after the month of December or January 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 the

exclusionary areas (the 4 subject marketing areas or the 6 Kentucky

counties mentioned above) 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.

[[Page 27536]]

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 2 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, and, in fact,

these 2 months can be included in the transportation credit period.

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 status as a supplemental

producer if 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. Therefore, not more than 50 percent of

the dairy farmer's production may be received as producer milk, in

aggregate, during the 2 months of the January through June period in

which the dairy farmer was a producer on the market. In addition, if

January and/or June are months in which transportation credits are

extended, those months should not be included in the 2-month limit for

a supplemental producer. The transportation credits would not be

extended to January or June if milk were not needed during those

months, and it would be counterproductive to penalize a producer for

responding to that need. Therefore, if January and June are part of the

transportation credit period, a dairy farmer may be a producer during

those months and, in addition, may be a producer during 2 of the months

of February through May provided that the dairy farmer's producer milk

during those additional 2 months did not exceed the 50 percent limit.

The interim amendments provided that 32 days' production of a dairy

farmer could be delivered during January through June before the dairy

farmer would lose status as a supplemental producer. This has been

changed to ``50 percent of the dairy farmer's production'' to simplify

reporting and administration of this provision.

The provisions in the interim amendments prescribing the

determination of an origination point for a load of supplemental

producer milk are continued in this final decision. No problems were

noted with this provision and no suggestions were made for changing it

at the reopened hearing or in the post-hearing briefs. The 2

alternatives provided for determining a supplemental producer milk

origination point are contained in Sec. 100X.82(d)(3)(i).

As noted earlier, there was a great deal of concern expressed at

both sessions of the hearing about ``stair-stepping'' milk from one

market to another. Suggestions were made at both sessions of the

hearing to adopt a net shipment provision to offset transfers from a

pool plant to other order plants against supplemental milk brought into

the pool plant within a specified period of time.

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 Florida markets) at the same time that

bulk milk is imported for a handler in another part of the Order 7

marketing area (for example, a handler in Nashville). Also, it is

entirely possible that milk may be needed at the beginning of a month,

while by the end of the month milk must be exported out of the market

for surplus disposal. Finally, since fluid milk processors have

different bottling needs, extra milk may be needed on certain days but

not on other days within the same week.

In response to concerns expressed at both sessions of the hearing,

the 4 orders should contain a net shipment provision to prevent the

type of abuses feared by proponents of such a provision. However, in

view of the varying circumstances surrounding the fluid needs of these

markets, the provision should be flexible enough to accommodate these

varying needs. To be effective, the net shipment provision should apply

to all supplemental milk received, either by transfer or directly from

producers' farms as producer milk.

In applying the net shipment provision, bulk transfers to nonpool

plants that were made on the same day that supplemental milk was

received at a pool plant should be subtracted from the total receipts

of supplemental milk for which the pool plant operator or cooperative

association is requesting a credit. In reducing the supplemental milk

eligible for the credit pursuant to this net shipment provision, the

market administrator should first subtract the loads of milk that were

most distant from the plant and then continue in sequence with less

distant loads. This procedure, which is described in Sec. 100X.82(d)(1)

of the orders, will minimize the depletion of funds from the

transportation credit balancing fund resulting from unwarranted

receipts of supplemental milk.

The net shipment provision will require accurate accounting and

reporting on the part of handlers. Specifically, each pool plant

operator applying for transportation credits will be required to

maintain accurate accounting records of daily transfers of bulk milk

from the plant to nonpool plants. This is provided in

Sec. 100X.30(a)(7) of the order language for Orders 5, 7, and 46, and

Sec. 100X.30(a)(8) for Order 11.

Although specific proposals were made to net outgoing shipments

from incoming shipments within a 24-hour period, this suggestion could

prove to be tedious for handlers, as well as for the market

administrator. Therefore, the attached amendments provide for netting

based on receipts and shipments occurring the same calendar day.

The diversion of producer milk to a nonpool plant was not addressed

at great length at either session of the hearing, although AMPI did

state in its brief that diversions to nonpool plants should also be

included in a net shipment provision.

It is certainly a fact that milk is diverted from pool plants in

these 4 markets to nonpool plants for Class II and Class III use. Each

pool plant operator has a regular supply of producer milk for its Class

I needs and that milk should be utilized to the full extent before

importing supplemental milk. While diversions could have been

incorporated into the net shipment provision, as suggested by AMPI,

there would be numerous obstacles to overcome in doing so. Therefore,

we concluded, on balance, that any possible benefit of including

diverted milk would be outweighed by the problems caused by such a

complicated provision.

To illustrate one type of problem, for example, not all

supplemental milk may be needed at a pool plant every day; some days it

may be diverted to a nonpool plant close to the farm where produced and

hundreds of miles away from the pool plant where it is received on a

supplemental basis some of the time. If diversions were included in the

net shipment provision, the milk that is not needed--i.e., it is

diverted to a nonpool plant--would have to be subtracted from the

supplemental milk that was needed that day, which could result in the

handler getting no transportation credit for supplemental milk received

on that day. While a provision undoubtedly could be written to

distinguish ``regular'' or ``close-in'' producer milk that is diverted

from

[[Page 27537]]

``supplemental'' or ``distant'' producer milk in an attempt to overcome

these problems, it would likely be a very cumbersome provision. If, at

some point, it becomes obvious that handlers are diverting local milk

for manufacturing use while importing supplemental milk for Class I use

within the same 24-hour period, appropriate action should be taken to

stop this abuse of the transportation credit provisions. In the

meantime, however, handlers should be given as much freedom as possible

to move milk according to their needs.

At the reopened hearing, Mid-Am proposed an amendment to that

section of the orders dealing with overdue accounts. Specifically, it

proposed adding overdue payments to the transportation credit balancing

fund in the list of late payments to which a late payment charge would

apply.

This proposal should be adopted. Although handler compliance with

the transportation credit balancing fund assessment has been excellent

thus far, it is possible that late payments may occur in the future.

Were this to happen, one handler could gain an advantage over competing

handlers by using money that should have been paid to the market

administrator. To discourage this from happening, and to rectify the

situation when it does happen, a late payment charge should apply to

delinquent payments to the transportation credit balancing fund.

A conforming change should be made in Order 46 with respect to the

payment of assessments for the transportation credit balancing fund and

the payment of transportation credits to handlers. In the interim

amendments, assessments for the transportation credit balancing fund

were uniformly due on the 13th day of the month for all 4 orders and,

similarly, payment of transportation credits to handlers was uniformly

set at the 12th day of the month for all 4 orders. However, Order 46

differs from the other 3 orders with respect to payments to and from

the producer-settlement fund. Under Order 46, payments to the producer-

settlement fund are due on the 15th day of the month and payments from

the producer-settlement fund are due on the 16th day of the month. For

the other 3 orders, however, payments into the producer-settlement fund

must be made by the 12th day of the month and payments out of the

producer-settlement fund must be made by the 13th day of the month. To

facilitate the payments of transportation credit assessments and

payouts under Order 46, the dates in Secs. 1046.81(a) and 1046.82(a)

should be changed from the 12th and 13th, respectively, to the 15th and

16th, respectively, to coincide with payments in and out of the

producer-settlement fund for that order.

A conforming change also should be made in Sec. 100X.81 with

respect to how the assessment for the transportation credit balancing

fund is to be determined. In the interim amendments, the standard used

for determining how much the handler assessment would be each month was

based upon the credits disbursed during the preceding July through

December period or during the immediately preceding 6-month period.

This paragraph was worded that way because transportation credits

theoretically could have been in effect every month of the year.

However, as modified in this final decision, transportation credits can

only be effective during the months of June through January and the

months of June and January are subject to a finding by the market

administrator that supplemental milk is needed for fluid use.

In view of the change in months for which transportation credits

may be effective, it is also appropriate to change the benchmark for

determining the level of such assessments. Specifically,

Sec. 100X.81(a) should be modified to read ``the total transportation

credits disbursed during the prior June-January period.'' However, in

the event that the funds disbursed are prorated based on the available

funds, the assessment should be based upon the total amount of credits

that would have been disbursed as determined by the market

administrator. Although the yardstick for the balance in the fund can

now be raised to 8 months instead of 6, this change is necessary to

maintain a balance in the transportation credit balancing fund that is

sufficient to cover the transportation credits to be disbursed in the

following short production period. In other words, if the months of

January and/or June were included in the prior transportation credit

period, the amount of credits given during these months should also be

included in the calculation of the assessment rates for the 4 orders.

Section 100X.77, adjustment of accounts, of the Carolina, Tennessee

Valley, and Louisville-Lexington-Evansville orders should also be

amended to conform with the changes adopted above. Presently, the

orders lack any instruction pertaining to the adjustment of accounts in

the event that an error has been made either involving payments into

the transportation credit balancing fund by handlers or payments to

handlers by the market administrator from such fund. Therefore, it is

necessary to include such language in section 100X.77 of these 3 orders

to avoid any ambiguity concerning these matters. In particular,

transportation credit balancing fund adjustments should be handled in

the same manner as adjustments to the producer-settlement fund, except

that additional transportation credits due handlers should be made as

soon as transportation credit funds become available and not

necessarily within 15 days of the time that this adjustment is

discovered. A similar conforming change is not necessary for the

Southeast order because the language contained in Sec. 1007.77 of that

order is general enough to accommodate adjustments related to the

transportation credit balancing fund.

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.

(a) The tentative marketing agreements and the 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 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, ensure a sufficient quantity of pure and wholesome

milk, and be in the public interest;

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

[[Page 27538]]

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; and

(d) All milk and milk products handled by handlers, as defined in

the tentative marketing agreements and the orders as hereby proposed to

be amended, are in the current of interstate commerce or directly

burden, obstruct, or affect interstate commerce in milk or its

products.

Marketing Agreement and Order

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

orders regulating the handling of milk in the Carolina, Southeast,

Tennessee Valley, and Louisville-Lexington-Evansville marketing areas,

which has been decided upon as the detailed and appropriate means of

effectuating the foregoing conclusions. A marketing agreement that

reflects the attached order verbatim is available upon request from the

market administrator.

It is hereby ordered that this entire decision and the order

amending the orders be published in the Federal Register.

Determination of Producer Approval and Representative Period

February 1997 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 such

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: May 12, 1997.

Michael V. Dunn,

Assistant Secretary, Marketing and Regulatory Programs.

Order Amending the Orders Regulating the Handling of Milk in the

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

Evansville Marketing Areas

This 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, ensure a sufficient

quantity of pure and wholesome milk, and be in the public interest;

(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; and

(4) All milk and milk products handled by handlers, as defined in

the order as hereby amended, are in the current of interstate commerce

or directly burden, obstruct, or affect interstate commerce in milk or

its products.

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 orders' marketing

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

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

Accordingly, the interim rule amending 7 CFR Parts 1005, 1007,

1011, and 1046, which was published at 61 FR 41488 on August 9, 1996,

is adopted as a proposed rule with the following changes:

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

1046 continues to read as follows:

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

PART 1005--MILK IN THE CAROLINA MARKETING AREA

Sec. 1005.30 [Amended]

2. In Sec. 1005.30, paragraphs (a)(7) and (a)(8) are redesignated,

respectively, as paragraphs (a)(8) and (a)(9), new paragraph (a)(7) is

added, and paragraphs (a)(5), (a)(6), and (c)(3) are revised to read as

follows:

Sec. 1005.30 Reports of receipts and utilization.

* * * * *

(a) * * *

(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, including

the date that such milk was received;

(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 that paragraph and

the date that such milk was received;

(7) For handlers submitting transportation credit requests,

transfers of bulk milk to nonpool plants, including the dates that such

milk was transferred;

* * * * *

[[Page 27539]]

(c) * * *

(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), (a)(6), and (a)(7) of this

section.

* * * * *

Sec. 1005.32 [Amended]

3. In Sec. 1005.32, a new paragraph (a) is added to read as

follows:

Sec. 1005.32 Other reports.

(a) On or before the 20th day after the end of each month, each

handler described in Sec. 1005.9(a), (b), and (c) shall report to the

market administrator any adjustments to transportation credit requests

as reported pursuant to Sec. 1005.30(a)(5), (6), and (7).

* * * * *

Sec. 1005.61 [Amended]

4. In Sec. 1005.61, paragraph (a)(4) is removed and paragraphs

(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5),

respectively.

Sec. 1005.77 [Amended]

5. Sec. 1005.77 is revised to read as follows:

Sec. 1005.77 Adjustment of accounts.

(a) Whenever verification by the market administrator of payments

by any handler discloses errors made in payments to the producer-

settlement fund pursuant to Sec. 1005.71 or to the transportation

credit balancing fund pursuant to Sec. 1005.81, the market

administrator shall promptly bill such handler for any unpaid amount

and such handler shall, within 15 days, make payment to the market

administrator of the amount so billed. Whenever verification discloses

that payment is due from the market administrator to any handler

pursuant to Sec. 1005.72 or Sec. 1005.82, the market administrator

shall make payment to such handler within 15 days or, in the case of

the transportation credit balancing fund, as soon as funds become

available. If a handler is due additional payment for a month in which

payments to handlers were prorated pursuant to Sec. 1005.82(a), the

additional payment pursuant to this section shall be multiplied by the

final proration percentage computed in Sec. 1005.82(a)(2).

(b) Whenever verification by the market administrator of the

payment by a handler to any producer or cooperative association for

milk received by such handler discloses payment of less than is

required by Sec. 1005.73, the handler shall pay such balance due such

producer or cooperative association not later than the time of making

payment to producers or cooperative associations next following such

disclosure.

Sec. 1005.78 [Amended]

6. In the introductory text of Sec. 1005.78, the number

``1005.81,'' is added following the number ``1005.77,''.

Sec. 1005.81 [Amended]

7. In Sec. 1005.81, paragraph (c) is removed and paragraphs (a) and

(b) are revised to read as follows:

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 operating a pool plant and each handler specified in

Sec. 1005.9(b) and (c) shall pay to the market administrator a

transportation credit balancing fund assessment determined by

multiplying the pounds of Class I producer milk assigned pursuant to

Sec. 1005.44 by $0.065 per hundredweight or such lesser amount as the

market administrator deems necessary to maintain a balance in the fund

equal to the total transportation credits disbursed during the prior

June-January period. In the event that during any month of the June-

January period the fund balance is insufficient to cover the amount of

credits that are due, the assessment should be based upon the amount of

credits that would have been disbursed had the fund balance been

sufficient.

(b) 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.

Sec. 1005.82 [Amended]

8. Sec. 1005.82 is revised to read as follows:

Sec. 1005.82 Payments from the transportation credit balancing fund.

(a) Payments from the transportation credit balancing fund to

handlers and cooperative associations requesting transportation credits

shall be made as follows:

(1) 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), milk

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

section, a preliminary amount determined pursuant to paragraph (d) of

this section to the extent that funds are available in the

transportation credit balancing fund. If an insufficient balance exists

to pay all of the credits computed pursuant to this section, the market

administrator shall distribute the balance available in the

transportation credit balancing fund by reducing payments prorata using

the percentage derived by dividing the balance in the fund by the total

credits that are due for the month. The amount of credits resulting

from this initial proration shall be subject to audit adjustment

pursuant to paragraph (a)(2) of this section;

(2) The market administrator shall accept adjusted requests for

transportation credits on or before the 20th day of the month following

the month for which such credits were requested pursuant to

Sec. 1005.32(a). After such date, a preliminary audit will be conducted

by the market administrator, who will recalculate any necessary

proration of transportation credit payments for the preceding month

pursuant to paragraph (a) of this section. Handlers will be promptly

notified of an overpayment of credits based upon this final computation

and remedial payments to or from the transportation credit balancing

fund will be made on or before the next payment date for the following

month;

(3) Transportation credits paid pursuant to paragraph (a)(1) and

(2) of this section shall be subject to final verification by the

market administrator pursuant to Sec. 1005.77. Adjusted payments to or

from the transportation credit balancing fund will remain subject to

the final proration established pursuant to paragraph (a)(2) of this

section; and

(4) 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 the months of January and June if a written request to do so

is received 15 days prior to the beginning of the month for

[[Page 27540]]

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) Transportation credits 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(a)(12); and

(2) Bulk milk received directly from the farms of dairy farmers at

pool distributing plants subject to the following conditions:

(i) The quantity of such milk that shall be eligible for the

transportation credit shall be determined by multiplying the total

pounds of milk received from producers meeting the conditions of this

paragraph by the lower of:

(A) The marketwide estimated Class I utilization of all handlers

for the month pursuant to Sec. 1005.45(a); or

(B) The Class I utilization of all producer milk of the pool plant

operator receiving the milk after the computations described in

Sec. 1005.44;

(ii) 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 50 percent of the production of the

dairy farmer during those 2 months, in aggregate, was received as

producer milk under this order during those 2 months. However, if

January and/or June are months in which transportation credits are

disbursed pursuant to paragraph (a) of this section, these months shall

not be included in the 2-month limit provided in this paragraph; and

(iii) 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, or within the Kentucky counties of

Allen, Barren, Metcalfe, Monroe, Simpson, and Warren.

(d) Transportation credits shall be computed as follows:

(1) The market administrator shall subtract from the pounds of milk

described in paragraphs (c)(1) and (2) of this section the pounds of

bulk milk transferred from the pool plant receiving the supplemental

milk if milk was transferred to a nonpool plant on the same calendar

day that the supplemental milk was received. For this purpose, the

transferred milk shall be subtracted from the most distant load of

supplemental milk received, and then in sequence with the next most

distant load until all of the transfers have been offset;

(2) With respect to the pounds of milk described in paragraph

(c)(1) of this section that remain after the computations described in

paragraph (d)(1) of this section, the market administrator shall:

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

the shipping plant and the receiving plant;

(ii) Multiply the number of miles so determined by 0.35 cent;

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

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

receiving plant as specified in Sec. 1005.53;

(iv) Subtract any positive difference computed in paragraph

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

(d)(2)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(2)(iv) of this

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

this section.

(3) For the remaining milk described in paragraph (c)(2) of this

section after computations described in paragraph (d)(1) of this

section, the market administrator shall:

(i) Determine an origination point for each load of milk by

locating the nearest city to the last producer's farm from which milk

was picked up for delivery to the receiving pool plant. Alternatively,

the milk hauler that is transporting the milk of producers described in

paragraph (c)(2) of this section may establish an origination point

following the last farm pickup by stopping at the nearest

independently-operated truck stop with a certified truck scale and

obtaining 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;

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

the receiving pool plant and the truck stop or city, as the case may

be;

(iii) Subtract 85 miles from the mileage so determined;

(iv) Multiply the remaining miles so computed by 0.35 cent;

(v) If the origination point determined pursuant to paragraph

(d)(3)(i) of this section is in a Federal order marketing area,

subtract the Class I price applicable at the origination point pursuant

to the provisions of such other order (as if the origination point were

a plant location) from the Class I price applicable at the distributing

plant receiving the milk. If the origination point is not in any

Federal order marketing area, determine the Class I price at the

origination point based upon the provisions of this order and subtract

this price from the Class I price applicable at the distributing plant

receiving the milk;

(vi) Subtract any positive difference computed in paragraph

(d)(3)(v) of this section from the amount computed in paragraph

(d)(3)(iv) of this section; and

(vii) Multiply the remainder computed in paragraph (d)(3)(vi) by

the hundredweight of milk described in paragraph (d)(3) of this

section.

PART 1007--MILK IN THE SOUTHEAST MARKETING AREA

Sec. 1007.30 [Amended]

9. In Sec. 1007.30, paragraphs (a)(7) and (a)(8) are redesignated,

respectively, as paragraphs (a)(8) and (a)(9), new paragraph (a)(7) is

added, and paragraphs (a)(5), (a)(6), and (c)(3) are revised to read as

follows:

Sec. 1007.30 Reports of receipts and utilization.

* * * * *

(a) * * *

(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, including

the date that such milk was received;

(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 that paragraph and

the date that such milk was received;

(7) For handlers submitting transportation credit requests,

transfers of bulk milk to nonpool plants, including the dates that such

milk was transferred;

* * * * *

(c) * * *

(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), (a)(6), and (a)(7) of this

section.

* * * * *

Sec. 1007.32 [Amended]

10. In Sec. 1007.32, a new paragraph (a) is added to read as

follows:

[[Page 27541]]

Sec. 1007.32 Other reports.

(a) On or before the 20th day after the end of each month, each

handler described in Sec. 1007.9 (a), (b), and (c) shall report to the

market administrator any adjustments to transportation credit requests

as reported pursuant to Sec. 1007.30 (a)(5), (6), and (7).

* * * * *

Sec. 1007.61 [Amended]

11. In Sec. 1007.61, paragraph (a)(4) is removed and paragraphs

(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5),

respectively.

Sec. 1007.78 [Amended]

12. In the introductory text of Sec. 1007.78, the number

``1007.81,'' is added following the number ``1007.78,''.

Sec. 1007.81 [Amended]

13. In Sec. 1007.81, paragraph (c) is removed and paragraphs (a)

and (b) are revised to read as follows:

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 operating a pool plant and each handler specified in

Sec. 1007.9 (b) and (c) shall pay to the market administrator a

transportation credit balancing fund assessment determined by

multiplying the pounds of Class I producer milk assigned pursuant to

Sec. 1007.44 by $0.07 per hundredweight or such lesser amount as the

market administrator deems necessary to maintain a balance in the fund

equal to the total transportation credits disbursed during the prior

June-January period. In the event that during any month of the June-

January period the fund balance is insufficient to cover the amount of

credits that are due, the assessment should be based upon the amount of

credits that would have been disbursed had the fund balance been

sufficient.

(b) 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.

Sec. 1007.82 [Amended]

14. Sec. 1007.82 is revised to read as follows:

Sec. 1007.82 Payments from the transportation credit balancing fund.

(a) Payments from the transportation credit balancing fund to

handlers and cooperative associations requesting transportation credits

shall be made as follows:

(1) 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), milk

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

section, a preliminary amount determined pursuant to paragraph (d) of

this section to the extent that funds are available in the

transportation credit balancing fund. If an insufficient balance exists

to pay all of the credits computed pursuant to this section, the market

administrator shall distribute the balance available in the

transportation credit balancing fund by reducing payments prorata using

the percentage derived by dividing the balance in the fund by the total

credits that are due for the month. The amount of credits resulting

from this initial proration shall be subject to audit adjustment

pursuant to paragraph (a)(2) of this section;

(2) The market administrator shall accept adjusted requests for

transportation credits on or before the 20th day of the month following

the month for which such credits were requested pursuant to

Sec. 1007.32(a). After such date, a preliminary audit will be conducted

by the market administrator, who will recalculate any necessary

proration of transportation credit payments for the preceding month

pursuant to paragraph (a) of this section. Handlers will be promptly

notified of any payment adjustments based upon this final computation

and remedial payments to or from the transportation credit balancing

fund will be made on or before the next payment date for the following

month;

(3) Transportation credits paid pursuant to paragraph (a)(1) and

(2) of this section shall be subject to final verification by the

market administrator pursuant to Sec. 1007.77. Adjusted payments to or

from the transportation credit balancing fund will remain subject to

the final proration established pursuant to paragraph (a)(2) of this

section; and

(4) 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 the months of January and June if a written request to do so

is received 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) Transportation credits 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(a)(12); and

(2) Bulk milk received directly from the farms of dairy farmers at

pool distributing plants subject to the following conditions:

(i) The quantity of such milk that shall be eligible for the

transportation credit shall be determined by multiplying the total

pounds of milk received from producers meeting the conditions of this

paragraph by the lower of:

(A) The marketwide estimated Class I utilization of all handlers

for the month pursuant to Sec. 1007.45(a); or

(B) The Class I utilization of all producer milk of the pool plant

operator receiving the milk after the computations described in

Sec. 1007.44;

(ii) 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 50 percent of the production of the

dairy farmer during those 2 months, in aggregate, was received as

producer milk under this order during those 2 months. However, if

January and/or June are months in which transportation credits are

disbursed pursuant to paragraph (a) of this section, these months shall

not be included in the 2-month limit provided in this paragraph; and

(iii) 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, or within the

[[Page 27542]]

Kentucky counties of Allen, Barren, Metcalfe, Monroe, Simpson, and

Warren.

(d) Transportation credits shall be computed as follows:

(1) The market administrator shall subtract from the pounds of milk

described in paragraphs (c)(1) and (2) of this section the pounds of

bulk milk transferred from the pool plant receiving the supplemental

milk if milk was transferred to a nonpool plant on the same calendar

day that the supplemental milk was received. For this purpose, the

transferred milk shall be subtracted from the most distant load of

supplemental milk received, and then in sequence with the next most

distant load until all of the transfers have been offset;

(2) With respect to the pounds of milk described in paragraph

(c)(1) of this section that remain after the computations described in

paragraph (d)(1) of this section, the market administrator shall:

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

the shipping plant and the receiving plant;

(ii) Multiply the number of miles so determined by 0.35 cent;

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

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

receiving plant as specified in Sec. 1007.52;

(iv) Subtract any positive difference computed in paragraph

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

(d)(2)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(2)(iv) of this

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

this section.

(3) For the remaining milk described in paragraph (c)(2) of this

section after computations described in paragraph (d)(1) of this

section, the market administrator shall:

(i) Determine an origination point for each load of milk by

locating the nearest city to the last producer's farm from which milk

was picked up for delivery to the receiving pool plant. Alternatively,

the milk hauler that is transporting the milk of producers described in

paragraph (c)(2) of this section may establish an origination point

following the last farm pickup by stopping at the nearest

independently-operated truck stop with a certified truck scale and

obtaining 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;

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

the receiving pool plant and the truck stop or city, as the case may

be;

(iii) Subtract 85 miles from the mileage so determined;

(iv) Multiply the remaining miles so computed by 0.35 cent;

(v) If the origination point determined pursuant to paragraph

(d)(3)(i) of this section is in a Federal order marketing area,

subtract the Class I price applicable at the origination point pursuant

to the provisions of such other order (as if the origination point were

a plant location) from the Class I price applicable at the distributing

plant receiving the milk. If the origination point is not in any

Federal order marketing area, determine the Class I price at the

origination point based upon the provisions of this order and subtract

this price from the Class I price applicable at the distributing plant

receiving the milk;

(vi) Subtract any positive difference computed in paragraph

(d)(3)(v) of this section from the amount computed in paragraph

(d)(3)(iv) of this section; and

(vii) Multiply the remainder computed in paragraph (d)(3)(vi) by

the hundredweight of milk described in paragraph (d)(3) of this

section.

PART 1011--MILK IN THE TENNESSEE VALLEY MARKETING AREA

Sec. 1011.30 [Amended]

15. In Sec. 1011.30, paragraphs (a)(8) and (a)(9) are redesignated,

respectively, as paragraphs (a)(9) and (a)(10), new paragraph (a)(8) is

added, and paragraphs (a)(6), (a)(7), and (c)(3) are revised to read as

follows:

Sec. 1011.30 Reports of receipts and utilization.

* * * * *

(a) * * *

(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, including

the date that such milk was received;

(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 that paragraph and

the date that such milk was received;

(8) For handlers submitting transportation credit requests,

transfers of bulk milk to nonpool plants, including the dates that such

milk was transferred;

* * * * *

(c) * * *

(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), (a)(7) and (a)(8) of this

section.

* * * * *

Sec. 1011.32 [Amended]

16. In Sec. 1011.32, a new paragraph (a) is added to read as

follows:

Sec. 1011.32 Other reports.

(a) On or before the 20th day after the end of each month, each

handler described in Sec. 1011.9(a), (b), and (c) shall report to the

market administrator any adjustments to transportation credit requests

as reported pursuant to Sec. 1011.30(a)(6), (7), and (8).

* * * * *

Sec. 1011.61 [Amended]

17. In Sec. 1011.61, paragraph (a)(4) is removed and paragraphs

(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5),

respectively.

Sec. 1011.77 [Amended]

18. Sec. 1011.77 is revised to read as follows:

Sec. 1011.77 Adjustment of accounts.

(a) Whenever verification by the market administrator of payments

by any handler discloses errors made in payments to the producer-

settlement fund pursuant to Sec. 1011.71 or to the transportation

credit balancing fund pursuant to Sec. 1011.81, the market

administrator shall promptly bill such handler for any unpaid amount

and such handler shall, within 15 days, make payment to the market

administrator of the amount so billed. Whenever verification discloses

that payment is due from the market administrator to any handler

pursuant to Sec. 1011.72 or Sec. 1011.82, the market administrator

shall make payment to such handler within 15 days or, in the case of

the transportation credit balancing fund, as soon as funds become

available. If a handler is due additional payment for a month in which

payments to handlers were prorated pursuant to Sec. 1011.82(a), the

additional payment pursuant to this section shall be multiplied by the

final proration percentage computed in Sec. 1011.82(a)(2).

(b) Whenever verification by the market administrator of the

payment by a handler to any producer or cooperative association for

milk received by such handler discloses payment of less than is

required by Sec. 1011.73, the handler shall pay such balance due such

producer or cooperative association not later than the time of making

payment to

[[Page 27543]]

producers or cooperative associations next following such disclosure.

Sec. 1011.81 [Amended]

19. In Sec. 1011.81, paragraph (c) is removed and paragraphs (a)

and (b) are revised to read as follows:

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 operating a pool plant and each handler specified in

Sec. 1011.9(b) and (c) shall pay to the market administrator a

transportation credit balancing fund assessment determined by

multiplying the pounds of Class I producer 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 total transportation credits disbursed during the prior

June-January period. In the event that during any month of the June-

January period the fund balance is insufficient to cover the amount of

credits that are due, the assessment should be based upon the amount of

credits that would have been disbursed had the fund balance been

sufficient.

(b) 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.

Sec. 1011.82 [Amended]

20. Sec. 1011.82 is revised to read as follows:

Sec. 1011.82 Payments from the transportation credit balancing fund.

(a) Payments from the transportation credit balancing fund to

handlers and cooperative associations requesting transportation credits

shall be made as follows:

(1) 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), milk

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

section, a preliminary amount determined pursuant to paragraph (d) of

this section to the extent that funds are available in the

transportation credit balancing fund. If an insufficient balance exists

to pay all of the credits computed pursuant to this section, the market

administrator shall distribute the balance available in the

transportation credit balancing fund by reducing payments prorata using

the percentage derived by dividing the balance in the fund by the total

credits that are due for the month. The amount of credits resulting

from this initial proration shall be subject to audit adjustment

pursuant to paragraph (a)(2) of this section;

(2) The market administrator shall accept adjusted requests for

transportation credits on or before the 20th day of the month following

the month for which such credits were requested pursuant to

Sec. 1011.32(a). After such date, a preliminary audit will be conducted

by the market administrator, who will recalculate any necessary

proration of transportation credit payments for the preceding month

pursuant to paragraph (a) of this section. Handlers will be promptly

notified of an overpayment of credits based upon this final computation

and remedial payments to or from the transportation credit balancing

fund will be made on or before the next payment date for the following

month;

(3) Transportation credits paid pursuant to paragraph (a)(1) and

(2) of this section shall be subject to final verification by the

market administrator pursuant to Sec. 1011.77. Adjusted payments to or

from the transportation credit balancing fund will remain subject to

the final proration established pursuant to paragraph (a)(2) of this

section; and

(4) 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 the months of January and June if a written request to do so

is received 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) Transportation credits 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(a)(12); and

(2) Bulk milk received directly from the farms of dairy farmers at

pool distributing plants subject to the following conditions:

(i) The quantity of such milk that shall be eligible for the

transportation credit shall be determined by multiplying the total

pounds of milk received from producers meeting the conditions of this

paragraph by the lower of:

(A) The marketwide estimated Class I utilization of all handlers

for the month pursuant to Sec. 1011.45(a); or

(B) The Class I utilization of all producer milk of the pool plant

operator receiving the milk after the computations described in

Sec. 1011.44;

(ii) 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 50 percent of the production of the

dairy farmer during those 2 months, in aggregate, was received as

producer milk under this order during those 2 months. However, if

January and/or June are months in which transportation credits are

disbursed pursuant to paragraph (a) of this section, these months shall

not be included in the 2-month limit provided in this paragraph; and

(iii) 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, or within the Kentucky counties of

Allen, Barren, Metcalfe, Monroe, Simpson, and Warren.

(d) Transportation credits shall be computed as follows:

(1) The market administrator shall subtract from the pounds of milk

described in paragraphs (c) (1) and (2) of this section the pounds of

bulk milk transferred from the pool plant receiving the supplemental

milk if milk was transferred to a nonpool plant on the same calendar

day that the supplemental milk was received. For this purpose, the

transferred milk shall be subtracted from the most distant load of

supplemental milk received, and then in sequence with the next most

distant

[[Page 27544]]

load until all of the transfers have been offset;

(2) With respect to the pounds of milk described in paragraph

(c)(1) of this section that remain after the computations described in

paragraph (d)(1) of this section, the market administrator shall:

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

the shipping plant and the receiving plant;

(ii) Multiply the number of miles so determined by 0.35 cent;

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

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

receiving plant as specified in Sec. 1011.52;

(iv) Subtract any positive difference computed in paragraph

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

(d)(2)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(2)(iv) of this

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

this section.

(3) For milk described in paragraph (c)(2) of this section, the

market administrator shall:

(i) Determine an origination point for each load of milk by

locating the nearest city to the last producer's farm from which milk

was picked up for delivery to the receiving pool plant. Alternatively,

the milk hauler that is transporting the milk of producers described in

paragraph (c)(2) of this section may establish an origination point

following the last farm pickup by stopping at the nearest

independently-operated truck stop with a certified truck scale and

obtaining 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;

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

the receiving pool plant and the truck stop or city, as the case may

be;

(iii) Subtract 85 miles from the mileage so determined;

(iv) Multiply the remaining miles so computed by 0.35 cent;

(v) If the origination point determined pursuant to paragraph

(d)(3)(i) of this section is in a Federal order marketing area,

subtract the Class I price applicable at the origination point pursuant

to the provisions of such other order (as if the origination point were

a plant location) from the Class I price applicable at the distributing

plant receiving the milk. If the origination point is not in any

Federal order marketing area, determine the Class I price at the

origination point based upon the provisions of this order and subtract

this price from the Class I price applicable at the distributing plant

receiving the milk;

(vi) Subtract any positive difference computed in paragraph

(d)(3)(v) of this section from the amount computed in paragraph

(d)(3)(iv) of this section; and

(vii) Multiply the remainder computed in paragraph (d)(3)(vi) by

the hundredweight of milk described in paragraph (d)(3) of this

section.

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

AREA

Sec. 1046.30 [Amended]

21. In Sec. 1046.30, paragraphs (a)(7) and (a)(8) are redesignated,

respectively, as paragraphs (a)(8) and (a)(9), new paragraph (a)(7) is

added, and paragraphs (a)(5), (a)(6), and (c)(3) are revised to read as

follows:

Sec. 1046.30 Reports of receipts and utilization.

* * * * *

(a) * * *

(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, including

the date that such milk was received;

(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 that paragraph and

the date that such milk was received;

(7) For handlers submitting transportation credit requests,

transfers of bulk milk to nonpool plants, including the dates that such

milk was transferred;

* * * * *

(c) * * *

(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), (a)(6), and (a)(7) of this

section.

* * * * *

Sec. 1046.32 [Amended]

22. In Sec. 1046.32, paragraph (c) is redesignated as paragraph (d)

and a new paragraph (c) is added to read as follows:

Sec. 1046.32 Other reports.

* * * * *

(c) On or before the 20th day after the end of each month, each

handler described in Sec. 1046.9(a), (b), and (c) shall report to the

market administrator any adjustments to transportation credit requests

as reported pursuant to Sec. 1046.30(a)(5), (6), and (7).

* * * * *

Sec. 1046.61 [Amended]

23. In Sec. 1046.61, paragraph (a)(4) is removed and paragraphs

(a)(5) and (a)(6) are redesignated as paragraphs (a)(4) and (a)(5),

respectively.

Sec. 1046.77 [Amended]

24. Sec. 1046.77 is revised to read as follows:

Sec. 1046.77 Adjustment of accounts.

(a) Whenever verification by the market administrator of payments

by any handler discloses errors made in payments to the producer-

settlement fund pursuant to Sec. 1046.71 or to the transportation

credit balancing fund pursuant to Sec. 1046.81, the market

administrator shall promptly bill such handler for any unpaid amount

and such handler shall, within 15 days, make payment to the market

administrator of the amount so billed. Whenever verification discloses

that payment is due from the market administrator to any handler

pursuant to Sec. 1046.72 or Sec. 1046.82, the market administrator

shall make payment to such handler within 15 days or, in the case of

the transportation credit balancing fund, as soon as funds become

available. If a handler is due additional payment for a month in which

payments to handlers were prorated pursuant to Sec. 1046.82(a), the

additional payment pursuant to this section shall be multiplied by the

final proration percentage computed in Sec. 1046.82(a)(2).

(b) Whenever verification by the market administrator of the

payment by a handler to any producer or cooperative association for

milk received by such handler discloses payment of less than is

required by Sec. 1046.73, the handler shall pay such balance due such

producer or cooperative association not later than the time of making

payment to producers or cooperative associations next following such

disclosure.

Sec. 1046.78 [Amended]

25. In the introductory text of Sec. 1046.78, the number

``1046.81,'' is added following the number ``1046.77,''.

Sec. 1046.81 [Amended]

26. In Sec. 1046.81, paragraph (c) is removed and paragraphs (a)

and (b) are revised to read as follows:

Sec. 1046.81 Payments to the transportation credit balancing fund.

(a) On or before the 15th day after the end of the month, each

handler

[[Page 27545]]

operating a pool plant and each handler specified in Sec. 1046.9(b) and

(c) shall pay to the market administrator a transportation credit

balancing fund assessment determined by multiplying the pounds of Class

I producer 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 total

transportation credits disbursed during the prior June-January period.

In the event that during any month of the June-January period the fund

balance is insufficient to cover the amount of credits that are due,

the assessment should be based upon the amount of credits that would

have been disbursed had the fund balance been sufficient.

(b) 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.

Sec. 1046.82 [Amended]

27. Sec. 1046.82 is revised to read as follows:

Sec. 1046.82 Payments from the transportation credit balancing fund.

(a) Payments from the transportation credit balancing fund to

handlers and cooperative associations requesting transportation credits

shall be made as follows:

(1) On or before the 16th 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), milk

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

section, a preliminary amount determined pursuant to paragraph (d) of

this section to the extent that funds are available in the

transportation credit balancing fund. If an insufficient balance exists

to pay all of the credits computed pursuant to this section, the market

administrator shall distribute the balance available in the

transportation credit balancing fund by reducing payments prorata using

the percentage derived by dividing the balance in the fund by the total

credits that are due for the month. The amount of credits resulting

from this initial proration shall be subject to audit adjustment

pursuant to paragraph (a)(2) of this section;

(2) The market administrator shall accept adjusted requests for

transportation credits on or before the 20th day of the month following

the month for which such credits were requested pursuant to

Sec. 1046.32(c). After such date, a preliminary audit will be conducted

by the market administrator, who will recalculate any necessary

proration of transportation credit payments for the preceding month

pursuant to paragraph (a) of this section. Handlers will be promptly

notified of an overpayment of credits based upon this final computation

and remedial payments to or from the transportation credit balancing

fund will be made on or before the next payment date for the following

month;

(3) Transportation credits paid pursuant to paragraph (a) (1) and

(2) of this section shall be subject to final verification by the

market administrator pursuant to Sec. 1046.77. Adjusted payments to or

from the transportation credit balancing fund will remain subject to

the final proration established pursuant to paragraph (a)(2) of this

section; and

(4) 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 made 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 the months of January and June if a written request to do so

is received 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) Transportation credits 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(a)(12); and

(2) Bulk milk received directly from the farms of dairy farmers at

pool distributing plants subject to the following conditions:

(i) The quantity of such milk that shall be eligible for the

transportation credit shall be determined by multiplying the total

pounds of milk received from producers meeting the conditions of this

paragraph by the lower of:

(A) The marketwide estimated Class I utilization of all handlers

for the month pursuant to Sec. 1046.45(a); or

(B) The Class I utilization of all producer milk of the pool plant

operator receiving the milk after the computations described in

Sec. 1046.44;

(ii) 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 50 percent of the production of the

dairy farmer during those 2 months, in aggregate, was received as

producer milk under this order during those 2 months. However, if

January and/or June are months in which transportation credits are

disbursed pursuant to paragraph (a) of this section, these months shall

not be included in the 2-month limit provided in this paragraph; and

(iii) 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, or within the Kentucky counties of

Allen, Barren, Metcalfe, Monroe, Simpson, and Warren.

(d) Transportation credits shall be computed as follows:

(1) The market administrator shall subtract from the pounds of milk

described in paragraphs (c) (1) and (2) of this section the pounds of

bulk milk transferred from the pool plant receiving the supplemental

milk if milk was transferred to a nonpool plant on the same calendar

day that the supplemental milk was received. For this purpose, the

transferred milk shall be subtracted from the most distant load of

supplemental milk received, and then in sequence with the next most

distant load until all of the transfers have been offset;

(2) With respect to the pounds of milk described in paragraph

(c)(1) of this section that remain after the computations described in

paragraph (d)(1) of this section, the market administrator shall:

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

the shipping plant and the receiving plant;

[[Page 27546]]

(ii) Multiply the number of miles so determined by 0.35 cent;

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

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

receiving plant as specified in Sec. 1046.52;

(iv) Subtract any positive difference computed in paragraph

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

(d)(2)(ii) of this section; and

(v) Multiply the remainder computed in paragraph (d)(2)(iv) of this

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

this section.

(3) For milk described in paragraph (c)(2) of this section, the

market administrator shall:

(i) Determine an origination point for each load of milk by

locating the nearest city to the last producer's farm from which milk

was picked up for delivery to the receiving pool plant. Alternatively,

the milk hauler that is transporting the milk of producers described in

paragraph (c)(2) of this section may establish an origination point

following the last farm pickup by stopping at the nearest

independently-operated truck stop with a certified truck scale and

obtaining 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;

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

the receiving pool plant and the truck stop or city, as the case may

be;

(iii) Subtract 85 miles from the mileage so determined;

(iv) Multiply the remaining miles so computed by 0.35 cent;

(v) If the origination point determined pursuant to paragraph

(d)(3)(i) of this section is in a Federal order marketing area,

subtract the Class I price applicable at the origination point pursuant

to the provisions of such other order (as if the origination point were

a plant location) from the Class I price applicable at the distributing

plant receiving the milk. If the origination point is not in any

Federal order marketing area, determine the Class I price at the

origination point based upon the provisions of this order and subtract

this price from the Class I price applicable at the distributing plant

receiving the milk;

(vi) Subtract any positive difference computed in paragraph

(d)(3)(v) of this section from the amount computed in paragraph

(d)(3)(iv) of this section; and

(vii) Multiply the remainder computed in paragraph (d)(3)(vi) by

the hundredweight of milk described in paragraph (d)(3) of this

section.

[FR Doc. 97-13000 Filed 5-19-97; 8:45 am]

BILLING CODE 3410-02-P