Milk in the Nebraska-Western Iowa Marketing Area; Suspension of Certain Provisions of the Order

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1065

[DA-98-10]

Milk in the Nebraska-Western Iowa Marketing Area; Suspension of

Certain Provisions of the Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Suspension of rule.

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

SUMMARY: This document suspends 11 counties from the marketing area

definition of the Nebraska-Western Iowa Federal milk marketing order

(Order 65) beginning on February 1, 1999, and extending for an

indefinite period until the implementation of a final rule

consolidating Federal milk orders, as required by the 1996 Farm Bill,

or an action to subsequently terminate the suspension. The action was

requested by Gillette Dairy (Gillette) of Rapid City, South Dakota,

which contends the suspension is necessary to maintain its milk supply

and to remain competitive in selling fluid milk products in the

marketing area.

EFFECTIVE DATE: February 1, 1999.

FOR FURTHER INFORMATION CONTACT: Clifford M. Carman, Marketing

Specialist, USDA/AMS/Dairy Programs, Order Formulation Branch, Room

2971, South Building, P.O. Box 96456, Washington, DC 20090-6456;

telephone: (202) 720-9368; e-mail address:

[email protected].

SUPPLEMENTARY INFORMATION: Prior document in this proceeding:

Notice of Proposed Suspension: Issued September 23, 1998; published

October 9, 1998 (63 FR 54383).

The Department is issuing this rule in conformance with Executive

Order 12866.

This final rule has been reviewed under Executive Order 12988,

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

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

regulations, or policies, unless they present an irreconcilable

conflict with this rule.

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

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

exhausted before parties may file suit in court. Under section

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

modification or exemption from such order by filing 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. 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

rule will not have a significant economic impact on a substantial

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

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

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

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

employees. For the purposes of determining which dairy farms are

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

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

this guideline does not factor in additional monies that may be

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

most ``small'' dairy 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.

For the month of April 1998, which is the most recent

representative month with data including Gillette Dairy, 1,649 dairy

farmers were producers under Order 65. Of these producers, 1,573

producers (i.e., 95 percent) were considered small businesses having

monthly milk production under 326,000 pounds. A further breakdown of

the monthly milk production of the producers on the order during April

1998 was as follows: 1,001 produced less than 100,000 pounds of milk;

445 produced between 100,000 and 200,000; 127 produced between 200,000

and 326,000; and 76 produced over 326,000 pounds. During the same

month, 8 handlers were pooled under the order. One was considered a

small business.

Pursuant to authority contained in the Agricultural Marketing

Agreement Act of 1937, as amended, (7 U.S.C. 601-674), this suspension

will remove 11 counties in the western panhandle of Nebraska from the

marketing area definition of Order 65. The Nebraska counties are

Banner, Box Butte, Cheyenne, Dawes, Deuel, Garden, Kimball, Morrill,

Scotts Bluff, Sheridan, and Sioux.

Gillette, the proponent of this suspension, estimates that its

sales in the counties represent 65 to 70 percent of total fluid milk

sales in the 11 counties. Gillette explains that a loss of sales in an

unregulated marketing area has resulted in its regulation under Order

65 without any appreciable increase in sales in the Order's marketing

area. The handler contends the suspension is necessary to maintain its

milk supply and to remain competitive in selling fluid milk products in

the marketing area.

The July 1996 population estimate and the December 1992 fluid milk

per capita consumption data show that the 11 Nebraska counties

represent a small amount of the population and fluid milk consumption

in the State of Nebraska and in the entire Order 65 marketing area. The

11 counties represent about 6 percent of the population and fluid milk

consumption in the State of Nebraska and about 5 percent of the

population and fluid milk consumption in the Order 65 marketing area.

There are three handlers other than Gillette that possibly have

sales into the 11 Nebraska counties. The handlers are

[[Page 4958]]

Meadow Gold of Lincoln, Nebraska; Roberts Dairy in Omaha, Nebraska; and

Meadow Gold in Greeley, Colorado. Roberts Dairy hauls milk for Nebraska

Dairy, Inc., which is a distribution facility that is owned by the same

principal company that owns Gillette. However, the dairy appears to be

a separate entity from Gillette. Market information indicates that if

these three handlers have sales into the 11 counties the volume is

relatively small.

The suspension should not have a significant economic impact on

handlers because of the relatively small number of sales by handlers

other than Gillette in this 11-county area. In addition, the population

in the 11-county area constitutes a small percentage of the population

and fluid milk consumption in the State of Nebraska. This milk has not

been historically associated with Order 65. Therefore, the removal of

the 11 counties from the marketing area definition of Order 65 should

not have a significant adverse impact on other order producers and

other handlers.

A review of the current reporting requirements was completed

pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35),

and it was determined that this suspension will have little impact on

reporting, recordkeeping, or other compliance requirements because

these would remain almost identical to the current system. No new forms

will need to be proposed.

No other burdens are expected to fall upon the dairy industry as a

result of overlapping Federal rules. This regulation does not

duplicate, overlap or conflict with any existing Federal rules.

Statement of Consideration

This suspension is issued pursuant to the provisions of the

Agricultural Marketing Agreement Act and of the order regulating the

handling of milk in the Nebraska-Western Iowa marketing area. The

action suspends 11 counties in the western panhandle of Nebraska from

the marketing area definition of Order 65. The Nebraska counties are

Banner, Box Butte, Cheyenne, Dawes, Deuel, Garden, Kimball, Morrill,

Scotts Bluff, Sheridan, and Sioux.

The July 1996 population estimate, which represents the most recent

population statistics, shows that the total population for the Order 65

marketing area is 2,000,529 (i.e., 412,167 for Iowa counties and

1,588,362 for Nebraska counties). The population estimate for the

entire State of Nebraska is 1,652,093, while the population for the 11

Nebraska counties is 91,194. In addition, the December 1992 Federal

Milk Order Statistics Report (Per Capita Sales of Fluid Milk Products

in Federal Order Markets) indicates that the Nebraska fluid milk per

capita consumption is about 20 pounds per person per month. It is

estimated that the fluid milk consumption per month within the 11

Nebraska counties is 1,823,880 (20 lbs. * 91,194).

The July 1996 population estimate and the December 1992 fluid milk

per capita consumption data show that the 11 Nebraska counties

represent about 6 percent of the population and fluid milk consumption

in the State of Nebraska and about 5 percent of the population and

fluid milk consumption in the Order 65 marketing area.

Gillette Dairy, the proponent of this suspension, was a fully

regulated handler under the Black Hills, South Dakota, Federal milk

marketing order prior to its termination (effective October 1, 1996) at

the request of the Black Hills Milk Producers. After termination of the

Black Hills order, Gillette for some time was a partially regulated

handler under 3 Federal milk marketing orders: Eastern South Dakota

(Order 76), Eastern Colorado (Order 137), and Order 65. From January

1998 through May 1998, Gillette was a fully regulated handler under

Order 65 because its fluid milk sales in the marketing area represented

more than 15 percent of its receipts. In recent months (i.e., June

through November 1998), Gillette has been a partially regulated plant

under Order 65 due to an increase in total milk receipts. During this

period, Gillette has reduced its distribution in the 11-county area in

an effort to avoid reducing the amount it pays its supplier, the Black

Hills Milk Producers.

As a partially regulated handler, Gillette pays to the producers

supplying its plant at least the full class-use value of its milk each

month. Thus, Gillette has no further obligation to the producer-

settlement fund of the orders under which it was a partially regulated

handler. However, as a fully regulated handler, Gillette is required to

pay the difference between its class-use value and the marketwide

class-use value to the Order 65 producer-settlement fund. This payment,

Gillette contends, increases its cost for milk and reduces the amount

it can pay its producers.

Gillette was pooled under Order 65 during the months of January

through May 1998. For the period of February through May 1998, Order 65

price data shows that the average uniform price to producers was $13.34

per hundredweight. If Gillette had not been a regulated handler under

Order 65 during this period, the average uniform price to producers

would have been about $13.31 per hundredweight. Thus, the regulation of

Gillette for the February through May 1998 period resulted in an

increase in the average uniform price of 3 to 4 cents per

hundredweight.

According to Gillette, marketing conditions in Order 65 have

changed significantly since the order was promulgated. Gillette

estimates that its sales in the 11 counties represent 65 to 70 percent

of total fluid milk sales in the counties. Gillette explains that a

loss of sales in an unregulated marketing area has resulted in its

regulation under Order 65 because such sales represented at least 15

percent of its receipts, but without any appreciable increase in sales

in the Order's marketing area. Furthermore, the handler states that

since its milk supply comes from the Black Hills Milk Producers there

is no balancing of milk supply for the plant from Order 65 or any other

Federal milk marketing order.

Black Hills Milk Producers also requested that the counties be

removed from the Order 65 marketing area definition. The cooperative

representing the producers explained that it is dependent on Gillette's

survival. It states that the regulation of Gillette under Order 65 has

caused its producers hardship by costing them as much as $1.00 per

hundredweight during some months. According to the cooperative, this

cost results from an agreement that it has with Gillette in which it

refunds to Gillette an amount equal to half of the handler's obligation

to the producer-settlement fund when Gillette is fully regulated.

Although the producers pay this amount to Gillette, Order 65 price data

for the February through May 1998 period indicates that their monthly

pay prices were above the Order 65 uniform price.

Notice was published in the Federal Register on October 9, 1998 (63

FR 54383) concerning the proposed suspension of part of the marketing

area definition of Order 65. Interested persons were afforded an

opportunity to file written data, views, and arguments thereon. Six

comments were received in support of the proposed suspension; two were

received in opposition to it.

Gillette and Black Hills Milk Producers reiterated their support

for the proposed suspension. Gillette anticipates that in the months

ahead, as milk prices decline and milk production increases seasonally,

the price spread between the Class I price and the blend price will

increase. The handler states the impact will cause it to pay more into

the producer-settlement fund while reducing its payment to Black Hills

Milk

[[Page 4959]]

Producers. The cooperative states that the sharing of the cost of

regulation with Gillette in addition to the low milk prices and high

feed costs has caused several dairymen to discontinue dairying.

Associated Milk Producers, Inc. (North Central Region), in its

comment letter, stated that because population, consumption, and milk

supply in the 11 counties is fairly evenly balanced the proposed action

would have a marginal effect on Order 65 blend prices. In addition, the

other supporters who filed comments (i.e, the South Dakota Department

of Agriculture, 5 United States Senators, and the Rapid City Area

Chamber of Commerce) state that the action would eliminate the payments

by Gillette into the producer-settlement fund (i.e., $500,000 during

the first 6 months of 1998 or $83,000 per month) when regulated under

Order 65. Thus, they claim that this cost directly affects the

producers supplying the dairy and has been a contributing factor to

producers discontinuing their dairy farm operations.

Dairy Farmers of America (DFA) and Meadow Gold Dairies expressed

opposition to the proposed action and contend that it would create an

inequitable marketing situation between handlers and producers. DFA is

a cooperative that represents about 39 percent of the producers on

Order 65 and 927 producers in other affected markets. DFA argues that

the proposal would lower the returns of DFA member producers supplying

the handlers affected by this action. The cooperative also contends

that the proposal would lower the blend prices to these DFA producers

in Order 65.

According to DFA, the proposal would provide Gillette with a

financial advantage over competing handlers because Gillette competes

with handlers over a broad geographic area (in counties in Nebraska,

Colorado, and Wyoming). DFA asserts that the action would prohibit the

sharing of revenues from the sale of milk by Gillette to DFA members

and the Federal Order 65 producers. In addition, the cooperative claims

that the action would assist Gillette in expanding its business further

into Order 65 and the Eastern Colorado order (Order 137). The proposed

action, it concludes, would adversely impact cooperatives' ability to

negotiate over-order premiums in the future due to the perceived

inequity in the marketplace.

Two additional letters were submitted after the comment period

ended. Sinton Dairy filed a comment in opposition to the proposed

action and Gillette submitted another letter in response to the issues

addressed by DFA. Both comment letters were dated and received after

the comment expiration date and cannot be given due consideration.

After careful consideration of the comments submitted, it is

concluded that there is sufficient basis to grant the request for

suspension of the 11 counties from the Order 65 marketing area for an

indefinite period of time until the implementation of Federal order

reform. Statistics clearly show that the majority (i.e., 65 to 70

percent) of the fluid milk sales into the 11-county area is by

Gillette. Moreover, the 11 counties represent about 6 percent of the

population and fluid milk consumption in the State of Nebraska and

about 5 percent of the population and fluid milk consumption in the

Order 65 marketing area. In addition, this milk has not been

historically associated with the Order 65. Therefore, the removal of

the 11 counties from the marketing area definition of Order 65 should

not have an adverse impact on other order producers and other handlers.

However, if the counties were to remain as part of the Order 65

marketing area definition, the effect could be severely disruptive for

the Black Hills Milk Producers.

At this time, the Federal order reform process is expected to be

completed by October 1, 1999. In the proposed federal order reform rule

that was issued on January 21, 1998 (63 FR 4802), the proposed Central

order marketing area, which included most of the existing Order 65

marketing area, did not include the 11 counties suspended in this

action. However, this recommendation, together with all of the

provisions in the proposed rule, is currently under consideration.

After consideration of all relevant material, including the

proposal in the notice, the comments received, and other available

information, it is hereby found and determined that for the period of

February 1, 1999, and extending for an indefinite period until the

implementation of a final rule consolidating Federal milk orders as

required by the 1996 Farm Bill, or a subsequent action to terminate the

suspension, the following provisions of the order do not tend to

effectuate the declared policy of the Act:

In Sec. 1065.2(a), the words ``Banner, Box Butte, Cheyenne, Dawes,

Deuel, Garden, Kimball, Morrill, Scotts Bluff, Sheridan, and Sioux.''

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

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

public interest in that:

(a) The suspension is necessary to reflect current marketing

conditions and to assure orderly marketing conditions in the marketing

area;

(b) This suspension does not require of persons affected

substantial or extensive preparation prior to the effective date; and

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

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

arguments concerning this suspension. Several comments supporting the

suspension, and one comment opposing it, were received.

Therefore, good cause exists for making this suspension effective

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

List of Subjects in 7 CFR Part 1065

Milk marketing orders.

For the reasons set forth in the preamble, 7 CFR Part 1065 is

amended as follows:

PART 1065--MILK IN THE NEBRASKA-WESTERN IOWA MARKETING AREA

1. The authority citation for 7 CFR Part 1065 continues to read as

follows:

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

Sec. 1065.2 [Suspended in part]

2. In Sec. 1065.2(a), the words ``Banner, Box Butte, Cheyenne,

Dawes, Deuel, Garden, Kimball, Morrill, Scotts Bluff, Sheridan, Sioux''

are suspended.

Dated: January 26, 1999.

Enrique E. Figueroa,

Administrator, Agricultural Marketing Service.

[FR Doc. 99-2430 Filed 2-1-99; 8:45 am]

BILLING CODE 3410-02-P