Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16075

Southwest market area, particularly in Texas, with a population of 4.7 million; About 455 million pounds of milk New Mexico (ranging from deserts to the Houston-Galveston-Brazoria were pooled on either Order 126 or 138 high mountain ranges). Northwest New (Houston) MSA in southeastern Texas from 1,345 producers in 118 Texas Mexico is part of the Colorado Plateau, near the Gulf of Mexico, with a counties in October 1997. Three Texas an area of broad valleys and plains as population of 4.3 million; the San counties were among the top 6 in well as deep canyons and mesas. The Antonio MSA in south central Texas, volume pooled: Erath (1st), Hopkins Rocky Mountains extend into the north with a population of 1.5 million; the (4th) and Comanche (6th). Erath central area of the state. The Basin and Austin-San Marcos (Austin) MSA in County—located about 75 miles west of Range region, generally characterized by central Texas, with a population of 1 Dallas—pooled 104.5 million pounds on ranges or isolated mountains million; the El Paso MSA located in the Order 126 (and an additional 9 million interspersed with valleys, desert basins far western corner of Texas on the pounds on 3 other Federal orders). or high plains, is located in central and Texas-New Mexico-Mexico border, with Hopkins County—located about 50 southwestern New Mexico, as well as a population of 702,000; and the miles east of Dallas—pooled 34 million western Texas. The Great Plains cover McAllen-Pharr-Edinburg MSA located pounds on Order 126 and another 15 the eastern third of New Mexico and at the southern tip of Texas, with a million pounds on 4 other Federal extend through the Texas Panhandle in population of 511,000. orders. Contiguous to and lying north Texas and much of central Texas. New Mexico’s population is about 1.7 southwest of Erath County, Comanche This area is characteristically dry and million. The remaining 3 of the 26 County pooled 33 million pounds on treeless and also encompasses Texas hill Southwest market MSAs are located in Order 126 and about .5 million pounds country and the Edwards Plateau. The New Mexico. About 40 percent of the on 3 other Federal orders. Osage Plains covers the area in Texas state’s population is located in the Of the 271 million pounds of milk from the Oklahoma-Texas border into Albuquerque area, just northwest of pooled on either Order 126 or 138 from the south central part of the state and central New Mexico. 185 producers in 12 New Mexico counties, 69 percent was produced in the low and flat West Gulf Coastal Plain In the remainder of the Southwest the following three counties, all among covers the eastern two-fifths of the state. marketing area, the 3 Colorado counties Climates in this region also vary. The the top 6 in volume pooled: Chaves have a population of about 71,000. western part of the region, including (2nd), Dona Ana (3rd) and Roosevelt New Mexico, southwest Texas and the Fluid Per Capita Consumption (5th). Chaves County—located about Texas Panhandle, is semi-arid to arid 200 miles southeast of Albuquerque— Estimates of fluid per capita with wide ranges in both daily and pooled 92 million pounds on Orders consumption vary from 17.1 pounds of annual temperatures. The southern tip 126 and 138 in October 1997 and an fluid milk per month per person in of Texas and the Gulf coast are more additional 28 million pounds on 3 other Texas to 17.5 in New Mexico to 18.8 in humid and subtropical. For some of the Federal orders. Dona Ana County, Colorado. Multiplying the individual area there are few agricultural uses other located over 200 miles south of states’ consumption rate by its than dairy farming. Dairy products were Albuquerque, contiguous to El Paso the 2nd and 3rd highest revenue- population in the consolidated County, TX, and the U.S.-Mexico producing agricultural commodities in marketing area results in a fluid milk border, pooled 61 million pounds of New Mexico and Texas, respectively, in consumption rate of 364.5 million producer milk on Order 138. Contiguous 1996, accounting for nearly one-third of pounds of fluid milk per month for the to and lying northeast of Chaves County, agricultural receipts in New Mexico, but consolidated Southwest marketing area. Roosevelt County pooled 33 million less than 10 percent in Texas. In October 1997, the fully regulated pounds on Orders 126 and 138 and plants in Orders 126 and 138 had route another 6.6 million on 4 other Federal Population distribution totaling 342.5 million orders. According to July 1, 1997, population pounds. Ninety-eight percent, or 328 In October 1997, producer milk for estimates, the total population in the million pounds, was distributed within Orders 126 and 138 also originated in consolidated marketing area is 21.3 the consolidated Southwest marketing one of the Colorado counties in the million. The 26 Metropolitan Statistical area. Handlers fully regulated under Southwest marketing area, and in Areas (MSA) in the consolidated other Federal orders had about 21 counties in Arkansas and Oklahoma. Southwest market account for 81.3 million pounds of route distribution However, the combined amount of percent of the total market area into the Southwest market area. producer milk pooled from these areas population. About 55 percent of the Producer-handlers in the Southwest is less than 1 percent of the total Southwest population is located in the area distributed about 5 million pounds producer milk pooled in these Orders. 4 most populous MSAs. Seven MSAs of route distribution in the Southwest have populations greater than 500,000; marketing area in October 1997, while Distributing Plants their total population is 63.4 percent of partially-regulated plants and plants Using distributing plant lists included the Southwest population. Because of that would be exempt on the basis of in the proposed rule, with the pooling the large number of MSAs in the size distributed approximately .5 standards adjusted to 25 percent of Southwest market, only those areas with million pounds. route disposition as in-area sales, updated for known plant closures populations greater than 500,000 are Production described in detail. through December 1998, 31 distributing Almost 92 percent of the Southwest In October 1997, 1,570 producers plants located in the consolidated market’s population is located in Texas, from 144 counties in 5 states pooled 650 Southwest marketing area would be which has 19.5 million people. Twenty- million pounds of producer milk on expected to be associated with the three of the 26 Southwest market MSAs Orders 126 and 138. Over 99 percent of Southwest market, including 21 fully are in Texas. About 66 percent of Texas’ this producer milk came from counties regulated distributing plants, 2 partially population is concentrated in 6 areas, included in the consolidated Southwest regulated, 2 exempt and 6 producer- which include the Southwest area’s top marketing area. About 55 percent of the handlers. None of these plants’ 5 population centers: the Dallas-Fort combined market’s producer milk was regulatory status is expected to change Worth (Dallas) MSA in northeastern provided by producers in six counties. as a result of the consolidation process.

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Of the 21 fully regulated plants, 17 are Other Plants (Order 139) marketing area, and located in the top six MSA regions. Located within the Southwest currently unregulated counties in Since October 1997, it is known that marketing area during May 1997 were Arizona. There are 16 counties in this 3 plants (2 fully regulated and 1 17 manufacturing plants: 11 in Texas (2 consolidated marketing area. This area producer-handler) have gone out of in the Dallas MSA and 1 in the El Paso remains unchanged from the proposed rule. business. The fully regulated plants MSA) and six in New Mexico. Six of the were located in El Paso, Texas, and in 17 plants were pool plants. All of these Geography pool plants were manufacturing Albuquerque, New Mexico. The The Arizona-Las Vegas market is plants—one manufactured primarily producer-handler was located in Hobbs, described geographically as follows: All Class II products, two manufactured New Mexico. counties (15) in Arizona (6 whole and primarily powder, two manufactured 1 partial currently are part of Order 131, Of the 31 distributing plants that primarily cheese and one manufactured and 8 whole and 1 partial currently are would be located in the consolidated primarily other products. Of the 11 unregulated) and Clark County, Nevada, Southwest marketing area, 24 are in nonpool plants in the Southwest which currently is part of the Great Texas, and 7 are in New Mexico. marketing area, all were manufacturing Basin marketing area. The market Twenty of the Texas plants would be plants—one manufactured primarily extends about 400 miles north to south fully regulated. They are as follows: 6 in powder, four manufactured primarily from Arizona’s border with Utah (and the Dallas area, 3 in the Houston area, cheese, one manufactured primarily Nevada’s southernmost county) to the 2 in the San Antonio area, 1 in the other products and five manufactured U.S.-Mexico border. The market ranges Austin area, and 2 in the El Paso area, primarily Class II products. and 6 located throughout the state. One from 300 to 375 miles east to west from of the Texas distributing plants was Cooperative Associations the Arizona-New Mexico border to the associated with Order 30 (Chicago In December 1997, three cooperative Arizona/southern Nevada-California Regional) in October 1997, and is associations marketed about 95 percent border. The Arizona-Las Vegas marketing area expected to be partially regulated in the of the milk pooled under both of the is contiguous to two other consolidated Southwest market. Two producer- orders consolidated in the Southwest marketing areas, the Great Basin portion handlers are located in Texas, one in the area: Dairy Farmers of America (DFA); of the Western area to the north and the El Paso area and the other in the central and Select Milk Producers, Inc. (Select); and Elite Milk Producers, Inc. (Elite). New Mexico-West Texas portion of the part of the state. Southwest area to the east. California, Just over half of New Mexico’s 7 Criteria for Consolidation which is not part of the Federal order distributing plants are located in the Nearly all of the route disposition by system, lies to the west and Mexico is Albuquerque area. One fully regulated Order 126 and 138 handlers is south of this marketing area. handler and 3 producer-handlers are distributed within the consolidated Arizona can be divided into three located in this population center. Of the marketing area. In addition, nearly all of geographic regions—the Sonoran Desert, remaining 3 plants located in New the milk that would be pooled under the in the southwest; the Colorado Plateau, Mexico, there are 2 plants that would be consolidated order, based on October in the north; and the Mexican Highland, exempt on the basis of size (both located 1997 data, originates within the mainly in the central and southeastern in central New Mexico) and 1 producer- marketing area. Two cooperatives parts of the state. With each of these handler (located southeast of market the vast majority of milk within regions, three distinct climatic zones Albuquerque). the consolidated area. exist: The Sonoran Desert is hot in the summer but can experience frost in the Utilization Discussion of Comments and winter; the Colorado Plateau is hot and Alternatives dry in the summer and cold and windy According to October 1997 pool Prior to issuance of the proposed rule, in the winter; and the Mexican statistics, the Class I utilization alternatives to the consolidation of the Highland receives significant percentages for the Texas and New Texas and New Mexico-West Texas precipitation in both summer and Mexico-West Texas markets were 56 order areas that were considered winter. This region is cooler in both and 44 percent, respectively. Based on included the consolidation of east Texas summer and winter than the Sonoran calculated weighted average use values with the Southeast area. This alternative Desert region. for (1) the current order with current use consolidation was examined at length These topographical and climatic of milk, and (2) the current order with and found to have little overlap of either conditions apparently are conducive to projected use of milk in the fluid milk product disposition or milk production. Dairy products consolidated Southwest order, the producer milk movements. represent one of the principal potential impact of this consolidation Only one comment pertained agricultural commodities (2nd and 3rd) on producers who supply the current specifically to the consolidated in the States of Arizona and Nevada, market areas is estimated to be: Texas, Southwest marketing area. This was a respectively, representing 16.6 and 21.7 a 5-cent per cwt decrease (from $14.09 comment from DFA that discussed percent of total agricultural receipts of to $14.04), and New Mexico-West general support for the marketing areas the two States in 1996. Texas, a 10-cent per cwt increase (from proposed by USDA, with no objection to Population $13.51 to $13.61). The weighted average the Southwest marketing area, as use value for the consolidated proposed. Arizona is one the fastest-growing Southwest order market is estimated to states in the United States. According to be $13.97 per cwt. For October 1997, Arizona-Las Vegas July 1, 1997, population estimates, the combined Class I utilization for Orders The consolidated Arizona-Las Vegas total population in the consolidated 126 and 138 was 53.4 percent based on marketing area is comprised of the marketing area is 5.7 million. Using 347.0 million pounds of producer milk current Central Arizona (Order 131) Metropolitan Statistical Areas (MSAs), used in Class I out of 649.9 million total marketing area, one county in Nevada the largest population center is the producer milk pounds. which currently is in the Great Basin Phoenix-Mesa (Phoenix) area, located in

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The Las Vegas MSA is through December 1998, 8 distributing Market data indicate that there are comprised of three counties: Clark and plants would be expected to be sales into the Las Vegas area by Central Nye counties in Nevada and Mohave associated with the consolidated Arizona pool plants, and sales by both County in Arizona. Almost half of this Arizona-Las Vegas marketing area, Phoenix and Las Vegas handlers into the market’s population is in the Phoenix including 5 fully regulated distributing unregulated areas along the southern area, and over 70 percent is accounted plants (all currently pool plants), 1 part of the Nevada-Arizona border. for when Las Vegas is added. exempt plant and 2 producer-handlers. Rapid population growth in the area There are 4 distributing plants in the Fluid Per Capita Consumption between the two areas has greatly Phoenix area (all pool plants). Located increased competition between the Based on the population figure of 5.7 in the Las Vegas MSA are one pool plant handlers in Phoenix and Las Vegas. In million and an estimated per capita and a producer-handler. Another addition, both areas exchange fluid milk consumption rate of 20 producer-handler is located in the Yuma significant volumes of bulk and pounds of fluid milk per month, total area and the exempt plant is located in packaged milk with Southern California. fluid milk consumption in the Arizona- a currently-unregulated Arizona county, At the same time, the strength of the Las Vegas marketing area is estimated at and has total route disposition of less earlier relationship between the Las 114 million pounds per month. In than 150,000 pounds. All of the plants Vegas area and Utah clearly has October 1997, plants that would have that are expected to be fully regulated declined since the merger of the Lake been fully regulated distributing plants under this consolidated order are Mead and Great Basin order areas in in the Arizona-Las Vegas order had located in areas that contain over 70 1988, which was based on data route disposition within the market of percent of the market’s population. compiled up to 1986. approximately 95 million pounds, Utilization The Grand Canyon serves as a natural representing 94 percent of their route According to October 1997 pool barrier in northwestern Arizona disposition. Another 6.5 million pounds between this area and Great Basin. of milk was distributed in the statistics, the Class I utilization for the Central Arizona market was 46 percent. Although the actual consolidated order consolidated marketing area by 2 area extends to the Utah border, the handlers expected to be fully regulated Due to restricted information, this calculation excludes receipts for the Las portion of Arizona between the Grand under the consolidated Western Federal Canyon and Utah is very sparsely order and by 10 California plants that Vegas handler who currently is regulated under Order 139, but would populated, and is included in the are partially regulated under the Central consolidated marketing area primarily Arizona and Great Basin orders. be regulated under this order. Because the degree of consolidation for this for the purpose of simplifying the Milk Production market is very minor, little change in marketing area description and easing handlers’ burden of reporting out-of- In October 1997, almost 196 million the Class I utilization percentage, and thus little change in producer returns, is area sales. The Colorado River forms pounds of milk was pooled in the much of the western boundary with Central Arizona market, supplied by expected in the Arizona-Las Vegas area as a result of the consolidation. For California and Nevada. A north-south over 100 producers located in fewer October 1997, Class I utilization for the strip along the eastern edge of Arizona than 10 counties in Arizona and Central Arizona market was 46.3 constituting approximately 30 percent California. Over 95 percent of the percent based on the use of 90.8 pounds of the State’s territory is very sparsely Central Arizona milk was produced of producer milk in Class I out of 195.9 populated, containing just over 5 within the marketing area. Further, over total pounds of producer milk. The percent of the population of the 90 percent of the producer milk weighted average use value for the consolidated marketing area. This produced within the Order 131 area was Arizona-Las Vegas market is estimated lightly populated desert area can be produced in Maricopa County, Arizona, to be $13.84 per hundredweight. seen as another form of natural barrier where Phoenix, this market’s largest to the movement of bulk and packaged city, also is located. With 177 million Other Plants milk. pounds of producer milk for October For May 1997, 3 supply or Discussion of Comments and 1997, Maricopa County produces almost manufacturing plants were located Alternatives twice the amount of milk required to within the Arizona-Las Vegas marketing meet the fluid milk needs of the entire area: 2 in Arizona (both in the Phoenix Prior to issuance of the proposed rule, marketing area. Arizona producers did area) and 1 in Nevada (in the Las Vegas alternatives to the consolidation of the not supply milk to any other Federal area). One Arizona plant was a pool Central Arizona marketing area and the order; however, it is known that plant operated by the cooperative, southern Nevada portion of the Great producer milk moves from both Arizona manufacturing primarily cheese, while Basin order area included retaining the and Clark County, Nevada, to southern the other plants were nonpool plants Las Vegas area with the rest of the California. These figures do not reflect manufacturing primarily Class II current Great Basin order area in the the producer milk associated with products. consolidated Western marketing area. Anderson Dairy, the Las Vegas handler Twelve comments that pertained who has been pooled on Order 139. Cooperative Associations specifically to the proposed Arizona-Las There is only one producer located in For December 1997, the only Vegas area were filed by 10 commenters Clark County, Nevada. Anderson’s milk cooperative pooling milk under the in response to the proposed rule. supply comes from a cooperative Central Arizona order was United Anderson Dairy in Las Vegas advocated association in southern California. Dairymen of Arizona, which that Clark County, Nevada, in which Las

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Vegas is located, be left out of any route distribution in these two areas. There are 67 counties in this consolidated marketing area to better Mohave County, Arizona (currently- consolidated area. The Western enable Anderson to compete with milk unregulated), and Clark County, Colorado (Order 134) marketing area, distributed from California and from the Nevada, are two of the fastest-growing proposed to be part of the Western Salt Lake City area. Two comments from areas in the United States in terms of consolidated area, was changed to the Nevada Dairy Commission, population. These two counties adjoin become part of the Central consolidated suggesting that prices could be set each other in southern Nevada and area. within the State, and from a U.S. northwestern Arizona, and both are Geography Senator from Nevada, requested that increasing in population significantly Clark County be excluded from any faster than the growth rates for their The Western market is described Federal order marketing area. Security states. From 1990 to 1997, a period geographically as follows: 28 counties in Milk Producers Association, a during which the population of the Idaho (18 currently in Order 135 and 10 cooperative that supplies milk to United States increased by 7.6 percent, in Order 139), 3 in eastern Nevada (all Anderson, first filed a comment the population of Arizona increased by currently in Order 139), 5 in eastern supporting the proposed Arizona-Las 24.3 percent, while Mohave County’s Oregon (all currently in Order 135), all Vegas area, and then filed a later population increased by 37.8 percent. counties (29) in Utah (currently in Order comment urging that if Clark County Over the same period, Clark County, 139) and 2 in the southwest corner of cannot be deregulated and California Nevada, experienced a population Wyoming (currently in Order 139). does not become a Federal order, Clark increase of 49.2 percent, while the Measuring the extreme dimensions, this County should be reunited with the rest Nevada population increased by 39.5 market extends about 625 miles north to of the consolidated Western order area. percent. The rapidly-growing area south from Oregon and Idaho to Utah’s A commenter in the southern Nevada between Phoenix and Las Vegas boundary with Arizona. This market’s dairy industry supported the represents a growing market which can east-to-west dimension is approximately cooperative’s view. be expected to be served by both of the 550 miles from the westernmost edge in A comment from DFA suggested that major population centers. central/eastern Oregon to the the Great Basin marketing area be Ninety-five percent of the route easternmost edge of the Utah/Colorado consolidated with the proposed dispositions of handlers who would be border. Arizona-Las Vegas area rather than the regulated under this order were The consolidated Western marketing proposed Western area, arguing that the distributed within the consolidated area is contiguous to four of the price/utilization relationships of the marketing area in October 1997, and consolidated marketing areas, the Great Basin area are more similar to the approximately the same percentage of Pacific Northwest to the west and north Arizona-Las Vegas area than to the rest route disposition within the marketing of the Oregon portion of this market, of the Western area. Darigold, Inc., area was by handlers who would be Arizona-Las Vegas to the south, the urged that Las Vegas be reunited with regulated under this consolidated order. Central market on the east, and the Utah due to its proximity to the major Similarly, over 95 percent of the milk Southwest to the extreme southeast production areas in Utah. Darigold pooled under the current Central corner. Non-Federally regulated suggested that if there is a linkage Arizona order is produced within the territory borders the Western market on between the Phoenix and Las Vegas marketing area, and there is no the west-southwest (Nevada) and the markets, those areas both should be indication of movements of producer north-northeast (Idaho and Wyoming). included in the Western area. milk between Utah and Nevada, as was In terms of physical geography, the A comment filed by the American the case when the Great Basin and Lake Western marketing area has several Farm Bureau Federation recommended Mead orders were merged. regions: The Columbia Plateau in that the consolidation of the Central In addition, both areas exchange southern Idaho and northeastern Arizona and Clark County areas be significant volumes of bulk and Nevada, characterized by fertile soils; reconsidered in favor of a return to the packaged milk with Southern California, the Great Basin in southeast Idaho, consolidation of the Central Arizona a relationship that does not pertain to nearly all of Nevada and the western area with the Southwest area, suggested any of the other areas in the region. The third of Utah, described by ranges and in the Initial Preliminary Report on Las Vegas area’s earlier relationship parallel valleys; and the Colorado Order Consolidation. with southern Utah was based primarily Plateau in the eastern half of Utah, A comment filed by the Dairy on Utah as an important milk supply characterized by gorges. In general, the Institute of California supported the area for Las Vegas at the time of the Western market is quite dry, with consolidation of the Las Vegas area with merger of the Lake Mead and Great temperatures tending to be extreme and Arizona because such a combination Basin order areas in 1988. That affected by elevation. would eliminate competitive distortions relationship clearly has ceased to exist. Population between these areas and California Therefore, the assertion by commenters caused by the Las Vegas raw milk price that the Las Vegas, Nevada, area should According to July 1, 1997, population levels. The Utah Farm Bureau stated continue to be included in the same estimates, the total population in the that it does not oppose removing the marketing area with Utah or be consolidated marketing area is 3.2 Clark County, Nevada, area from the unregulated does not reflect current million. Using Metropolitan Statistical Great Basin order area and combining it marketing conditions. Areas (MSAs), the largest population with Arizona. center is the Salt Lake City-Ogden, Utah An increase in sales by Central Western area (Salt Lake City). Salt Lake City is Arizona pool plants into the Las Vegas The consolidated Western marketing located in north central Utah. The Boise area, and increased sales by both area is comprised of the current City, Idaho, area (Boise), the second Phoenix and Las Vegas handlers into the Southwestern Idaho-Eastern Oregon largest population center in this unregulated area of rapidly-increasing (Order 135) and Great Basin (Order 139) marketing area, is located about 300 population along the southern part of marketing areas, less one Nevada county miles to the northwest of Salt Lake City. the Nevada-Arizona border, are factors (Clark) in Order 139 that is added to the Provo-Orem, Utah, (Provo) the third that have greatly increased overlapping Arizona-Las Vegas marketing area. largest population center, lies 40 miles

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The Based on the population figure of 3.2 of route disposition as in-area sales, annual Class I utilization percentage million and an estimated per capita updated for known plant closures may be considered more representative fluid milk consumption rate of 23 through December 1998, 25 distributing for this market. For the year 1997, the pounds of fluid milk per month, total plants would be expected to be annual Class I utilization for fluid milk consumption in the Western associated with the Western marketing Southwestern Idaho-Eastern Oregon was marketing area is estimated at 73.6 area, including 11 fully regulated 8.3 percent. It is estimated that the Class million pounds per month. Plants that distributing plants (all currently pool I use percentage for the consolidated would have been fully regulated plants), 2 partially regulated (currently market would be about 23 percent. distributing plants in the Western order partially regulated), 1 exempt plant had route disposition within the market based on size (currently a pool plant), 7 Other Plants of 74 million pounds in October 1997; producer-handlers, and 4 exempt plants Eighteen supply or manufacturing approximately 80 percent of this total is based on institutional status (all were plants were located within the from Order 139 pool plants. The 7 exempt as defined under current federal consolidated Western marketing area producer handlers operating during this orders). Since October 1997, it is known during May 1997: 8 in Idaho (3 in the month had a combined route that 2 distributing plants (1 fully Boise area), 9 in Utah (2 in the Salt Lake disposition of 1.6 million pounds. regulated and 1 exempt plant) in Utah City area) and 1 in Wyoming. Two of the Additionally, 1.1 million pounds of and 1 producer-handler in Arizona have 18 plants were pool plants; both route disposition came from other order gone out of business. manufacture primarily cheese. Of the 16 plants, with about .5 million from There would be 9 distributing plants nonpool plants, 12 manufacture partially regulated handlers and exempt in the Salt Lake City area (5 pool plants, primarily cheese and 5 manufacture plants. 2 producer-handlers and 2 exempt primarily soft or Class II products plants). The Boise area would have 2 Milk Production (including ice cream). Of the 8 Idaho pool distributing plants, the Provo area plants, all but one manufacture cheese, In October 1997, over 457 million would have 1 exempt plant and the while of the 9 Utah plants, 6 pounds of milk was associated with the Pocatello area would have 1 pool plant. manufacture cheese and 3 manufacture Great Basin and Southwestern Idaho- The remaining 12 distributing plants are soft products. Eastern Oregon markets, but only 304 located in Idaho (4 plants: 2 pool, 1 million pounds of this milk was pooled exempt, and 1 producer-handler), Cooperative Associations because of class price relationships. The Nevada (1 partially regulated plant), and For December 1997, four cooperatives 457 million pounds of milk were Utah (7 plants: 1 pool, 1 partial, 1 representing 77 percent of the milk produced by 952 dairy farmers located exempt, 4 producer-handlers). pooled under the two orders had in 51 counties in California, Idaho, Fully regulated distributing plants are membership in the consolidated Nevada, Oregon, Utah and Wyoming. located in MSAs containing about half Western marketing area. Western Over 95 percent of the milk associated of the consolidated market’s population, Dairymen Cooperative, Inc., a with the market was produced within including the Pocatello, Idaho, MSA, cooperative association that became part the marketing area. Four counties with 2.2 percent of this market’s of Dairy Farmers of America, Inc., had produced more than 50 percent of the population. membership in both the Southwestern milk available to be pooled. The three Idaho-Eastern Oregon and Great Basin Utilization top producing counties in Idaho, marketing areas. Magic Valley Quality Jerome, Gooding and Twin Falls According to October 1997 pool Milk Producers, Inc., also had counties, are all located in southwestern statistics, the Class I utilization membership in Orders 135 and 139; Idaho, about 130 miles southeast of percentages for the Southwestern Idaho- Darigold Farms had membership in Boise and 230 miles northwest of Salt Eastern Oregon and Great Basin markets Order 135, and Security Milk Producers’ Lake City. Jerome and Gooding counties were 16 and 41 percent, respectively. Association had membership in Order each provided approximately twice as Based on calculated weighted average 139. much milk as Twin Falls County, the use values for (1) the current order with third-largest county in terms of milk current use of milk, and (2) the current Criteria for Consolidation production in the Western market. The order with projected use of milk in the The consolidated Western market is fourth-largest production county was consolidated Western order, the composed of the current marketing areas Cache County in northeastern Utah, potential impact of this market of the Southwestern Idaho-Eastern located about 80 miles north of Salt consolidation on producers who supply Oregon and Great Basin markets, minus Lake City. the current market areas is estimated to the Clark County, Nevada, portion of the The three Idaho counties, part of the be an 11-cent per cwt increase (from Great Basin area. Sales overlap exists marketing area of the current $12.92 to $13.03) for Southwestern between Southwestern Idaho-Eastern Southwestern Idaho-Eastern Oregon Idaho-Eastern Oregon, and a 9-cent per Oregon and Great Basin, as well as a order, are the top three milk-producing cwt decrease (from $13.25 to $13.16) for significant overlap in procurement for counties for Order 135 and among the Great Basin. The weighted average use the two orders in Idaho. The two orders top seven milk-producing counties for value for the consolidated Western also share similar multiple component Order 139 in October 1997. Five order market is estimated to be $13.14 pricing plans. The Western Colorado counties in the current Southwestern per cwt. For October 1997, combined order, proposed for inclusion in the Idaho-Eastern Oregon marketing area Class I utilization for Orders 135 and Western area, was shown on the basis of supplied one-quarter of the milk 139 was 32.5 percent based on 98.8 October 1997 data to have developed a

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American), a Pennsylvania producer with Montana) to about 250 miles in the and Dairy Farmers of America filed southern half of the market (covering Discussion of Comments and eight comments opposing the approximately two-thirds of Oregon Alternatives consolidation of the Southwestern from the state’s western border with the Prior to issuance of the proposed rule, Idaho-Eastern Oregon order area with Pacific Ocean to central Oregon). alternatives to the consolidation of the the Great Basin marketing area. One The Pacific Northwest marketing area Southwestern Idaho-Eastern Oregon, DFA comment suggested combining is contiguous with the consolidated Great Basin (minus Clark County, Utah with the Arizona-Las Vegas area Western Federal order marketing area in Nevada) and Western Colorado instead of with Idaho. A primary basis eastern Oregon. The remainder of the marketing areas that were considered for opposition to the consolidation is marketing area is surrounded by included leaving the Southwestern the disparity in the two regions’ currently non-Federally regulated areas Idaho-Eastern Oregon area as a separate utilization of Class I fluid milk: The (California and northwestern Nevada to order and consolidating the Great Basin Southwestern Idaho-Eastern Oregon the south and Montana, Idaho, and one market with the Central Arizona, order has a very low percentage of Class northeastern Oregon county to the east), Western Colorado, and Eastern Colorado I use, which varies from less than 10 political boundaries (Canada to the marketing areas, leaving both the percent to over 20 percent, while the north), and the Pacific Ocean to the Southwestern Idaho-Eastern Oregon and Great Basin order’s Class I use west. Great Basin areas as separate order percentage is higher at about 35 percent. Along the Oregon and Washington areas, and combining the Western Commenters fear that the consolidation coasts lies the Coast Range. The Cascade Colorado area with the Eastern Colorado of these orders would result in lower Range is located further inland in both area and other areas to the east. These returns to producers who currently are states. Both ranges are north-south in alternative consolidations were pooled under the Great Basin order. direction, and the Cascade Range examined at length and found to be less Most of the comments suggest that the effectively divides both states into two appropriate than the marketing areas Southwestern Idaho-Eastern Oregon distinct climates: a year-round mild, delineated in the proposed rule in terms marketing area should remain under a humid climate with abundant of overlap of either fluid milk product separate order. precipitation predominates in the disposition or producer milk A major source of milk production for western part of the states, and a dry movements. both the Southwestern Idaho-Eastern climate with little precipitation but Oregon and Great Basin orders is a 5- greater temperature extremes prevails Fifteen comments that pertained county area located within the Federal east of the Cascade Range. The mild specifically to the proposed Western order 135 marketing area, supplying climate of the western portion results in marketing area were filed by 12 one-quarter of the milk pooled on the longer growing seasons. The Columbia commenters in response to the proposed Great Basin order in October 1997. The River flows south through eastern rule. Several of these comments Southwestern Idaho-Eastern Oregon Washington, turns west, and becomes objected to the separation of the Las area should be consolidated with some the western two-thirds of the border Vegas area from the Great Basin portion other order area because of the small between Oregon and Washington. The of the Western area. These comments number of handlers pooled under the portion of Idaho included in the Pacific are addressed in the discussion of order, and this close relationship with Northwest marketing area is within the comments and alternatives considered Great Basin makes that consolidation Rocky Mountains. This area has a for the consolidated Arizona-Las Vegas the only viable possibility. generally continental climate with the area. higher elevations having long and Comments filed by Dairy Farmers of Pacific Northwest severe winters. America, Southern Foods Group, and a The Pacific Northwest marketing area Much of the area is conducive to the western Colorado dairy farmer is comprised of the current Pacific production of milk and many other advocated consolidating the Western Northwest (Order 124) marketing area agricultural commodities. Although Colorado order area with the and one currently-unregulated county in dairy products ranked 2nd among consolidated Central area instead of the southwest Oregon. There are 75 receipts of agricultural commodities in Western area. DFA’s comment stated counties in this marketing area. This the State of Washington in 1996, and that the Western Colorado milkshed is area remains unchanged from the 4th in Oregon, they accounted for only more similar to the Central area than to proposed rule. 13.8 percent and 7.9 percent, the Western area. The comments filed respectively, of such receipts. Apples Geography by Southern Foods Group and the dairy (in Washington) and greenhouse/ farmer expressed concern about an The Pacific Northwest market is nursery, wheat, and cattle and calves (in expected reduction in the blend price described geographically as follows: All Oregon) ranked ahead of dairy, paid to producers supplying the counties (39) in Washington, 30 accounting for 19.8 percent and 33.8 Western Colorado area. counties in Oregon (29 currently are percent, respectively, of agricultural October 1997 data show an increased part of Order 124 and one, Curry commodity receipts. relationship between Western Colorado County, is unregulated) and six counties and Eastern Colorado, and reduced milk in northwestern Idaho. The market Population movements between Western Colorado extends about 490 miles north-to-south According to July 1, 1997, population and Great Basin. On the basis of the from Washington’s northern border with estimates, the total population in the change in the relationships between the Canadian province of British marketing area is 9 million. Seventy- Western Colorado and its two nearest Columbia to Oregon’s southern border seven percent of the marketing area neighbor order areas, the Western with California and Nevada. East-to- population is located in Metropolitan Colorado area should become part of the west, the market ranges from about 450 Statistical Areas (MSAs). The two

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00056 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.069 pfrm08 PsN: 02APP2 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16081 largest MSAs are located on the western is in Oregon. It is Tillamook County, Utilization side of the Cascade Range. The Seattle- which borders the Pacific Ocean, about According to October 1997 pool Tacoma-Bremerton (Seattle) area, with a 60 miles west of the Portland area on statistics, the Class I utilization population of 3.4 million (37.6% of the the western side of the Coast Range. percentage for the Pacific Northwest marketing area population), is in Less than two percent of the milk market was 36 percent. Because this northwestern Washington. Over seventy pooled in the Pacific Northwest was market is to remain separate, expected percent of the population of the State of produced outside of the marketing area, utilization changes due to the reform Washington is located west of the in Idaho and California. The largest process result only from potential Cascade Mountains, in the western third portion is from producers in two changes in plants’ regulatory status; of the State. Another 14.5% of the northern California counties who thus very little change in producer State’s population is contained in 3 pooled nearly 6 million pounds of milk returns under the Pacific Northwest MSA’s east of the Cascades. or 89.8 percent of the pooled milk order is expected as a result of The Portland-Salem (Portland) area in produced outside the Pacific Northwest consolidation. For October 1997, Class I northwestern Oregon is located on the marketing area. utilization for the Pacific Northwest Oregon-Washington border, with Distributing Plants market was 35.6 percent based on 192 Portland just south of the Columbia Using distributing plant lists included million pounds of producer milk used River. The population of this MSA is 2.1 in Class I out of 540 million total million, or 23.6% of the marketing area in the proposed rule, with the pooling standards adjusted to 25 percent of producer milk pounds. The weighted population. Ninety percent of the average use value for the Pacific route disposition as in-area sales, population of Oregon is concentrated in Northwest market is estimated to be updated for known plant closures the western one-third of the State, or in $13.33 per hundredweight. the western half of the Oregon portion through December 1998, 35 distributing of the marketing area. plants would be expected to be Other Plants associated with the Pacific Northwest Fluid Per Capita Consumption Located within the Pacific Northwest market, including 19 fully regulated marketing area in May 1997 were 27 Based on the population figure of 9 distributing plants (all currently fully supply or manufacturing plants; 12 in million and an estimated per capita regulated), 2 partially regulated plants, Oregon (5 in the Portland area), 15 in fluid milk consumption rate of 22 4 exempt plants (below 150,000 pounds Washington (7 in the Seattle area) and pounds of fluid milk per month, total in total route disposition), and 10 none in Idaho. Two of the 27 plants fluid milk consumption in the Pacific producer-handlers. It is known that 3 (both in Oregon) were Order 124 pool Northwest marketing area is estimated distributing plants (all producer- supply plants, one of which at 198 million pounds per month. For handlers) have gone out of business manufactured primarily cheese, and the October 1997, plants that would be fully since October 1997. other nonfat dry milk. Of the 10 regulated distributing plants under the There are 11 distributing plants nonpool manufacturing plants located Pacific Northwest order had route within the Portland area, including 7 in Oregon, 8 manufactured primarily disposition within the market of 170 pool plants, 2 exempt plants and 2 Class II products (including ice cream), million pounds. In addition, the 18 producer-handlers. The Seattle/Tacoma 1 manufactured butter, and the other producer-handlers operating during this MSAs have 4 pool plants, 1 partially made cheese. month had a combined route regulated plant, and 4 producer- The 15 manufacturing/supply plants disposition of 18 million pounds. handlers. In addition to these two main located in the State of Washington were Additionally, slightly over 1 million population centers, the Spokane, all nonpool plants. Three manufactured pounds of route disposition (less than Washington, MSA, located in the primarily Class II products, 3 one percent of total route disposition in eastern area of the state near the Idaho manufactured primarily butter, 2 the marketing area) came from handlers border with a population of 405,000, has manufactured primarily powder, and 7 outside the market. Because the 2 pool plants. manufactured primarily cheese. handlers associated with this market are Two smaller MSA’s in western able to fulfill the market’s Class I or Oregon contain 2 pool plants, 1 Cooperative Associations fluid needs, and because of the producer-handler, and 1 plant exempt Five cooperative associations had somewhat geographic isolation of the on the basis of size. Of the 5 distributing members in the Pacific Northwest market, maintaining the current Pacific plants that would be operating in market in December 1997. Darigold Northwest order as a separate market is Oregon outside of MSAs, 3 would be Farms is the largest, and the only appropriate. fully regulated, 1 partially regulated, cooperative that had membership affiliated with another order (Order 135) Milk Production and 1 exempt of the basis of size. All but one, in central Oregon, are located in in December 1997. Other cooperatives In October 1997, the 540 million western Oregon. in this market are Farmers Cooperative pounds of milk pooled in the Pacific One producer-handler is located in a Creamery, Tillamook County Creamery Northwest market were produced by northwest Washington MSA, and 1 pool Association, Northwest Independent 1,211 producers located in 57 counties plant, 2 producer-handlers and 1 Milk Producers Association, and in California, Idaho, Oregon, and partially regulated plant are located in Portland Independent Milk Producers Washington. Five counties produced 57 the southeast quadrant of the State of Association. These five cooperatives percent of the milk pooled. Four of Washington outside any MSA. pooled 85 percent of the total producer these counties are in Washington State. Since October 1997, three producer- milk pooled under the Pacific They are Whatcom, Skagit, and handlers are known to have gone out of Northwest order in December 1997. Snohomish counties, which are less business, two in the State of than 100 miles north of Seattle; and Washington, and one in Oregon. Criteria for Consolidation Yakima County, which is located in Distributing plants fully regulated The consolidated Pacific Northwest central Washington about 100 miles under the Pacific Northwest order are market adds one currently unregulated southeast of Seattle on the eastern side located in MSAs where 71 percent of Oregon county to the Pacific Northwest of the Cascade Range. The fifth county the market’s population is concentrated. milk order. The degree of association of

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00057 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.070 pfrm08 PsN: 02APP2 16082 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules this market with other Federal order Because there is virtually no addition of the one southwestern marketing areas is insufficient under relationship with regard to either Oregon county proposed to be added. any criteria to warrant consolidation overlapping route dispositions or Darigold stated that the addition of this with any other order areas. overlapping milk procurement between county would not cause the regulation the Pacific Northwest and Southwestern of any plant. A comment filed by an Discussion of Comments and Idaho-Eastern Oregon milk marketing individual from Utah stated that Idaho Alternatives areas, and none at all with Great Basin, should be included in the Pacific Prior to issuance of the proposed rule, these alternatives were not pursued. Northwest area or be a separate order. alternatives to the leaving the Pacific Only two comments pertained As noted before, there is almost no Northwest area as a separate order area specifically to the ‘‘consolidated’’ relationship between the Pacific that were considered included the Pacific Northwest marketing area. Northwest and Southwestern Idaho- consolidation of the current Pacific Darigold Farms, Inc., commented that Eastern Oregon marketing areas, and no Northwest, Southwestern Idaho-Eastern the Pacific Northwest marketing area basis for such a consolidation. Oregon and Great Basin order areas. should remain unchanged except for the BILLING CODE 3410±02±P

LIST OF PLANTS AND REGULATORY STATUS

Plant name City State October 1997 Order/ Expected status 1 status 1

Northeast

ARMSTRONG, DAVID F. (SUNSET DAIRY) ...... WHITESBORO ...... NY NY±NJ ...... 1 1 ARRUDA, GEORGIANNA (ESTATE OF) ...... TIVERTON ...... RI New England ...... 4 4 BANGMA, LEONARD & DONALD ...... UXBRIDGE ...... MA New England ...... 4 4 BECHTEL DAIRIES, INC ...... ROYERSFORD ...... PA Mid Atlantic ...... 1 OOB 4/98 BOICE BROS. DAIRY (RICHARD P. BOICE) ...... KINGSTON ...... NY NY±NJ ...... 1 1 BRIGGS, ROBERT A ...... WEST MEDWAY ...... MA New England ...... 4 4 BROOKSIDE DAIRY ...... FITCHBURG ...... MA New England ...... 4 4 BYRNE DAIRY, INC ...... SYRACUSE ...... NY NY±NJ ...... 1 1 CAMPHILL VILLAGE ...... KIMBERTON ...... PA Mid Atlantic ...... 4 4 CHRISTIANSEN DAIRY CO., INC ...... NO. PROVIDENCE ...... RI New England ...... 1 1 CHROME DAIRY FARMS ...... OXFORD ...... PA Mid Atlantic ...... 1 1 CIENIEWICZ, JOSEPH ...... BERLIN ...... CT New England ...... 4 4 CLINTON MILK CO ...... NEWARK ...... NJ NY±NJ ...... 1 OOB 10/98 CLOVER FARMS DAIRY COMPANY ...... READING ...... PA NY±NJ ...... 1 1 CLOVERLAND/GREEN SPRING DAIRY ...... BALTIMORE ...... MD Mid Atlantic ...... 1 1 CLOVERLAND/GREEN SPRING DAIRY ...... BALTIMORE ...... MD Mid Atlantic ...... 1 OOB 2/98 COOPER'S HILLTOP DAIRY FARM ...... ROCHDALE ...... MA New England ...... 4 4 CORNELL UNIVERSITY ...... ITHACA ...... NY ...... 6A 6B CRESCENT RIDGE DAIRY, INC ...... SHARON ...... MA New England ...... 4 4 CROWLEY FOODS, INC ...... ALBANY ...... NY NY±NJ ...... 1 1 CROWLEY FOODS, INC ...... BINGHAMTON ...... NY NY±NJ ...... 1 1 CROWLEY FOODS, INC ...... CONCORD ...... NH New England ...... 1 1 CUMBERLAND DAIRY, INC ...... BRIDGETON ...... NJ Mid Atlantic ...... 2 2 CUMBERLAND FARMS, INC ...... CANTON ...... MA New England ...... 1 OOB 8/98 DAIRY MAID DAIRY, INC ...... FREDERICK ...... MD Mid Atlantic ...... 1 1 DUNAJSKI DAIRY, INC ...... PEABODY ...... MA New England ...... 4 4 DUTCH VALLEY FOOD CO., INC ...... SUNBURY ...... PA Mid Atlantic ...... 1 1 DUTCH WAY FARM MARKET ...... MYERSTOWN ...... PA Mid Atlantic ...... 4 4 EDWARDS, CHARLES & KURT & KEITH (MODEL GLOVERSVILLE ...... NY NY±NJ ...... 4 4 DAIRY FARM). ELMHURST DAIRY, INC ...... JAMAICA ...... NY NY±NJ ...... 1 1 EMBASSY DAIRY, INC ...... WALDORF ...... MD Mid Atlantic ...... 1 OOB 3/98 EMMONS WILLOW BROOK FARM, INC ...... PEMBERTON ...... NJ Mid Atlantic ...... 4 4 FAIRDALE FARMS, INC ...... BENNINGTON ...... VT New England ...... 2 1 FARMLAND DAIRIES, INC. &/OR FAIRDALE MILK WALLINGTON ...... NJ NY±NJ ...... 1 1 COMPANY, INC. FISH FAMILY FARM, INC ...... BOLTON ...... CT New England ...... 4 4 FLINT, PETER ...... CHELSEA ...... VT New England ...... 1 1 FREDDY HILL FARM DAIRY ...... LANSDALE ...... PA Mid Atlantic ...... 4 4 FRIENDSHIP DAIRIES, INC ...... FRIENDSHIP ...... NY NY±NJ ...... 1 2 GARELICK FARMS, INC. WAS: CUMBERLAND EAST GREENBUSH ...... NY NY±NJ ...... 1 1 FARMS, INC. GARELICK FARMS, INC. WAS: CUMBERLAND FLORENCE ...... NJ NY±NJ ...... 1 1 FARMS, INC. GARELICK FARMS, INC ...... FRANKLIN ...... MA New England ...... 1 1 GIANT FOOD, INC ...... LANDOVER ...... MD Mid Atlantic ...... 1 1 GRANT'S DAIRY, INC ...... BANGOR ...... ME New England ...... 2 2 GRATERFORD STATE ...... GRATERFORD ...... PA Mid Atlantic ...... 6A 6B GUERS DY., INC ...... POTTSVILLE ...... PA Mid Atlantic ...... 2 2 GUIDA-SEIBERT DAIRY CO ...... NEW BRITAIN ...... CT New England ...... 1 1 HALO FARM, INC ...... TRENTON ...... NJ Mid Atlantic ...... 1 1 HARRISBURG DAIRIES ...... HARRISBURG ...... PA Mid Atlantic ...... 1 1

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

HATCH, HOWARD ...... N. HAVERHILL ...... NH New England ...... 1 1 HATCHLAND DAIRY ...... N. HAVERHILL ...... NH New England ...... 4 4 HERITAGE'S DAIRY, INC ...... THOROFARE ...... NJ Mid Atlantic ...... 1 OOB 5/98 HERMANY FARMS, INC ...... BRONX ...... NY NY±NJ ...... 1 1 HIGHLAWN FARM ...... LEE ...... MA ...... 5 3B HILL FARM OF VERMONT ...... PLAINFIELD ...... VT ...... 5 3B HILLCREST DAIRY, INC. (MICHAEL J. JANAS) .... MORAVIA ...... NY NY±NJ ...... 4 4 HINE, FREDRICK DBA: FIELD VIEW DAIRY ORANGE ...... CT New England ...... 4 4 FARM. HOGAN, FRANCIS J. & ANDREW J. & SEAN P.Ð HUDSON FALLS ...... NY NY±NJ ...... 4 OOB 5/97 HOGAN'S DAIRY. HOMESTEAD DAIRIES, INC ...... MASSENA ...... NY ...... 5 OOB 6/98 HOOVER DAIRY ...... SANBORN ...... NY ...... 5 5 HY POINT DAIRY FARMS, INC ...... WILMINGTON ...... DE Mid Atlantic ...... 1 1 H.E.A., INC ...... CRANSTON ...... RI New England ...... 1 1 H.P. HOOD, INC ...... AGAWAM ...... MA New England ...... 1 1 H.P. HOOD, INC. WAS: BOOTH BROTHERS BARRE ...... VT New England ...... 2 1 DAIRY, INC. H.P. HOOD, INC ...... BURLINGTON ...... VT New England ...... 2 OOB 10/97 H.P. HOOD, INC ...... NEWINGTON ...... CT New England ...... 2 2 H.P. HOOD, INC ...... ONEIDA ...... NY NY±NJ ...... 2 1 H.P. HOOD, INC ...... PORTLAND ...... ME New England ...... 1 1 KEMPS FOODS, INC ...... LANCASTER ...... PA Mid Atlantic ...... 1 1 KOLB'S FARM STORE ...... SPRING CITY ...... PA Mid Atlantic ...... 4 4 KREIDER DAIRY FARMS, INC ...... MANHEIM ...... PA NY±NJ ...... 2 4 KRISCO FARMS, INC ...... CAMPBELL HALL ...... NY NY±NJ ...... 4 OOB 5/98 LAPP VALLEY FARM ...... NEW HOLLAND ...... PA Mid Atlantic ...... 4 4 LEESBURG STATE PRISON FARM ...... LEESBURG ...... NJ Mid Atlantic ...... 6A 6B LEONARD, STEWART J ...... NORWALK ...... CT New England ...... 1 1 LEWES DAIRY, INC ...... LEWES ...... DE Mid Atlantic ...... 1 1 LEWIS COUNTY DAIRY CORP ...... LOWVILLE ...... NY NY±NJ ...... 1 1 LONGACRE'S MODERN DAIRY, INC ...... BARTO ...... PA NY±NJ ...... 1 1 MANINO, ROSE (DARI-DELL) ...... FRANKFORT ...... NY NY±NJ ...... 2 3B MAPLE HILL FARMS, INC ...... BLOOMFIELD ...... CT New England ...... 1 OOB 9/97 MAPLEHOFE DAIRY, INC ...... QUARRYVILLE ...... PA Mid Atlantic ...... 4 4 MARCUS DAIRY, INC ...... DANBURY ...... CT NY±NJ ...... 1 1 MCNAMARA, PATRICK ...... WEST LEBANON ...... NH New England ...... 4 4 MEADOW BROOK FARMS, INC ...... POTTSTOWN ...... PA Mid Atlantic ...... 1 1 MERCERS DAIRY, INC ...... BOONVILLE ...... NY NY±NJ ...... 2 3B BMERRYMEAD FARM ...... LANSDALE ...... PA Mid Atlantic ...... 4 4 MOHAWK DAIRY (Z & R CORP.) ...... AMSTERDAM ...... NY NY±NJ ...... 1 1 MONUMENT FARMS, INC ...... MIDDLEBURY ...... VT ...... 5 1 MOUNT WACHUSETT DAIRY, INC ...... W. BOYLSTON ...... MA New England ...... 1 OOB 12/98 MOUNTAINSIDE FARMS, INC ...... ROXBURY ...... NY NY±NJ ...... 1 1 MUNROE, A B DAIRY, INC ...... EAST PROVIDENCE ...... RI New England ...... 1 1 NEW ENGLAND DAIRIES, INC ...... HARTFORD ...... CT New England ...... 1 1 NICASTRO FARMS, INC. DBA: RIVERSIDE FRANKFORT ...... NY NY±NJ ...... 4 4 FARMS. NICHOLS, DAVID ...... CHESTERFIELD ...... MA New England ...... 4 4 NIP N TUCK FARMS ...... VINEYARD HAVEN ...... MA ...... 5 4 OAK TREE FARM DAIRY, INC ...... EAST NORTHPORT ...... NY NY±NJ ...... 1 1 OAKHURST DAIRY ...... PORTLAND ...... ME New England ...... 2 2 OREGON DAIRY FARM MKT ...... LITITZ ...... PA Mid Atlantic ...... 4 4 PARMALAT WELSH FARMS, INC. WAS: WELSH LONG VALLEY ...... NJ NY±NJ ...... 1 1 FARMS, INC. PARMALAT WEST DAIRIES, INC ...... SPRING CITY ...... PA Mid Atlantic ...... 2 OOB 5/97 PEACEFUL MEADOWS ICE CREAM, INC ...... WHITMAN ...... MA New England ...... 4 4 PEARSON, ROBERT L ...... WEST MILLBURY ...... MA New England ...... 4 4 PEDRO, JOSEPH ...... FALL RIVER ...... MA New England ...... 4 4 PENNVIEW FARMS ...... PERKASIE ...... PA Mid Atlantic ...... 4 4 PERRYDELL FARMS ...... YORK ...... PA Mid Atlantic ...... 4 4 PINE VIEW ACRES, INC ...... LANCASTER ...... PA Mid Atlantic ...... 4 4 PIONEER DAIRY, INC ...... SOUTHWICK ...... MA New England ...... 1 1 POTOMAC FARMS DAIRY, INC ...... CUMBERLAND ...... MD Mid Atlantic ...... 2 2 PULEO'S DAIRY ...... SALEM ...... MA New England ...... 1 3B QUALITY MILK, INC ...... WARE ...... MA New England ...... 1 3B QUEENSBORO FARM PRODUCTS,INC ...... CANASTOTA ...... NY NY±NJ ...... 1 2 READINGTON FARMS, INC ...... WHITEHOUSE ...... NJ NY±NJ ...... 1 1 READY FOODS, INC ...... PHILADELPHIA ...... PA Mid Atlantic ...... 2 3B RICHARDSON FARMS, INC ...... MIDDLETON ...... MA New England ...... 4 4 RICHARDSONS G. H. DAIRY ...... DRACUT ...... MA New England ...... 3A 3B

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

RICHFOOD DAIRY ...... RICHMOND ...... VA Mid Atlantic ...... 1 1 RIDGE VIEW FARMS ...... ELIZABETHTOWN ...... PA Mid Atlantic ...... 4 4 RITCHEY'S DAIRY ...... MARTINSBURG ...... PA Mid Atlantic ...... 2 2 RONNYBROOK FARM DAIRY, INC ...... ANCRAMDALE ...... NY NY±NJ ...... 4 4 ROSENBERGER'S DAIRY, INC ...... HATFIELD ...... PA Mid Atlantic ...... 1 1 RUDOLPH STEINER EDUCATION & FARMING GHENT ...... NY NY±NJ ...... 4 4 ASSOC., INC. RUTTER BROS. DAIRY, INC ...... YORK ...... PA Mid Atlantic ...... 1 1 SALEM VALLEY FARMS, INC ...... SALEM ...... CT New England ...... 4 4 SARATOGA DAIRY, INC. (STEWART'S PROC- SARATOGA SPRINGS ... NY NY±NJ ...... 1 1 ESSING CORP.). SCHNEIDER/VALLEY FARMS, INC ...... WILLIAMSPORT ...... PA NY±NJ ...... 2 2 SEWARD DAIRY, INC ...... RUTLAND ...... VT New England ...... 2 OOB 8/98 SHAW FARM DAIRY, INC ...... DRACUT ...... MA New England ...... 4 4 STEARNS, WILLARD J. & SONS, INC ...... STORRS ...... CT New England ...... 4 4 STOP & SHOP COMPANIES, INC ...... READVILLE ...... MA New England ...... 1 1 SULOMAN'S MILK ...... GILBERTSVILLE ...... PA Mid Atlantic ...... 4 4 SUNNYDALE FARMS, INC ...... BROOKLYN NY ...... NY±NJ ...... 1 1 SYNAKOWSKI WALTER J (VALLEY SIDE FARM) REMSEN ...... NY NY±NJ ...... 4 4 TANNER BROS. DAIRY ...... WARMINSTER ...... PA Mid Atlantic ...... 4 4 THOMAS, ORIN & SONS, INC ...... RUTLAND ...... VT New England ...... 2 1 TRINITY FARM ...... ENFIELD ...... CT New England ...... 4 4 TURKEY HILL DAIRY, INC ...... CONESTOGA ...... PA Mid Atlantic ...... 1 1 TURNER'S DAIRY, INC ...... SALEM ...... NH New England ...... 1 1 TUSCAN DAIRY FARMS, INC ...... FRASER ...... NY NY±NJ ...... 2 2 TUSCAN DAIRY FARMS, INC ...... UNION ...... NJ NY±NJ ...... 1 1 TUSCAN/LEHIGH DAIRIES, LP WAS: LEHIGH LANSDALE ...... PA Mid Atlantic ...... 1 1 VALLEY DAIRIES, INC. TUSCAN/LEHIGH DAIRIES, LP WAS: LEHIGH SCHUYLKILL HAVEN .... PA NY±NJ ...... 2 2 VALLEY DAIRIES, INC. UPSTATE MILK COOPERATIVES, INC ...... BUFFALO ...... NY NY±NJ ...... 2 1 UPSTATE MILK COOPERATIVES, INC ...... JAMESTOWN ...... NY ...... 5 5 UPSTATE MILK COOPERATIVES, INC ...... ROCHESTER ...... NY NY±NJ ...... 2 2 VALLEY OF VIRGINIA COOP. DBA SHEN- MT. CRAWFORD ...... VA Mid Atlantic ...... 2 2 ANDOAH'S PRIDE. VALLEY OF VIRGINIA COOP. DBA SHEN- SPRINGFIELD ...... VA Mid Atlantic ...... 1 1 ANDOAH'S PRIDE. VAN WIE, CHARLES F. (MEADOWBROOK CLARKSVILLE ...... NY NY±NJ ...... 4 4 FARMS DAIRY). WALSH, WILLIAM ...... SIMSBURY ...... CT New England ...... 4 4 WAWA DAIRY FARMS ...... WAWA ...... PA Mid Atlantic ...... 1 1 WAY-HAR FARMS ...... BERNVILLE ...... PA NY±NJ ...... 3A 3B WENDTS DAIRY DIV NIAGARA CO ...... NIAGARA FALLS ...... NY ...... 5 5 WENGERTS DAIRY, INC ...... LEBANON ...... PA Mid Atlantic ...... 1 1 WEST LYNN CREAMERY, INC ...... LYNN ...... MA New England ...... 1 1 WHITTIER CREAMERY COMPANY, INC ...... SHREWSBURY ...... MA New England ...... 1 1 WINSOR, S. B. DAIRY, INC ...... JOHNSTON ...... RI New England ...... 1 3B WRIGHT'S DAIRY FARM, INC ...... NORTH SMITHFIELD ..... RI New England ...... 4 4

Appalachian

BROADACRE DAIRIES ...... POWELL ...... TN ...... 5 1 CAROLINA DAIRIES ...... KINSTON ...... NC Carolina ...... 1 OOB 5/98 COBURG DAIRY, INC ...... N. CHARLESTON ...... SC Carolina ...... 1 1 DAIRY FRESH, LP ...... WINSTON-SALEM ...... NC Carolina ...... 1 1 DEAN MILK CO ...... LOUISVILLE ...... KY Louis-Lex-Evans ...... 1 1 FLAV-O-RICH, INC ...... BRISTOL ...... VA Carolina ...... 2 1 FLAV-O-RICH, INC ...... FLORENCE ...... SC Carolina ...... 1 1 FLAV-O-RICH, INC ...... LONDON ...... KY Louis-Lex-Evans ...... 1 1 FLAV-O-RICH, INC ...... WILKESBORO ...... NC Carolina ...... 1 1 GOLDEN GALLON, INC ...... CHATTANOOGA ...... TN Southeast ...... 1 1 HOOSIER DAIRY, INC. WAS: HOLLAND DAIRIES, HOLLAND ...... IN Louis-Lex-Evans ...... 1 1 INC. HUNTER FARMS ...... CHARLOTTE ...... NC Carolina ...... 1 1 HUNTER FARMS ...... HIGHPOINT ...... NC Carolina ...... 1 1 IDEAL AMERICAN DAIRY ...... EVANSVILLE ...... IN Louis-Lex-Evans ...... 1 1 JACKSON DAIRY ...... DUNN ...... NC Carolina ...... 1 3B JERSEY RIDGE DAIRY, INC ...... KNOXVILLE ...... TN ...... 5 3B LAND-O-SUN DAIRIES, INC ...... KINGSPORT ...... TN Carolina ...... 1 1 LAND-O-SUN DAIRIES, INC ...... PORTSMOUTH ...... VA Carolina ...... 2 2 LAND-O-SUN DAIRIES, INC ...... SPARTANBURG ...... SC Carolina ...... 1 1

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

MAOLA MILK & ICE CREAM CO ...... NEW BERN ...... NC Carolina ...... 1 1 MAPLEVIEW FARMS ...... HILLSBORO ...... NC Carolina ...... 1 3B MARVA MAID DAIRY ...... NEWPORT NEWS ...... VA Carolina ...... 2 2 MAYFIELD DAIRY FARMS, INC ...... ATHENS ...... TN Southeast ...... 1 1 MILKCO, INC ...... ASHEVILLE ...... NC Carolina ...... 1 1 NORTH CAROLINA ST. UNIV...... RALEIGH ...... NC Carolina ...... 6A 6B PEELER JERSEY FARMS, INC ...... GAFFNEY ...... SC Carolina ...... 1 OOB 10/98 REGIS MILK CO ...... CHARLESTON ...... SC Carolina ...... 1 1 SOUTHERN BELLE DAIRY, INC ...... SOMERSET ...... KY Southeast ...... 1 1 SUPERBRAND DY. PRODS., INC ...... GREENVILLE ...... SC Carolina ...... 1 1 SUPERBRAND DAIRY, INC ...... HIGHPOINT ...... NC Carolina ...... 1 1 U C MILK CO ...... MADISONVILLE ...... KY Louis-Lex-Evans ...... 1 1 WESTOVER DAIRIES ...... LYNCHBURG ...... VA Carolina ...... 1 1 WINCHESTER FARMS DAIRY ...... WINCHESTER ...... KY Louis-Lex-Evans ...... 1 1

Florida

BORDEN, INC. (TRI-STATE DAIRY) ...... MIAMI ...... FL Southeast Florida ...... 1 OOB 4/97 FARM STORES, INC. (REW JB DAIRY PLANT MIAMI ...... FL Southeast Florida ...... 1 OOB 10/98 ASSOCIATES dba FARM STORES). GOLDEN FLEECE DAIRY ...... LECANTO ...... FL Tampa Bay ...... 4 4 GUSTAFSON'S DAIRY, INC ...... GREEN COVE ...... FL Upper Florida ...... 1 1 M&B DAIRY PRODUCTS, INC ...... TAMPA ...... FL Tampa Bay ...... 1 3B MCARTHUR DAIRY, INC ...... MIAMI ...... FL Southeast Florida ...... 1 1 PUBLIX SUPER MKTS., INC ...... DEERFIELD BEACH ...... FL Southeast Florida ...... 1 1 PUBLIX SUPER MKTS., INC ...... LAKELAND ...... FL Tampa Bay ...... 1 1 RYAN FOODS COMPANY, WAS: LONGLIFE JACKSONVILLE ...... FL Southeast ...... 2 2 DAIRY PRODUCTS, INC. SUPERBRAND DAIRY PRODUCTS, INC ...... MIAMI ...... FL Southeast Florida ...... 1 1 SUPERBRAND DAIRY PRODUCTS, INC ...... PLANT CITY ...... FL Tampa Bay ...... 1 1 T.G. LEE FOODS, INC., WAS: LIFE STYLE/DIV ORANGE CITY ...... FL Upper Florida ...... 1 1 TG LEE FOODS. T.G. LEE FOODS, INC ...... ORLANDO ...... FL Tampa Bay ...... 1 1 VELDA FARMS, INC ...... MIAMI ...... FL Southeastern Florida ...... 1 1 VELDA FARMS, INC ...... ST. PETERSBURG ...... FL Tampa Bay ...... 1 1 VELDA FARMS, INC ...... WINTER HAVEN ...... FL Tampa Bay ...... 1 1 WIGGINS DAIRY PRODUCTS, INC ...... PLANT CITY ...... FL Tampa Bay ...... 1 1

Southeast

ALCORN STATE UNIVERSITY ...... LORMAN ...... MS Southeast ...... 6A 6B ARKANSAS DEPT. OF CORREC ...... GRADY ...... AR Southeast ...... 6A 6B AVENT'S DAIRY NC ...... OXFORD ...... MS Southeast ...... 1 1 BARBER PURE MILK CO ...... BIRMINGHAM ...... AL Southeast ...... 1 1 BARBER PURE MILK CO ...... MOBILE ...... AL Southeast ...... 1 1 BARBER PURE MILK CO ...... MONTGOMERY ...... AL Southeast ...... 1 1 BARBE'S DAIRY, INC ...... WESTWEGO ...... LA Southeast ...... 1 1 BORDEN, INC ...... BATON ROUGE ...... LA Southeast ...... 1 OOB 10/98 BORDEN MILK PRODUCTS, LLC ...... LAFAYETTE ...... LA Southeast ...... 1 1 BORDEN MILK PRODUCTS, LLC ...... MONROE ...... LA Southeast ...... 1 1 BROWNS VELVET DAIRY PRODUCTS (SOUTH- NEW ORLEANS ...... LA Southeast ...... 1 1 ERN FOODS GROUP, LP). CENTENNIAL FARMS DAIRY, INC ...... ATLANTA ...... GA Southeast ...... 1 1 COLLEGE OF THE OZARKS ...... POINT LOOKOUT ...... MO Southwest Plains ...... 1 6B COUNTRY DELITE FARMS, INC ...... NASHVILLE ...... TN Southeast ...... 1 1 DAIRY FRESH CORP ...... BAKER ...... LA Southeast ...... 1 1 DAIRY FRESH CORP ...... COWARTS ...... AL Southeast ...... 1 1 DAIRY FRESH CORP ...... HATTIESBURG ...... MS Southeast ...... 1 1 DAIRY FRESH CORP ...... PRICHARD ...... AL Southeast ...... 1 1 DASI PRODUCTS, INC ...... DECATUR ...... AL Southeast ...... 2 2 ETOWAH MAID DAIRIES, INC ...... CANTON ...... GA Southeast ...... 4 4 FLAV-O-RICH, INC ...... CANTON ...... MS Southeast ...... 1 1 FOREMOST DAIRY, INC ...... SHREVEPORT ...... LA Southeast ...... 1 1 GEORGIA STATE PRISON ...... REIDSVILLE ...... GA Southeast ...... 6A 6B GOLD STAR DAIRY ...... LITTLE ROCK ...... AR Southeast ...... 1 1 HERITAGE FARMS DAIRY ...... MURFREESBORO ...... TN Southeast ...... 1 1 HILAND DAIRY CO ...... FAYETTEVILLE ...... AR Southwest Plains ...... 1 1 HILAND DAIRY CO ...... FORT SMITH ...... AR Southwest Plains ...... 1 1 HILAND DAIRY CO ...... SPRINGFIELD ...... MO Southwest Plains ...... 1 1 HUMPHREY DAIRY ...... HOT SPRINGS ...... AR Southeast ...... 3A 3B KINNETT DAIRIES, INC ...... COLUMBUS ...... GA Southeast ...... 1 1

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

KLEINPETER DAIRY, INC ...... BATON ROUGE ...... LA Southeast ...... 1 1 LOUISIANA STATE PENITENTIARY ...... ANGOLA ...... LA Southeast ...... OOB 12/95 LOUISIANA TECH ...... RUSTON ...... LA Southeast ...... 6A 6B LUVEL DAIRY PRODUCTS, INC ...... KOSCIUSKO ...... MS Southeast ...... 1 1 MAYFIELD DAIRY ...... BRASELTON ...... GA Southeast ...... 1 1 MEADOW GOLD DAIRIES, INC. (SOUTHERN HUNTSVILLE ...... AL Southeast ...... 1 1 FOODS GROUP, LP). MID-AMERICA DAIRYMEN, INC ...... LEBANON ...... MO Southwest Plains ...... 1 OOB 8/98 MISSISSIPPI STATE UNIVERSITY ...... MISS. STATE ...... MS Southeast ...... 6A 6B NEW ATLANTA DAIRIES, INC ...... ATLANTA ...... GA Southeast ...... 1 1 PEELER JERSEY FARMS, INC ...... ATHENS ...... GA Southeast ...... 1 1 PUBLIX SUPERMARKETS, INC ...... LAWRENCEVILLE ...... GA Southeast ...... 1 1 PURITY DAIRIES, INC ...... NASHVILLE ...... TN Southeast ...... 1 1 RYAN FOODS COMPANY ...... MURRAY ...... KY Southeast ...... 2 1 SAVANNAH MANUFACTURING COMPANYÐA SAVANNAH ...... GA Southeast ...... 2 2 HERSHEY FOODS COMPANY. SOUTHERN UNIVERSITY ...... BATON ROUGE ...... LA Southeast ...... 6A 6B SUPERBRAND DY. PRODS., INC ...... HAMMOND ...... LA Southeast ...... 1 1 SUPERBRAND DY. PRODUCTS, INC ...... MONTGOMERY ...... AL Southeast ...... 1 1 TURNER HOLDINGS, LLC ...... COVINGTON ...... TN Southeast ...... 1 2 TURNER HOLDINGS, LLC ...... FULTON ...... KY Southeast ...... 1 1 TURNER HOLDINGS, LLC WAS: COLEMAN LITTLE ROCK ...... AR Southeast ...... 1 1 DAIRY, INC. TURNER HOLDINGS, LLC WAS: FOREST HILL MEMPHIS ...... TN Southeast ...... 1 1 DAIRY.

Mideast

ARPS DAIRY, INC ...... DEFIANCE ...... OH Ohio Valley ...... 1 1 BAREMAN DAIRY, INC ...... HOLLAND ...... MI Southern Michigan ...... 1 1 BARKER'S FARM DAIRY, INC ...... PECKS MILL ...... WV Ohio Valley ...... 4 4 BROUGHTON FOODS CO ...... MARIETTA ...... OH Ohio Valley ...... 1 1 BRUNTON DAIRY ...... ALIQUIPPA ...... PA E Ohio-W Penn ...... 4 4 BURGER DAIRY CO ...... NEW PARIS ...... IN Indiana ...... 1 1 BURGER, C.F., CREAMERY, INC ...... DETROIT ...... MI Southern Michigan ...... 2 2 CALDER BROTHERS DAIRY ...... LINCOLN PARK ...... MI Southern Michigan ...... 1 1 COLTERYAHN DAIRY, INC...... PITTSBURGH ...... PA E Ohio-W Penn ...... 1 1 CON-SUN FOOD INDUSTRIES, INC ...... ELYRIA ...... OH E Ohio-W Penn ...... 1 1 COOK'S FARM DAIRY, INC ...... ORTONVILLE ...... MI Southern Michigan ...... 4 4 COUNTRY DAIRY ...... NEW ERA ...... MI Southern Michigan ...... 4 4 COUNTY FRESH, INC ...... GRAND RAPIDS ...... MI Southern Michigan ...... 1 1 CROOKED CREEK FARM DAIRY ...... ROMEO ...... MI Southern Michigan ...... 4 4 DEAN DAIRY PRODUCTS CO ...... SHARPSVILLE ...... PA E Ohio-W Penn ...... 1 1 DEAN FOODS COMPANY ...... ROCHESTER ...... IN Indiana ...... 1 1 DIXIE DAIRY CO ...... GARY ...... IN Indiana ...... 1 OOB 4/98 EASTSIDE JERSEY DAIRY, INC ...... ANDERSON ...... IN Indiana ...... 1 1 ELMVIEW DAIRY ...... COLUMBUS ...... PA E Ohio-W Penn ...... 4 OOB 1/97 EMBEST, INC ...... LIVONIA ...... MI Southern Michigan ...... 1 1 FIKE, R BRUCE & SONS DAIRY ...... UNIONTOWN ...... PA E Ohio-W Penn ...... 1 1 FISHER'S DAIRY, R.V. FISHER ...... PORTERSVILLE ...... PA E Ohio-W Penn ...... 4 4 FLEMINGS DAIRY ...... UTICA ...... OH Ohio Valley ...... 1 1 GALLIKER DAIRY CO ...... JOHNSTOWN ...... PA E Ohio-W Penn ...... 2 2 GLEN EDEN FARM-DIANNE TEETS ...... ROCHESTER ...... PA E Ohio-W Penn ...... 4 OOB 11/98 GOSHEN DAIRY COMPANY ...... NEW PHILADELPHIA ..... OH E Ohio-W Penn ...... 1 1 GREEN VALE FARM ...... COOPERSVILLE ...... MI Southern Michigan ...... 4 4 GREEN VALLEY DAIRY ...... GEORGETOWN ...... PA E Ohio-W Penn ...... 1 3B GUERNSEY FARMS DAIRY ...... NORTHVILLE ...... MI Southern Michigan ...... 1 1 HARTZLER FAMILY DAIRY ...... WOOSTER ...... OH E Ohio-W Penn ...... 1 3B HILLSIDE DAIRY CO ...... CLEVELAND HGHTS ..... OH E Ohio-W Penn ...... 1 1 HUTTER FARM DAIRY ...... MT. PLEASANT ...... PA E Ohio-W Penn...... 4 4 INVERNESS DAIRY, INC ...... CHEBOYGAN ...... MI Michigan U P ...... 1 1 JACKSON FARMS ...... NEW SALEM ...... PA E Ohio-W Penn ...... 4 4 JILBERT DAIRY, INC ...... MARQUETTE ...... MI Michigan U P ...... 1 1 JOHNSON'S DAIRY, INC ...... ASHLAND ...... KY Ohio Valley ...... 1 OOB 5/97 KERBER'S DAIRY ...... N. HUNTINGDON ...... PA E Ohio-W Penn ...... 1 3B KROGER COMPANY, THE ...... INDIANAPOLIS ...... IN Indiana ...... 1 1 LANSING DAIRY, INC (MELODY FARMS, INC.) ... LANSING ...... MI Southern Michigan ...... 1 1 LIBERTY DAIRY CO ...... EVART ...... MI Southern Michigan ...... 1 1 LONDON'S FARM DAIRY, INC ...... PORT HURON ...... MI Southern Michigan ...... 1 1 MAPLEHURST FARMS, INC ...... INDIANAPOLIS ...... IN Indiana ...... 1 1 MARBURGER FARM DAIRY, INC ...... EVANS CITY ...... PA E Ohio-W Penn ...... 1 1

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

MCDONALD DAIRY COMPANY ...... FLINT ...... MI Southern Michigan ...... 1 1 MCMAHONS DAIRY, INC ...... ALTOONA ...... PA ...... 5 OOB MEADOW BROOK DAIRY ...... ERIE ...... PA E Ohio-W Penn ...... 1 1 MEYER H & SONS DAIRY ...... CINCINNATI ...... OH Ohio Valley ...... 1 1 MICHIGAN DAIRY ...... LIVONIA ...... MI Southern Michigan ...... 1 1 ALBERT MIHALY & SON DAIRY ...... LOWELLVILLE ...... OH E Ohio-W Penn ...... 4 4 OBERLIN FARMS DAIRY, INC ...... CLEVELAND ...... OH E Ohio-W Penn ...... 1 1 OSBORN DAIRY ...... SAULT STE MARIE ...... MI Michigan U P ...... 4 4 PLEASANT VIEW DAIRY CORP ...... HIGHLAND ...... IN Indiana ...... 1 1 PRAIRIE FARMS DAIRY, INC ...... FT. WAYNE ...... IN Indiana ...... 1 1 PRAIRIE FARMS DAIRY, INC WAS: ROELOF GALESBURG ...... MI Southern Michigan ...... 1 1 DAIRY. QUALITY CREAMERY, INC ...... COMSTOCK PARK ...... MI Southern Michigan ...... 1 OOB 7/98 QUALITY DAIRY CO B.T.U ...... LANSING ...... MI Southern Michigan ...... 1 1 REITER DAIRY CO ...... SPRINGFIELD ...... OH Ohio Valley ...... 1 1 REITER DAIRY, INC ...... AKRON ...... OH E Ohio-W Penn ...... 1 1 SANI DAIRY ...... JOHNSTOWN ...... PA E Ohio-W Penn ...... 2 OOB 1/99 SCHENKEL'S ALL-STAR DAIRY, INC ...... HUNTINGTON ...... IN Indiana ...... 1 1 SCHIEVER FARM DAIRY ...... HARMONY ...... PA E Ohio-W Penn ...... 1 3B SCHNEIDERS DAIRY, INC ...... PITTSBURGH ...... PA E Ohio-W Penn ...... 1 1 SMITH DAIRY PRODUCTS CO ...... ORRVILLE ...... OH Ohio Valley ...... 1 1 SMITH DAIRY PRODUCTS CO ...... RICHMOND ...... IN Ohio Valley ...... 1 1 STERLING MILK CO ...... WAUSEON ...... OH Ohio Valley ...... 1 1 SUPERIOR DAIRIES, INC ...... SAGINAW ...... MI Southern Michigan ...... 1 1 SUPERIOR DAIRY, INC ...... CANTON ...... OH E Ohio-W Penn ...... 1 1 TAMARACK FARMS ...... NEWARK ...... OH Ohio Valley ...... 1 1 TAYLOR MILK CO., INC ...... AMBRIDGE ...... PA E Ohio-W Penn ...... 2 OOB 11/98 THE SPRINGHOUSE ...... EIGHTY FOUR ...... PA E Ohio-W Penn ...... 4 4 TOFT DAIRY INC ...... SANDUSKY ...... OH Ohio Valley ...... 2 2 TOLEDO MILK PROCESSING, INC. (COUNTRY MAUMEE ...... OH Ohio Valley ...... 1 1 FRESH OF OHIO). TRAUTH, LOUIS DAIRY ...... NEWPORT ...... KY Ohio Valley ...... 1 1 TURNER DAIRY FARMS, INC ...... PITTSBURGH ...... PA E Ohio-W Penn ...... 1 1 UNITED DAIRY FARMERS ...... CINCINNATI ...... OH Ohio Valley ...... 1 1 UNITED DAIRY, INC ...... CHARLESTON ...... WV Ohio Valley ...... 1 1 UNITED DAIRY, INC ...... MARTINS FERRY ...... OH E Ohio-W Penn ...... 1 1 VALLEY RICH DAIRY ...... ROANOKE ...... VA Ohio Valley ...... 2 2 WHITE KNIGHT PACKAGING CORP. (PARMA- WYOMING ...... MI Southern Michigan ...... 1 1 LAT WHITE KNIGHT PKG. CORP.). YOUNG'S JERSEY DAIRY, INC ...... YELLOW SPRINGS ...... OH Ohio Valley ...... 4 4

Upper Midwest

AYSTA DAIRY, INC ...... VIRGINIA ...... MN Upper Midwest ...... 1 1 CASS-CLAY CREAMERY, INC ...... FARGO ...... ND Upper Midwest ...... 1 1 CASS-CLAY CREAMERY, INC ...... GRAND FORKS ...... ND Upper Midwest ...... 1 1 CASS-CLAY CREAMERY, INC ...... MANDAN ...... ND Upper Midwest ...... 2 2 CENTRAL MINNESOTA ...... SAUK CENTRE ...... MN Upper Midwest ...... 1 1 COUNTRY LAKE FOODS, INC. (LAND O'LAKES, BISMARCK ...... ND Upper Midwest ...... 2 2 INC.). COUNTRY LAKE FOODS, INC. (LAND O'LAKES, THIEF RIVER FALLS ..... MN Upper Midwest ...... 1 1 INC.). COUNTRY LAKE FOODS, INC. (LAND O'LAKES, WOODBURY ...... MN Upper Midwest ...... 1 1 INC.). DEAN FOODS CO ...... HARVARD ...... IL Chicago Regional ...... 1 1 DEAN FOODS CO ...... HUNTLEY ...... IL Chicago Regional ...... 1 1 FOREMOST FARMS USA ...... DEPERE ...... WI Chicago Regional ...... 1 1 FOREMOST FARMS USA ...... WAUKESHA ...... WI Chicago Regional ...... 1 1 FOREMOST FARMS USA ...... WAUSAU ...... WI Chicago Regional ...... 1 1 FRANKLIN FOODS ...... DULUTH ...... MN Upper Midwest ...... 1 1 HANSENS DAIRY, INC ...... GREEN BAY ...... WI Chicago Regional ...... 2 OOB 1/99 HASTINGS COOPERATIVE ...... HASTINGS ...... MN Upper Midwest ...... 1 1 KOHLER MIX SPECIALTIES, INC ...... WHITE BEAR LAKE ...... MN Upper Midwest ...... 2 2 KWIK TRIP DAIRY ...... LA CROSSE ...... WI Chicago Regional ...... 1 1 LAMERS DAIRY, INC ...... KIMBERLY ...... WI Chicago Regional ...... 2 1 LIFEWAY FOODS, INC ...... SKOKIE ...... IL Chicago Regional ...... 2 1 MARIGOLD FOODS, INC ...... CEDARBURG ...... WI Chicago Regional ...... 1 1 MARIGOLD FOODS, INC ...... MINNEAPOLIS ...... MN Upper Midwest ...... 1 1 MARIGOLD FOODS, INC ...... ROCHESTER ...... MN Upper Midwest ...... 1 1 MEYER BROTHERS DAIRY ...... WAYZATA ...... MN Upper Midwest ...... 1 1 MOM'S DAIRY ...... GIBBON ...... MN Upper Midwest ...... 2 3B

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

MULLER-PINEHURST, INC ...... ROCKFORD ...... IL Chicago Regional ...... 1 1 NORTH BRANCH DAIRY, INC ...... NORTH BRANCH ...... MN Upper Midwest ...... 1 OOB 7/98 OAK GROVE DAIRY ...... NORWOOD ...... MN Upper Midwest ...... 1 1 OBERWEIS DAIRY, INC ...... AURORA ...... IL Chicago Regional ...... 1 1 POLLARD DAIRY, INC ...... NORWAY ...... MI Michigan U P ...... 1 1 SCHROEDER MILK CO., INC ...... ST PAUL ...... MN Upper Midwest ...... 1 1 STAR SPECIALTY FOODS, INC. (MORNING- MADISON ...... WI Chicago Regional ...... 1 2 STAR FOODS, INC.). SWISS VALLEY FARMS CO ...... CHICAGO ...... IL Chicago Regional ...... 1 1 TETZNER DAIRY ...... WASHBURN ...... WI Upper Midwest ...... 4 4 UNITED WORLD IMPORTS ...... CHICAGO ...... IL Chicago Regional ...... 2 3B VERIFINE DAIRY PRODUCTS CO ...... SHEBOYGAN ...... WI Chicago Regional ...... 1 1 WEBERS, INC ...... MARSHFIELD ...... WI ...... 5 3B

Central

ALBERS DAIRY ...... BARTELSO ...... IL S Ill-E Missouri ...... 2 4 ANDERSON-ERICKSON DAIRY CO ...... DES MOINES ...... IA Iowa ...... 1 1 W.H. BRAUM, INC ...... TUTTLE ...... OK Southwest Plains ...... 1 1 CENTRAL DAIRY & ICE CREAM ...... JEFFERSON CITY ...... MO ...... 5 5 CHESTER DAIRY CO ...... CHESTER ...... IL S Ill-E Missouri ...... 1 1 DAIRY GOLD FOODS CO ...... CHEYENNE ...... WY Eastern Colorado ...... 1 1 DEPT. OF CORRECTIONS ...... CANON CITY ...... CO Eastern Colorado ...... 4 6B DILLON DAIRY CO ...... DENVER ...... CO Eastern Colorado ...... 1 1 ELDON MOSS ...... IOWA CITY ...... IA Iowa ...... 4 4 FARM FRESH DAIRY, INC ...... CHANDLER ...... OK Southwest Plains ...... 1 1 GALESBURG CORR. CENTER ...... GALESBURG ...... IL Central Illinois ...... 6A 6B GILLETTE DAIRY OF BLACK HILLS ...... RAPID CITY ...... SD ...... 2 2 GRAFF DAIRY, LLC ...... GRAND JUNCTION ...... CO Western Colorado ...... 1 3B GRAVES DAIRY ...... BELLVUE ...... CO Eastern Colorado ...... 4 4 HILAND DAIRY CO ...... NORMAN ...... OK Southwest Plains ...... 1 1 HILAND DAIRY CO ...... WICHITA ...... KS Southwest Plains ...... 1 1 JACKSON ICE CREAM CO ...... HUTCHINSON ...... KS Southwest Plains ...... 1 1 KANSAS STATE UNIV ...... MANHATTAN ...... KS Greater Kansas City ...... 6A 6B KARL'S FARM DAIRY, INC ...... NORTH GLENN ...... CO Eastern Colorado ...... 4 4 LAESCH DAIRY CO ...... BLOOMINGTON ...... IL S Ill-E Missouri ...... 1 OOB 6/98 LAND O'LAKES, INC. FLUID DAIRY DIVISION ...... SIOUX FALLS ...... SD E South Dakota ...... 1 1 LAND±O±SUN DAIRIES, INC ...... O'FALLON ...... IL S Ill-E Missouri ...... 1 1 LENZ DAIRY ...... PRAIRIE HOME ...... MO Greater Kansas City ...... 4 4 LONGMONT DAIRY FARM ...... LONGMONT ...... CO Eastern Colorado ...... 4 4 LOWELL±PAUL DAIRY, INC ...... GREELEY ...... CO Eastern Colorado ...... 4 4 MARTIN DAIRY, INC ...... HUMANSVILLE ...... MO S Ill-E Missouri ...... 2 4 MEADOW GOLD DAIRIES, INC ...... DELTA ...... CO Western Colorado ...... 1 1 MEADOW GOLD DAIRIES, INC ...... ENGLEWOOD ...... CO Eastern Colorado ...... 1 1 MEADOW GOLD DAIRIES, INC ...... GREELEY ...... CO Eastern Colorado ...... 1 1 MEADOW GOLD DAIRIES, INC ...... LINCOLN ...... NE Nebraska-W Iowa ...... 1 1 MEADOW GOLD DAIRIES, INC ...... TULSA ...... OK Southwest Plains ...... 1 1 MID±STATES DAIRY COMPANY ...... HAZELWOOD ...... MO S Ill-E Missouri ...... 1 1 PATKE FARM DAIRY ...... WASHINGTON ...... MO S Ill-E Missouri ...... 1 3B PEVELY DAIRY CO ...... ST LOUIS ...... MO S Ill-E Missouri ...... 1 1 PRAIRIE FARM DAIRIES, INC ...... CARLINVILLE ...... IL S Ill-E Missouri ...... 1 1 PRAIRIE FARMS DAIRY, INC ...... GRANITE CITY ...... IL S Ill-E Missouri ...... 1 1 PRAIRIE FARMS DAIRY, INC ...... OLNEY ...... IL S Ill-E Missouri ...... 1 1 PRAIRIE FARMS DAIRY, INC ...... PEORIA ...... IL Central Illinois ...... 1 1 PRAIRIE FARMS DAIRY, INC ...... QUINCY ...... IL S Ill-E Missouri ...... 1 1 RADIANCE DAIRY ...... FAIRFIELD ...... IA Iowa ...... 4 4 ROBERTS DAIRY CO ...... DES MOINES ...... IA Iowa ...... 1 1 ROBERTS DAIRY CO ...... IOWA CITY ...... IA Iowa ...... 1 1 ROBERTS DAIRY CO ...... KANSAS CITY ...... MO Greater Kansas City ...... 1 1 ROBERTS DAIRY CO ...... OMAHA ...... NE Nebraska-W Iowa ...... 1 1 ROBINSON DAIRY, INC ...... DENVER ...... CO Eastern Colorado ...... 1 1 ROYAL CREST DAIRY, INC ...... DENVER ...... CO Eastern Colorado ...... 1 1 SAFEWAY STORES, INC ...... DENVER ...... CO Eastern Colorado ...... 1 1 SCHRANT ROADSIDE DAIRY (ROADSIDE WINSIDE ...... NE Nebraska-W Iowa ...... 4 4 DAIRY). SHOENBERG FARMS, INC. DBA FARM FRESH, ARVADA ...... CO Eastern Colorado ...... 1 1 INC. SINTON DAIRY FOODS CO., LLC ...... COLORADO SPRINGS .. CO Eastern Colorado ...... 1 1 SOUTH DAKOTA STATE UNIV ...... BROOKINGS ...... SD E South Dakota ...... 6A 6B STAR DAIRY, INC ...... MULHALL ...... OK Southwest Plains ...... (2) 4 SWAN BROS. DAIRY, INC ...... CLAREMORE ...... OK Southwest Plains ...... 4 4

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

SWISS VALLEY FARMS CO ...... CEDAR RAPIDS ...... IA Chicago Regional ...... 1 3B SWISS VALLEY FARMS CO ...... DUBUQUE ...... IA Chicago Regional ...... 1 1 WELLS DAIRY, INC ...... LE MARS ...... IA Nebraska-W Iowa ...... 1 1 WELLS DAIRY, INC ...... OMAHA ...... NE Nebraska-W Iowa ...... 1 1 WESTERN DAIRYMEN COOP, INC ...... RIVERTON ...... WY Eastern Colorado ...... 2 OOB 11/97 WILD'S BROTHER'S DAIRY ...... EL RENO ...... OK Southwest Plains ...... 4 4

Southwest

BELL DAIRY PRODUCTS, INC ...... LUBBOCK ...... TX New Mex-W Texas ...... 1 1 CREAMLAND DAIRIES ...... ALBUQUERQUE ...... NM New Mex-W Texas ...... 1 1 DAVID'S SUPERMARKETS, INC ...... GRANDVIEW ...... TX Texas ...... 1 1 FARMERS DAIRIES ...... EL PASO ...... TX New Mex-W Texas ...... 1 1 HOBBS DRIVE IN DAIRY ...... HOBBS ...... NM New Mex-W Texas ...... 4 OOB 8/98 HYGEIA DAIRY ...... CORPUS CHRISTI ...... TX Texas ...... 1 1 H. E. BUTTS GROCERY CO ...... HOUSTON ...... TX Texas ...... 1 1 H. E. BUTTS GROCERY CO ...... SAN ANTONIO ...... TX Texas ...... 1 1 LAND O' PINES ...... LUFKIN ...... TX Texas ...... 1 OOB 3/97 LANE'S DAIRY ...... EL PASO ...... TX New Mex-W Texas ...... 4 4 LILLY DAIRY PRODUCTS, INC ...... BYRAN ...... TX Texas ...... 1 1 LOS LUNAS DAIRY ...... ALBUQUERQUE ...... NM New Mex-W Texas ...... 4 4 MICKEY'S DRIVE IN DAIRY ...... ALBUQUERQUE ...... NM New Mex-W Texas ...... 4 4 MIDWEST MIX CO ...... SULPHUR SPRINGS ..... TX Texas ...... 2 2 MILK PRODUCTS, LLC WAS: BORDEN, INC ...... ALBUQUERQUE ...... NM New Mex-W Texas ...... 1 OOB 6/98 MILK PRODUCTS, LLC WAS: BORDEN, INC ...... AUSTIN ...... TX Texas ...... 1 1 MILK PRODUCTS, LLC WAS: BORDEN, INC ...... CONROE ...... TX Texas ...... 1 1 MILK PRODUCTS, LLC WAS: BORDEN, INC ...... DALLAS ...... TX Texas ...... 1 1 MILK PRODUCTS, LLC WAS: BORDEN, INC ...... EL PASO ...... TX New Mex-W Texas ...... 1 OOB 7/87 MORNINGSTAR SPECIALTY ...... SULPHUR SPRINGS ..... TX Texas ...... 2 2 MOUNTAIN GOLD DAIRY ...... CARRIZOZO ...... NM New Mex-W Texas ...... 3A 3B NATURE'S DAIRY, INC ...... ROSWELL ...... NM New Mex-W Texas ...... 4 4 OAK FARMS DAIRIES ...... DALLAS ...... TX Texas ...... 1 1 OAK FARMS DAIRIES ...... HOUSTON ...... TX Texas ...... 1 1 OAK FARMS DAIRIES ...... SAN ANTONIO ...... TX Texas ...... 1 1 OAK FARMS DAIRIES WAS: PURE MILK COM- WACO ...... TX Texas ...... 1 1 PANY. PLAINS CREAMERY ...... AMARILLO ...... TX New Mex-W Texas ...... 1 1 PRICES CREAMERY, INC ...... EL PASO ...... TX New Mex-W Texas ...... 1 1 PROMISED LAND DAIRY ...... FLORESVILLE ...... TX Texas ...... 4 4 RANCHO LAS LAGUNAS ...... SANTA FE ...... NM New Mex-W Texas ...... 3A 3B RASBAND DAIRY ...... ALBUQUERQUE ...... NM New Mex-W Texas ...... 4 4 SCHEPPS DAIRY, INC ...... DALLAS ...... TX Texas ...... 1 1 SOUTHWEST DAIRY ...... TYLER ...... TX Texas ...... 1 1 SUPERBRAND DAIRY PRODS, INC ...... FT WORTH ...... TX Texas ...... 1 1 VANDERVOORTS DAIRY ...... FT WORTH ...... TX Texas ...... 1 1

Arizona-Las Vegas

ANDERSON DAIRY, INC ...... LAS VEGAS ...... NV Great Basin ...... 1 1 GOLDEN WEST DAIRIES ...... WELLTON ...... AZ Central Arizona ...... 4 OOB 9/98 HETTINGA, HEIN & ELLEN ...... YUMA ...... AZ Central Arizona ...... 4 4 JACKSON & COMPANY ...... PHOENIX ...... AZ Central Arizona ...... 1 1 MEADOWWAYNE DAIRY ...... COLORADO CITY ...... AZ Central Arizona ...... 5 4 SAFEWAY STORES, INC ...... TEMPE ...... AZ Central Arizona ...... 1 1 SHAMROCK FOODS COMPANY ...... PHOENIX ...... AZ Central Arizona ...... 1 1 SMITH'S FOOD & DRUG CENTERS, INC ...... TOLLESON ...... AZ Central Arizona ...... 1 1 SUNRISE DAIRY ...... TAYLOR ...... AZ ...... 5 3B

Western

BRIGHAM YOUNG UNIVERSITY ...... PROVO ...... UT Great Basin ...... 6A 6B BROWN DAIRY, INC ...... HOYTSVILLE ...... UT Great Basin ...... 4 4 CHURCH OF JESUS CHRIST OF LATTER-DAY SALT LAKE CITY ...... UT Great Basin ...... 6A 6B SAINTS. COUNTRY BOY DAIRY ...... OGDEN ...... UT Great Basin ...... 4 4 CREAM O'WEBER DAIRY, INC ...... SALT LAKE CITY ...... UT Great Basin ...... 1 1 DARIGOLD, INC ...... BOISE ...... ID SW Idaho-E Oregon ...... 1 1 FALCONHURST DAIRY, INC ...... BUHL ...... ID Great Basin ...... 1 1 FARM FRESH ...... SALEM ...... UT Great Basin ...... 1 OOB 8/98 GOSSNER FOODS, INC ...... LOGAN ...... UT Great Basin ...... 1 1 IDEAL DAIRY, INC ...... RICHFIELD ...... UT Great Basin ...... 4 4

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LIST OF PLANTS AND REGULATORY STATUSÐContinued

Plant name City State October 1997 Order/ Expected status 1 status 1

JOHNNY'S DAIRY ...... SOUTH WEBER ...... UT Great Basin ...... 4 4 JONES DAIRY & HEALTH FOODS ...... TAYLORSVILLE ...... UT Great Basin ...... 3A OOB 12/98 KDK, INC ...... DRAPER ...... UT Great Basin ...... 1 1 MEADOW GOLD DAIRIES, INC ...... BOISE ...... ID SW Idaho-E Oregon ...... 1 1 MEADOW GOLD DAIRIES, INC ...... POCATELLO ...... ID Great Basin ...... 1 1 MEADOW GOLD DAIRIES, INC ...... SALT LAKE CITY ...... UT Great Basin ...... 1 1 MODEL DAIRY ...... RENO ...... NV Great Basin ...... 2 2 REED'S DAIRY, INC ...... IDAHO FALLS ...... ID Great Basin ...... 4 4 ROSEHILL DAIRY ...... MORGAN ...... UT Great Basin ...... 4 4 SLADES DAIRY WAS: DALE BARKER ...... MOUNT PLEASANT ...... UT Great Basin ...... 4 4 SMITH FOOD & DRUG CENTERS, INC ...... LAYTON ...... UT Great Basin ...... 1 1 SMITH'S DAIRY ...... BUHL ...... ID SW Idaho-E Oregon ...... 1 3B STOKER WHOLESALE, INC ...... BURLEY ...... ID SW Idaho-E Oregon ...... 1 1 UTAH STATE PRISON ...... DRAPER ...... UT Great Basin ...... 6A 6B UTAH STATE UNIVERSITY ...... LOGAN ...... UT Great Basin ...... 3A 6B WESTERN QUALITY FOOD PRODUCTS ...... CEDAR CITY ...... UT Great Basin ...... 2 2 WINDER DAIRY ...... SALT LAKE CITY ...... UT Great Basin ...... 1 1 Pacific Northwest

ALLISON HARDY ...... ELMA ...... WA Pacific Northwest ...... 4 OOB 5/98 ALPENROSE DAIRY ...... PORTLAND ...... OR Pacific Northwest ...... 1 1 ANDERSEN DAIRY, INC ...... BATTLE GROUND ...... WA Pacific Northwest ...... 1 1 BRANDSMA, EDWARD & AILEEN ...... LYNDEN ...... WA Pacific Northwest ...... 4 4 CURLY'S DAIRY, INC ...... SALEM ...... OR Pacific Northwest ...... 1 1 DARIGOLD, INC ...... MEDFORD ...... OR Pacific Northwest ...... 1 1 DARIGOLD, INC ...... PORTLAND ...... OR Pacific Northwest ...... 1 1 DARIGOLD, INC ...... SEATTLE ...... WA Pacific Northwest ...... 1 1 DE JONG, WALTER ...... MONROE ...... WA Pacific Northwest ...... 4 OOB 8/98 EBERHARD CREAMERY, INC ...... REDMOND ...... OR Pacific Northwest ...... 1 1 ECHO SPRING DAIRY, INC ...... EUGENE ...... OR Pacific Northwest ...... 1 1 EVERGREEN DAIRY, INC. (WEIKS) ...... OLYMPIA ...... WA Pacific Northwest ...... 4 OOB 5/96 FAITH DAIRY, INC ...... TACOMA ...... WA Pacific Northwest ...... 4 4 FRED MEYER, INC ...... PORTLAND ...... OR Pacific Northwest ...... 1 1 GILBERT, GERALD, ET AL ...... OTHELLO ...... WA Pacific Northwest ...... 4 4 GRAAFSTRA DAIRY, INC ...... ARLINGTON ...... WA Pacific Northwest ...... 4 4 HARVEY, MIKE ...... VANCOUVER ...... WA Pacific Northwest ...... 4 4 INLAND NORTHWEST DAIRIES, LLC ...... SPOKANE ...... WA Pacific Northwest ...... 1 1 KROPF, ROY ...... HALSEY ...... OR Pacific Northwest ...... 4 OOB 9/98 LOCHMEAD FARMS, INC ...... JUNCTION CITY ...... OR Pacific Northwest ...... 4 4 MALLORIE'S DAIRY, INC ...... SILVERTON ...... OR Pacific Northwest ...... 4 4 PACIFIC FOODS OF OREGON, INC ...... CLACKAMAS ...... OR Pacific Northwest ...... 1 3B SAFEWAY 85, INC ...... MOSES LAKE ...... WA Pacific Northwest ...... 1 1 SAFEWAY STORES, INC ...... BELLEVUE ...... WA Pacific Northwest ...... 1 1 SAFEWAY STORES, INC ...... CLACKAMAS ...... OR Pacific Northwest ...... 1 1 SMITH BROTHERS FARMS, INC ...... KENT ...... WA Pacific Northwest ...... 4 4 SPRINGFIELD CREAMERY ...... EUGENE ...... OR ...... 3A 3B STATE OF OREGON DEPARTMENT OF COR- SALEM ...... OR Pacific Northwest ...... 2 3B RECTIONS. STATE OF WASHINGTON DEPARTMENT OF MONROE ...... WA Pacific Northwest ...... 4 2 CORRECTIONS. STRATTON, WARD ...... PULLMAN ...... WA Pacific Northwest ...... 4 4 SUNSHINE DAIRY, INC ...... PORTLAND ...... OR Pacific Northwest ...... 1 1 TILLAMOOK COUNTY CREAMERY ASSN ...... TILLAMOOK ...... OR Pacific Northwest ...... 1 2 UMPQUA DAIRY PRODUCTS CO., INC ...... ROSEBURG ...... OR Pacific Northwest ...... 1 1 VENN, WILLIAM (TIMOTHY & SUSAN BERNDT) .. NORTH BEND ...... WA Pacific Northwest ...... 4 4 VITAMILK DAIRY, INC ...... SEATTLE ...... WA Pacific Northwest ...... 1 1 WAGNER, PAUL B. & SHARON ...... PORT ORFORD ...... OR ...... 5 3B WILCOX DAIRY FARMS, LLC ...... CHENEY ...... WA Pacific Northwest ...... 1 1 WILCOX DAIRY FARMS, LLC ...... ROY ...... WA Pacific Northwest ...... 1 1 WINEGAR, GARY & MARGO ...... ELLENSBURG ...... WA Pacific Northwest ...... 1 OOB 7/97 PALMER ZOTTOLA DBA VALLEY OF THE GRANTS PASS ...... OR Pacific Northwest ...... 1 1 ROGUE DAIRY. 1 Distributing plant status (as determined from October 1997 Data): 1: Pool. 2: Partially Regulated. 3: Exempt based on size: A. As defined under current federal orders. B. As defined under proposed rule; with route disposition less than 150,000 lbs. per month. 4: Producer-Handler. 5: UNREGULATED. 6: Exempt based on institutional status:

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A. As defined under current Federal orders. B. As defined under proposed orders (Government, university, and charitable). 2 NewÐNo data for October 1997: Information not included in analysis.

2. Basic Formula Price Replacement basis for re-calculating the prices is dairy price discovery techniques in and Other Class Price Issues described later in this discussion. Madison, Wisconsin, and considered Provisions for Federal milk orders over 1,600 comments submitted by This rule closely follows the pricing regulating the handling of milk in areas interested persons relative to the basic plan described in the proposed rule by for which a multiple component pricing formula price in response to the May replacing the current basic formula system has not been adopted will 1996 invitation to comment on Federal price (BFP) with a multiple component maintain a hundredweight skim/ Order restructuring. The Committee pricing system that derives component butterfat pricing system instead of the conducted extensive study and analysis, values from surveyed prices of component pricing plan. The worked with a University Study manufactured dairy products. The hundredweight prices will be Committee (USC) commissioned to adopted pricing system determines determined by using the component conduct objective analysis of the butterfat prices for milk used in Class II, price formulas contained in this performance of numerous alternatives to Class III and Class IV products from a decision to compute corresponding the current basic formula price, and butter price; protein and other solids hundredweight prices using standard issued a preliminary report on BFP prices for milk used in Class III products component levels. replacement in April 1997. The from cheese and whey prices; and Background Committee studied the comments nonfat solids prices for milk used in responding to the preliminary report, as Class II and Class IV products from The proposed rule described in some well as those received earlier, in the nonfat dry milk product prices. detail the development in the early development of the BFP replacement The calculation of the Class I skim 1960’s of the Minnesota-Wisconsin portion of the proposed rule, which was milk and butterfat prices for each order, manufacturing grade milk price series published in January 1998. determined in the proposed rule by (M–W) as a means of identifying a price The goals and criteria to be met by a computing a six month declining determined by supply and demand for replacement for the basic formula price average of the higher of the Class III or milk used in manufactured dairy were discussed in detail in the proposed Class IV skim milk prices for the second products. Also described were the rule. Briefly, the goals are: (a) Meet the preceding month and adding a fixed developments that have made the M–W supply and demand criteria set forth in Class I differential to the result, has less representative of the value of milk the Agricultural Marketing Agreement been changed to reflect more closely the used in manufactured products. The Act of 1937 (the Act), (b) not deviate value of milk used in manufacturing. two primary trends making the M–W greatly from the general level of the The Class I skim price for a month will less representative over the last four current BFP, and (c) demonstrate the be determined by adding the fixed Class decades are the declining volume of ability to change in reaction to changes I differential for each order to the higher Grade B (manufacturing grade) milk and in supply and demand. of a Class III or IV skim value, the declining numbers of plants from The criteria established to evaluate calculated from product prices reported which payments could be reported to the various alternatives were: (a) by NASS for the most recent two-week update the base month price. Stability and predictability; (b) period for which prices are available on The problem of the declining number simplicity, uniformity, and the 23rd day of the previous month. of plants from which payments could be transparency; (c) sound economics— Similarly, the Class I butterfat price will reported to update the base month M– e.g., consistency with market be calculated by adding the fixed Class W survey of two months previous was conditions; and (d) reduced regulation. addressed in 1995 by using an updating I differential divided by 100 to a Comments butterfat value computed by using formula that uses changes from the base product prices for the same two-week month to the next month in prices paid Of the more than 1,600 comments period. for butter, nonfat dry milk, and cheese. received relative to the basic formula However, the problem of using a price in response to the May 1996 The price of Class II skim milk for a declining volume of Grade B milk to invitation to comment on Federal Order month will be computed by the sum of accurately represent the value of milk restructuring, most favored one or more a Class IV skim price per used for manufacturing was not solved of five categories of alternatives to the hundredweight, calculated from product with the implementation of the current current BFP. These five alternatives prices reported by NASS for the most BFP. The decision based on the basic were: Economic formulas, futures recent two-week period for which prices formula price hearing recognized that markets, cost of production, competitive are available on the 23rd day of the ‘‘the adoption of the base month M–W pay price, and product price and previous month, and the 70-cent Class price, or any Grade B milk series, is only component formulas. In addition, II differential. The Class II butterfat a short term solution, since the amount numerous comments were received price will be determined from the of Grade B milk production is expected relative to the use of National Cheese NASS-reported butter price, as in to continue declining.’’ Exchange prices in particular and Classes III and IV, plus .7 cents per exchange prices in general in the pound to incorporate the Class II Process determination of a basic formula price. differential. This price will be The Basic Formula Price Replacement After publication of the proposed rule announced on the 5th day of the month Committee was one of several in January 1998, nearly 600 comments and apply to butterfat in Class II during committees formed to deal with specific were received relating to some aspect of the previous month. issues involved in restructuring the the basic formula price replacement. A table showing current and re- Federal milk order system pursuant to Approximately 450 of these comments calculated prices for the period 1994 the 1996 Farm Bill. The Committee were form letters or very general in through 1997 appears at the end of this established goals and criteria for a new nature. For the most part, comments discussion of the BFP replacement. The BFP, hosted a July 1996 public forum on that related specifically to the proposal

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00067 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.072 pfrm08 PsN: 02APP2 16092 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules supported the use of product price participants can unduly influence the aspects of the reduced price level and formulas and the use of surveyed price. In addition, the price cannot be a the uncertainty of being able to identify product prices to calculate component Federal- or State-regulated price, such prices paid to producers that are not prices in determining the value of milk. as the price for Grade A milk currently influenced by regulated prices, the USC Many of the comments, however, priced under Federal milk orders. analysis found that two competitive pay suggested modifications to the proposed Identification of a competitive pay price series that passed the USC’s level rule. These comments are addressed in price in today’s dairy industry, where one criteria were questionable in their the discussion of each of the individual 70 percent of the milk is currently ability to reflect the manufactured milk topics involved in these pricing issues. covered under Federal milk marketing market. Neither performed well when The only alternative previously orders, appears to be an tested using the level two criteria and considered that retained considerable unsurmountable challenge. After therefore were dropped from further support from producer organizations accounting for state regulations, only consideration. was a competitive pay price. In about two percent of Grade A milk is addition, many individual producer unregulated, and it is unlikely that even Product Price Formulas and Component comments continued to advocate cost of this small amount of milk is not affected Pricing production or a floor for the BFP by regulated prices. Only about five Most comments filed in response to ranging from $14.50 to $18.00. Some percent of the total milk marketed in the the proposed rule supported adoption of producers also suggested letting the U.S. is Grade B or unregulated, and 42 the use of product price formulas to market determine prices, and a few percent of that milk is located in derive multiple component prices for suggested supply management to ensure Minnesota and Wisconsin. The most markets as a viable market- that farmers receive fair milk prices. remainder is scattered among 23 states oriented alternative to the current basic One processor opposed product price in amounts too small and delivered to formula price. Favorable comments formulas, suggesting that futures are the too few processing plants to generate a expressed the opinion that a price preferred tool used by markets to competitive pay price. In areas where determined from the national finished manage risk. Several producers alternative markets exist, the price for product markets more accurately supported basing producer prices on unregulated milk likely is not below the reflects the value of milk for retail prices, while a state senator from price paid for regulated milk, since manufacturing than other methods of Wisconsin suggested paying producers producers would prefer to sell their determining a milk price. The price on the quality and quantity of their milk to regulated handlers to receive the handlers can afford to pay for milk is milk. higher regulated price. Thus, determined by the price for which the As noted in the proposed rule, the unregulated handlers are compelled to finished product can be sold. Therefore, reason the USC dropped cost of meet the regulated price in order to a pricing system that translates finished production from consideration was that attract sufficient supplies of milk. The product prices to a price for raw milk cost of production represents only the circular result is that the regulated price results in a representative raw milk supply side of the market, ignoring ultimately becomes the competitive price for both producers and handlers. factors underlying demand or changes price. This process does not lead to a Component pricing, with prices in demand for milk and milk products. representative competitive pay price for determined for butterfat, protein, nonfat milk. solids, and ‘‘other solids’’ (solids other Competitive Pay Price The concept of a competitive pay than protein), can best be accomplished Although some producer groups price has appeal from the standpoint of through product price formulas, to submitted comments on the proposed sound economics. However, serious reflect the value of each component in rule that continued to support use of a concerns must be raised about the finished product prices. The product competitive pay price for determining degree of competition reflected in a price formulas adopted in this rule are the BFP replacement, a number of these price based on the declining volume of relatively easy to use and understand, comments stated that the pricing Grade B milk produced and purchased, and the value of milk may be computed proposal contained in the proposed rule or the introduction of Grade A milk that, on an on-going basis by everyone in the was one they could support. Other even if unregulated, is significantly dairy industry by following commodity commenters continued to express the influenced by minimum order prices markets. view that a competitive pay price is the and therefore suspect as a ‘‘competitive’’ Because milk used in manufactured best indicator of the national supply and price. products obtains its value from the demand for milk and that continuing to The proposed rule contained a components of milk, it is the use such a price would provide a description of a BFP Replacement components that should be priced; simple, economically defensible method Committee attempt to determine a particularly butterfat and protein, and to of calculating the true value of milk competitive pay price series that a lesser extent the other solids used in manufactured dairy products. included nine states’ pay prices for contained in the milk. Several proponents suggested Grade A milk used in manufacturing, Opposition to product price formulas including a competitive pay price for with the prices adjusted for protein was directed primarily at the need for Grade A milk, with some adjustments, content, performance premiums, over- establishing product yields and make as a way to improve the size and order premiums, and hauling subsidies. allowances in determining a milk price representativeness of the competitive The nine states accounted for or component prices. Opponents pay price. approximately 75% of the Grade A milk expressed the view that yields and make As described in the proposed rule, a used for manufacturing in the U.S. allowances would not reflect actual competitive pay price to be used as a The reduced price level that resulted processing yields and costs in BFP must represent the result of open from the study was explained in terms manufacturing plants, and therefore market negotiation between dairy of currently effective pay prices in the would not yield an accurate price for farmers (or their cooperatives) and milk states included in the survey and the milk. Opponents further explained that processors. Competition requires heavier weighting of milk used in when yields and make allowances are sufficient numbers of buyers and sellers butter/powder production than in the determined, they would be difficult to so that no one participant or group of current BFP. In addition to the negative adjust and would not react to changes

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Some those prices and the steps that would and block cheese that will be aged comments even described the make need to be taken to make participation should not be included. allowance as an unfair charge paid by mandatory would be excessive and are At the time the proposed rule was dairy farmers to processors to have their not anticipated to be undertaken at this published the NASS survey included milk made into products. Other time. prices for cheddar cheese only. Since opponents explained that an incorrect Several alternatives to a NASS price publication of the proposed rule, NASS yield or make allowance may force survey were considered. There is a has begun surveys of Grade AA butter payment for milk at a level that would weekly cash butter contract trading on prices, dry whey prices, and nonfat dry not allow a return to the manufacturing the Chicago Mercantile Exchange milk prices. These surveys incorporate plant. (CME). This contract is currently used to input from the dairy industry on The USC tested several product price establish the butterfat differential and appropriate types of products, formulas, including a one-class multiple butterfat price in all federal milk orders. packaging, and package sizes to be component pricing formula and a set of This price series has been criticized due included for the purpose of obtaining formulas similar to the formulas to the ‘‘thinness’’ of trading. Dairy unbiased representative prices. A sale is recommended in this decision. Based on Market News (DMN) publishes regional considered to occur when a transaction the results of the USC analysis wholesale butter prices. However, since is completed, the product is shipped out measured against several criteria, the DMN price series cover cash or short- or title transfer occurs. In addition, all multiple component pricing formulas term contract transactions, they may not prices are f.o.b. the processing plant/ had the best overall performance of any be representative of the predominant storage center, with the processor of the alternatives considered. long-term contracts. Criticism of cheese reporting total volume sold and total exchange trading, including inaccurate dollars received or price per pound. Commodity Prices representation of cheese prices and Butter prices are for USDA Grade AA As recommended in the proposed rule accusations of market manipulation, butter with 80 percent butterfat, salted, and contained in this final decision, reached the point that the National fresh or ‘‘storage,’’ in 25-kilogram and commodity prices determined by Cheese Exchange (NCE) discontinued 68-pound boxes. Processors are surveys conducted by the USDA’s trading, and cash trading of cheese instructed not to include transportation National Agricultural Statistics Service moved to the CME. The CME also has charges, unsalted butter, Grade A butter, (NASS) will be used in the formulas that received some criticism for thinness of intra-company sales, forward pricing replace the BFP. A considerable number trading. sales, and resales. of comments were received concerning There is very limited exchange Nonfat dry milk prices are for USDA the use of commodity prices in trading of nonfat dry milk. Other Extra Grade or USPH Grade A non- determining prices for milk used in alternatives to a NASS survey for nonfat fortified dry milk in 25-kilogram bags, manufactured dairy products. Most of dry milk and dry whey are limited to 50-pound bags, or ‘‘totes,’’ and tanker those commenting supported use of a prices published by Dairy Market News sales. Several commenters suggested price survey, but many commenters (DMN). The prices reported by DMN are excluding nonfat dry milk processed urged that participation be mandatory generally considered to be with high heat treatment since such and reported prices audited, with the representative of the dry product product is a higher-cost specialty survey enlarged to include plants markets. However, the prices are product, making its price representing the entire nation so that the reported as a range. A simple average of unrepresentative of the nonfat dry milk prices are truly representative. the prices is used to compute a monthly market. As a result of the comments, it Proponents of the NASS surveys price and may not reflect the weighted was determined that only low and explained that the NASS data is average price at which the product medium heat process nonfat dry milk unbiased and would yield accurate moved. The DMN prices are not should be included in the price survey. representative prices of the products intended to establish prices but are The instructions inform processors to that are being marketed. Several provided for market information. exclude transportation charges, sales of comments contained specific The NASS ‘‘Dairy Products Prices’’ product more than 180 days old, instant recommendations for product categories reports wholesale cheese prices which nonfat dry milk, dry buttermilk, intra- to be surveyed to obtain the most are used to compute the current BFP. company sales, forward pricing sales, accurate representative result. The NASS survey requests prices for and resales. NASS data traditionally have been cheddar cheese. The instructions for the Dry whey prices are for USDA Extra collected via a survey with voluntary survey specify what should and should Grade edible nonhygroscopic dry whey participation. The price information in not be included in the reported prices. in 25-kilogram bags, 50-pound bags, the current cheese price survey, like The instructions state that a sale occurs ‘‘totes,’’ and tanker sales. As is the case most NASS data, is not audited. NASS when a transaction is completed, cheese with the other commodities, applies various statistical techniques is ‘‘shipped out’’, or title transfer occurs. transportation charges, intra-company and cross-checking with other sources Prices for cheddar cheese only are to be sales, forward pricing sales, and resales to provide the most reliable information reported f.o.b. the processing plant/ are to be excluded as well as sales of available. storage center. Prices should be for product more than 180 days old. At the present time there appears to ‘‘bare’’ or ‘‘naked’’ cheese with only the Several comments expressed concern be no need for the suggested changes to minimum packaging required for 40- about the ‘‘circularity’’ of survey pricing the proposed surveys. The scope of the pound blocks. Processors are asked to that could be caused by including sales surveys that have been undertaken by include all sales transactions of 40- whose price is based on previous survey NASS, and their geographic pound blocks and barrel cheese 4–30 information. According to this view, representation, appears to be days old, the total volume sold, the total NASS-reported prices would cease to comprehensive. Unless there is some dollars received, or price per pound, reflect market supply and demand, with

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Health concerns Under any method of discovering transparent, since the information to relating to changing demographics, prices, whether those paid to producers compute the price is available, and the changes in pizza consumption and or those paid for manufactured dairy effect of a change in commodity prices income growth, as well as retail and products, prices currently known will or one of the other factors may be wholesale inventory decisions, etc., will be used as one of the determinants of observed and quantified. impact consumption and prices. A prices for the following period. Under This final rule replaces the current recent report by the Food and the current pricing system, it is BFP with a multiple component pricing Agricultural Policy Research Institute inconceivable that handlers paying (MCP) system which will determine noted that ‘‘anything that results in Grade B producers for their milk used butterfat, protein, and other solids demand weakness for cheese will likely in manufactured products do not prices for milk used in Class III products result in a markedly different outlook consider the most recently announced and butterfat and nonfat solids prices for the entire dairy sector.’’ The adopted prices as a starting point for determining for milk used in Class IV products. pricing system will allow other what prices to pay their producers. Numerous comments were received, manufactured products (i.e. Class IV) to When butter and cheese prices are primarily before issuance of the move Class I prices, helping to reduce determined at an exchange, both buyers proposed rule, concerning whether the the volatility in milk prices. revised orders should keep Class III–A and sellers use the exchange prices in Over the last six years cheese prices, (i.e. a four class market) or whether all arriving at the prices at which products and to a lesser extent butter prices, have hard manufactured products should be will move. Ultimately, prices move in shown considerable fluctuation while priced in Class III. The opposition to response to supply and demand the nonfat dry milk price remained Class III–A centered around two issues: conditions in the marketplace. relatively stable. Price changes for these (1) The integrity of the classified pricing finished products are indicative of Basic Formula Price Replacement system, and (2) the perception that a varying supply/demand situations over Application of the BFP and USC butter/nonfat dry milk class would time. The stable nonfat dry milk prices Committees’ criteria for BFP reduce producer pay prices. The and the butter prices prior to the fall of replacement to the various BFP supply/demand for butter and nonfat 1995 were a reflection of large stocks alternatives and consideration of dry milk is sufficiently different from being carried in storage and flat comments received in response to the the supply/demand for cheese to justify demand. Prices for nonfat dry milk and proposed rule resulted in the separate classification and pricing. In butter became more volatile once determination that the component addition, the decision to use the higher government inventories were depleted pricing product price formulas of the Class III or Class IV price for and were no longer a factor in contained in this final rule best meet the determining the Class I price, and base stabilizing prices. Butter prices stated goals and criteria for the the Class II price on the Class IV price, increased during May and June of 1997 replacement of the BFP. should more accurately reflect the value A BFP based on commodity prices is of these different categories of use. in response to demand for cream, while subject to the same problems of stability Changes in the cheese market have a both cheese and nonfat dry milk prices as the underlying commodity prices. For major impact on the dairy industry. The remained relatively flat. These the most part product price formulas do cheese industry has evolved from differences in price movements indicate not reduce the volatility in producer cheese production being a means of separate supply and demand balances milk prices. surplus milk storage and removal to a for different manufactured dairy Product price formulas are relatively competitive consumer demand-driven products. simple to compute and understand, and industry. More milk is used in cheese Research cited in the proposed rule may be applied uniformly, or on a production nationally than is used in supports the conclusion that the regional basis, accommodating Class I. The nonfat dry milk industry is different supply and demand differences in yields or make now one which balances surplus milk characteristics for the cheese and butter/ allowances. Product prices established storage and removals. This category is nonfat dry milk market segments in a relatively free and open interaction also evolving, with increasing warrant separate classification and between supply and demand directly commercial uses for nonfat dry milk, prices. This pricing plan will allow the translate the value of the finished and dry milk products formulated for market-clearing price level of each of products to the value of milk and its specific needs. Increasing quantities of these manufactured products to be components. Therefore, they have a nonfat dry milk are being produced for achieved independent of the other sound economic underpinning. use in other dairy products and the food products. As a result, dairy farmers will Product price formulas can require and pharmaceutical industries. be paid a price which is more increased data collection, particularly if The separation of manufacturing milk representative of the level at which the industry insists that data used in the into two classes will assure that shifts market values their milk in its different formulas be audited. in demand for any one manufactured uses. The predictability of prices computed product will not lower the prices for The importance of using minimum from product price formulas should be milk used in all other classifications, prices that are market-clearing for milk reasonably good, or at least no worse including Class I prices. Recent milk used to make cheese and butter/nonfat than predictability of the underlying price increases have been attributed to dry milk cannot be overstated. The commodity prices. Short run increased cheese values. Many people prices for milk used in these products predictability may improve since all expect that per capita cheese must reflect supply and demand, and information needed to compute prices is consumption will continue to grow. must not exceed a level that would reported on an ongoing basis. This However, some warn of impending require handlers to pay more for milk

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00070 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.076 pfrm08 PsN: 02APP2 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16095 than needed to clear the market and Class II, and other classes) but no commenters expressed the view that the make a profit. butterfat differential. The separate Class proposed product price formulas did The current BFP serves two functions: I butterfat price should present no not meet the requirements of the Act, (1) A fixed differential is added to the administrative or verification problems and that an updated competitive pay current BFP to establish the Class I and since Class I butterfat testing and price resembling the current BFP would Class II prices for the second succeeding reporting currently exists. be the appropriate replacement for the month; and (2) the current BFP serves The prices for butterfat, protein, and current BFP. For a price to be as the Class III price. In some Federal other solids used in Class III will be competitively established there must be milk orders, a seasonal adjuster is added computed as follows: a large number of willing buyers and to the BFP to determine the Class III Butterfat price = ((NASS AA Butter sellers. The current base month price is price. The BFP replacement will survey price—0.114)/0.82) established from a survey of pay prices function in a similar fashion, using Protein price = ((NASS cheese survey for Grade B or manufacturing grade milk component prices. Class IV (butter and price—0.1702) × 1.405) + ((((NASS in Minnesota and Wisconsin. Whether dry milk products) will be priced on a cheese survey price—0.1702) × prices paid for Grade B milk are butterfat and nonfat solids basis. Class 1.582)—butterfat price) × 1.28) representative of the value of Grade A III (hard cheese) will be priced on a Other solids price = ((NASS dry whey milk is debatable. In addition, the butterfat, protein, and other solids basis. survey price—.137)/0.968). volume of Grade B milk involved The price of butterfat will be the same For milk used in Class IV products the represents a declining production base in Class III and Class IV. Class II will use butterfat price is the same as the Class from which to gather pay prices, and the the same butterfat price as Class III and III butterfat price, while the nonfat number of plants buying manufacturing Class IV with an adjustment to reflect solids price will be computed as grade milk is continuing to decline, the addition of the Class II differential. follows: with many plants refusing to buy Payments to producers under MCP will manufacturing grade milk even when Nonfat solids price = ((NASS nonfat dry be based on butterfat, protein, and other they need milk and Grade A milk is milk survey price—0.137)/1.02). solids contained in the producers’ milk, more expensive. In other situations the in addition to the producer price This system of pricing best fits the manufacturing grade milk is procured differential. Most Federal milk orders three established goals and criteria, because the seller of the milk is a with MCP will also contain an discussed previously, for a replacement member of the cooperative purchasing adjustment to producer pay prices for to the BFP. the milk and the cooperative will not the somatic cell counts of producers’ The first goal, that a replacement for deny market access to its member. Such milk. the basic formula price meet the supply/ a situation clearly is not competitive. The producer price differential demand criteria set forth in the Act, may The Act stipulates that the price of reflects the collective value of be the most difficult to evaluate feeds and the availability of feeds be participation in the marketwide pool. definitively since the Act specifically taken into account in the determination Primarily, it represents the producer’s mentions minimum prices to producers. of milk prices. This requirement pro rata share of the additional value of The BFP, as part of a classified pricing currently is fulfilled by the BFP. If the Class I and Class II use in the market. system, does contribute to minimum price of feed increases the quantity of The butterfat, protein, and other solids prices to producers. However, the basic milk produced would be reduced due to prices are component prices based on formula price does not need to be set at lower profit margins. As the milk the value of the use of milk in a level to ‘‘assure an adequate supply of supply declines, plants buying manufacturing. wholesome milk’’ since the BFP makes manufacturing milk would pay a higher The Class I price will consist of a up only a portion of the minimum price price to maintain an adequate supply of Class I butterfat price and a Class I skim paid to farmers. The minimum price to milk to meet their needs. As the milk price. As modified from the farmers is a weighted average of the resulting farm profit margins increase, proposed rule, the Class I butterfat price value of all of the milk in the market so should the supply of milk. Likewise, will be determined by adding a fixed place, of which the BFP is a part. The the reverse would occur if the price of Class I differential divided by 100 to an BFP replacement meets the supply and feed declines. The price of feed is not advanced butterfat price computed demand criteria for milk used in butter/ directly included in the determination using product prices for the most recent nonfat dry milk and cheese even though of the price for milk, but rather causes two-week period for which prices are the component prices are established a situation in which the price of milk available on the 23rd day of the month from finished product commodity may increase or decrease. A change in and will apply to the following month. prices. The commodity prices are based feed prices may not necessarily result in The Class I skim milk price will be on a competitive marketplace and a change in milk prices. For instance, if determined by adding the fixed Class I reflect the supply and demand for those the price of feed increases but the differential for each order to the higher products (Class III and Class IV) that demand for cheese declines, the milk of an advanced Class III or IV skim milk utilize approximately 50% of the Grade price may not increase since milk plants price, calculated by using product A milk supply. would need less milk and therefore prices for the same two-week period. The supply and demand for Grade A would not bid the price up in response The calculation of Class I prices will be milk is not limited to one category of to lower milk supplies. the same for both MCP and non-MCP products. The same milk may be used The pricing system contained in this markets. for fluid or soft manufactured products decision will function in the same Announcement of Class I butterfat as well as the Class III and Class IV manner as the current pricing system by and skim milk prices in advance products used to determine the BFP. As accounting for changes in feed costs and eliminates current problems caused by a result, the minimum prices feed supplies indirectly. The product calculating the butterfat differential after established for Class III and Class IV price formulas adopted in this rule the month for which it is effective. reflect supply and demand for the milk should reflect accurately the market Handlers will have true advance Class I used in all products. values of the products made from pricing. There will be three different In several comments received in producer milk used in manufacturing. butterfat prices each month (Class I, response to the proposed rule, As feed costs increase with a resulting

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00071 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.077 pfrm08 PsN: 02APP2 16096 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules decline in production, commodity which has exhibited changes over time alternative, various sources were used to prices would increase as a result of in response to existing price levels, determine appropriate make allowances manufacturers attempting to secure rather than marketing conditions that for the basic formula price replacement. enough milk to meet their needs. Such would have occurred under the BFP Research by Stephenson and Novakovic increases in commodity prices would replacement. Additionally, the current of Cornell University indicates that mean higher prices for milk. The BFP may have a greater tendency to results obtained by using an economic opposite would be true if feed costs reflect supply and demand conditions engineering approach can be were declining. Additionally, since in Minnesota and Wisconsin rather than comparable to a survey of plants. Federal order prices are minimum national supply/demand conditions. Resources may need to be devoted to prices, handlers may increase their pay The formulas in this decision use developing an economic engineering prices in response to changing supply/ national commodity price series, model, a survey, or a combination of the demand conditions even when Federal thereby reflecting the national supply two. order prices do not increase. and demand for dairy products and the The make allowances contained in the The second goal for a BFP national demand for milk. proposed rule were developed primarily replacement is that it should not deviate The basic formula price replacement from make allowance studies conducted greatly from the price level of the also meets the third primary goal. The at and published by Cornell University current BFP. In effect, prices established formulas have the ability to respond to and an analysis of manufacturing plant by the current BFP formula in the past supply/demand changes. The Class III size in relationship to the data were used as a benchmark to compare and Class IV prices should respond contained in the Cornell studies. how well the product price formulas appropriately since the formulas use Audited cost of production data adopted in this decision tracked the NASS-surveyed commodity prices that published by the California Department supply and demand conditions reflect national supply and demand for of Food and Agriculture was also used exhibited by the BFP. Several these commodities. in determining a reasonable level of comparisons of the basic formula price Overall, the BFP replacement make allowances. replacement were made to the current formulas (for Class III and Class IV) The proposed rule make allowances BFP to determine whether the price meet the established criteria necessary used in computing the component computation formulas result in a price for a BFP replacement. The formulas are prices for Class III and Class IV resulted level for milk used in manufactured relatively simple to use and can be in per hundredweight prices which did products that is reasonably close to the applied uniformly. The formulas are not deviate greatly on average from the current BFP. It must be recognized that transparent and the Class III and Class current BFP over the period analyzed, after the initial implementation of the IV formulas meet the sound economics one of the criteria for a basic formula revised prices, supply and demand criterion. price replacement. During the factors will interact to adjust the actual In the near term, the use of NASS September 1991 through May 1997 price level to reflect the market for milk survey prices may reduce the ability to period on which the analysis in the used in manufactured dairy products. predict Federal order class prices since proposed rule was based, the proposed Protein, butterfat, and other solids there is a limited history of using NASS Class III price level would have values were combined to compute a survey prices. Predictability should averaged $0.26 per hundredweight Class III hundredweight price using improve over time as the relationship above the current BFP, with Class IV standard factors of 3.1 for protein and between the survey prices and easily- prices averaging $0.22 per 5.9 for other solids contained in skim tracked exchange prices becomes hundredweight below. milk, and 3.5 for butterfat. The resulting apparent to industry observers. Nearly all comments received relating price averaged $0.47 or 3.7 percent The formulas used in the basic to make allowances asserted that the below the current BFP for the 60-month formula price replacement likely will proposed rule allowances were period of January 1994 through result in prices that are less stable than understated. Both handler and producer December 1998. The Class IV the current BFP. Unlike the current BFP, interests argued that failure to cover hundredweight price, computed from in which commodity updates are used processors’ costs of converting milk to the butterfat price times 3.5 and the to adjust the producer pay price survey, finished products results in a nonfat solids price using a standard changes in product prices will be the disincentive to produce finished dairy factor of 9 for nonfat solids contained in sole determinants of changes in products. They expressed concern that skim milk, averaged $0.50 or 3.9 percent component prices. Past observation of the disincentive would discourage below the current BFP during the same competitive pay prices and commodity investment in the manufacturing sector, period. The replacement Class III and prices indicates that generally leading to reduced manufacturing Class IV prices were both highly competitive pay prices do not move as capacity and reduced outlets for correlated with the current basic quickly as commodity prices. Since the producers’ milk. A few commenters formula price. The Class III price had a current BFP is based primarily on the stated that make allowances should .981 correlation coefficient while the base month survey price, the cover the costs of only the most efficient Class IV price had a .744 correlation commodity-driven price series adopted processors, and others objected to the coefficient. in this rule will react more quickly to inclusion of any make allowances, The above comparisons are based on changes in the commodity markets than which they characterized as a charge applying the component pricing the current BFP reacts. against producers to pay processors for formulas to commodity prices that were processing milk. in effect during the period examined. Make Allowances Producers objected to the inclusion of Therefore, price level comparisons can Use of an economic engineering manufacturing allowances for milk only provide an indication of how the approach to determine appropriate processors while no allowance is made BFP replacement prices may have make allowances was investigated. for producers to recognize any fixed behaved. The current BFP has been Neither the time nor the resources are recovery of the cost of producing milk. responding to changing market available to construct models for The current pricing system, using the conditions, while the replacement determining appropriate make BFP, also does not assure producers a formulas are applied to historic data allowances at this time. As an fixed rate of return. However, because

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00072 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.078 pfrm08 PsN: 02APP2 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16097 the BFP is based on a competitive pay procedure could and should be III and Class IV products will be price of what manufacturers pay dairy implemented in Federal orders. computed using the following formula: farmers for milk, the manufacturers’ At this time the use of the RCBS study Butterfat price = ((NASS AA Butter make allowance has, in effect, been and the California data are deemed to be survey price¥0.114)/82). deducted from prices received from the adequate for determining the initial The make allowance of $0.114 per sale of manufactured products before make allowances contained in this pound of butter is determined by adding the pay prices are reported. Therefore decision. Several problems exist with to the RCBS survey make allowance a the differences between the current auditing make allowances. First, the marketing cost of $0.015 and a return on pricing system using the BFP and the Federal milk order system currently is investment of $.0068, which is the same pricing system contained in this not equipped to handle the type of return on investment included with the decision with respect to make audits necessary for determining California butter processing cost. The allowances deals with the level and appropriate make allowances. An RCBS make allowance included stability of make allowances rather than increase in market administrator packaging costs for print butter; their existence. administrative fees would be required to therefore, $0.0175 was deducted from National Milk Producers Federation acquire and train auditors to conduct the make allowance to adjust for the (NMPF) supported use of a survey of the make allowance audits, since these difference between print and bulk butter dairy product manufacturing costs that audits would have to be done in packaging. The California butter has been conducted by the Rural addition to the current audit program. processing cost was also adjusted by the Cooperative Business Service (RCBS), Since most Class III and Class IV $0.015 marketing cost. A weighted with some modifications, to establish manufacturing is done in plants that average make allowance was then Federal order make allowances. Many currently are unregulated, authority to computed using the adjusted RCBS other comments supported the NMPF audit these plants to obtain make make allowance and pounds of butter position. NMPF suggested adding a allowance data would need to be contained in the RCBS survey and the marketing cost allowance of $0.015 per obtained. In addition, the industry may adjusted California butter processing pound of product to the manufacturing request a hearing on an expedited basis cost and the pounds of butter costs. NMPF explained that the addition and present relevant data to justify represented by the California butter of the marketing allowance was changing make allowances. Therefore, plant audit. The resulting make necessary since the NASS price data there is no current plan to begin allowance of $0.114 is $0.035 greater that will be used in the formulas auditing manufacturing plants for the than the $0.079 make allowance includes the marketing costs covered by purpose of obtaining make allowance contained in the proposed rule. An the $0.015. data. increase in the butter price formula The RCBS survey contains data for six The level of the make allowances make allowance will allow plants to cheese plants, six nonfat dry milk plants included in this decision is based on recover a larger percentage of the costs and five butter plants. In addition, the input by all sectors of the dairy of producing butter than under the survey results include manufacturing industry. If the make allowances are proposed rule. data from three dry whey plants. The established at too low a level, Comments on the computation of a plants included in the survey represent manufacturers will fail to invest in nonfat solids price included suggestions a wide geographic representation of the plants and equipment, and reduced by NMPF that the nonfat dry milk make United States. Given the limited number production capacity will result. If the allowance level should be $.1245 plus of plants involved in the study, make allowances are established at too the $.0015 marketing cost, or $.126, and however, regional information is high a level there will be unwarranted by IDFA that $.137 would be an unavailable. The survey results also incentive to increase capacity above the appropriate level, compared to the $.125 represent a range of packaging types needs of the industry, leading to used in the proposed rule. Several other which can affect the final make overcapacity and resulting losses to commenters favored the California make allowance. manufacturers. Either scenario would allowance, suggesting something in the International Dairy Foods Association not be in the best interest of the dairy $.135–$.14 per pound range for nonfat (IDFA) suggested that make allowances industry. Manufacturing plant operators dry milk. be determined by computing weighted who find the level of make allowances The formula for computing the nonfat averages of the results of the RCBS inadequate compared to their actual solids prices for milk used in Class IV survey and the California audited make costs also have the alternative to not will be as follows: allowances. IDFA also included a participate in a Federal order Nonfat solids price = ((NASS nonfat dry $0.015 marketing cost adjustment as marketwide pool. milk survey price¥0.137)/1.02). well as adjusting the RCBS make Most commenters agreed with NMPF As in the case of computing the allowance to incorporate the same and IDFA that the make allowances butterfat make allowance, the nonfat return on investment that is included in proposed to be used for the butterfat and solids make allowance is a weighted the California make allowance. IDFA nonfat solids prices were too low, and average of the RCBS survey and the and numerous other commenters the resulting prices too high. NMPF California processing costs. A marketing explained that a return on investment is suggested that a make allowance of cost of $0.015 and a return on necessary for manufacturers to continue $.1327 per pound of butter (plus the investment of $0.0159 was added to the to invest in plants and equipment. $.0015 marketing cost, or $.1342) would RCBS survey while the $0.015 A number of comments were filed be appropriate for use in the butterfat marketing cost was added to the urging that make allowances be price calculation, and IDFA favored a California price. The resulting make determined by auditing manufacturing make allowance of $.114, compared to allowance of $0.137 per pound of nonfat plants in the same manner practiced by the proposed make allowance of $.079. dry milk is $0.012 more than the the State of California. Proponents Several commenters suggested use of proposed rule make allowance of explained that California has had long California make allowances. $0.125. The resulting increase in the and successful experience with auditing The formula for determining the make allowance will allow plants to make allowances and that a similar butterfat price for butterfat used in Class recover a larger percentage of the cost of

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00073 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.079 pfrm08 PsN: 02APP2 16098 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules producing nonfat dry milk than they making none of the cheese made in multiplying the pounds of cheese would have using the make allowance California. The Dairy Institute of represented in each study by the included in the proposed rule. California advocated make allowances respective prices. The resulting total In addition to revising the make of at least $.17 for blocks and $.14 for was divided by the total pounds of allowance for computing the nonfat barrels. cheese represented by the studies. solids price, the yield factor is also Many commenters insisted that barrel The factors used in the formulas for adjusted. In the proposed rule a yield cheddar cheese prices should be computing component prices are factor of .96 was used in the nonfat included in a weighted average with determined by the quantity of the solids formula. The .96 was intended to block cheddar prices since much more component in the commodity, except represent the 96 pounds of solids in 100 barrel cheese is produced than block for protein, for which the Van Slyke pounds of nonfat dry milk. Most parties, cheese. NMPF urged that the barrel yield formula is used. In the protein including IDFA and NMPF, commented price not be included because barrels formula, the 1.405 and 1.582 are yield that the .96 was inappropriate and that don’t have uniform composition, and factors derived from the Van Slyke a factor of 1.02 was more appropriate. because the use of such prices would cheese yield formula. Both the 1.405 Since buttermilk powder is also a have the effect of unnecessarily and 1.582 factors are determined by product of manufacturing butter and reducing prices to producers. Other calculating the change in cheese yield if nonfat dry milk, its value needs to be commenters suggested that if barrel an additional tenth of a pound of addressed. Because the proposed rule prices are included, they should be protein or butterfat is contained in the did not account for the yield of increased by 3 cents per pound to make milk, holding everything else constant. buttermilk, the .96 factor was up for the difference in packaging costs. The proposed rule used a 1.32 factor appropriate. However, failing to account Still other commenters argued that all times the cheese price for use in for buttermilk powder resulted in varieties of cheese should be included computing the protein price. The overstating the nonfat solids price since in the NASS price survey to assure that change to a factor of 1.405 reflects the the pounds of nonfat solids were all cheese value is captured. use of true protein as the basis for understated. Use of the 1.02 factor The formula for computing the payments for protein rather than using allows the nonfat solids contained in protein price for milk used in Class III a measurement of ‘‘total nitrogen’’ for nonfat dry milk and buttermilk powder is as follows: the protein content of milk. The resulting protein price will be for a to be accounted for, and the value of all Protein price = ((NASS cheese survey pound of ‘‘true protein.’’ nonfat solids to be accurately reflected ¥ × price 0.1702) 1.405) + ((((NASS Total nitrogen protein content and in the nonfat solids price. cheese survey price ¥ 0.1702) × The results of the revisions made to true protein content both result from 1.582) ¥ butterfat price) × 1.28) the butterfat and nonfat solids formulas chemical (Kjeldahl) testing methods yield a Class IV hundredweight price The NASS cheese survey price will be approved for determining the protein that would have averaged four cents determined by adding three cents to the content of dairy products by the below the current Class III–A price and moisture-adjusted barrel price and then Association of Official Analytical fourteen cents above the California 4a computing a weighted average price Chemists. When expressing protein price over the period of January 1994 using the block cheese price and the based on total nitrogen, the protein through December 1998. These results adjusted barrel price times the pounds percentage is over-stated by the amount address the major concern of many of of each cheese type in the NASS survey of non-protein nitrogen (which has little the comments that the Class IV prices in and dividing by the total pounds of or no effect on dairy product yields) the proposed rule were too far out of block and barrel cheese in the NASS present in the milk. Therefore, when alignment with California 4a prices for survey. Including both block and barrel milk is priced on the basis of its true Federal order plants to be competitive. cheese in the price computation protein content rather than its content of The more important criteria of reflecting increases the sample size by about 150 protein measured by total nitrogen, the supply and demand is also met by the percent, giving a better representation of price per pound of protein should be revised formulas. Research by Knutson, the cheese market. Since the make higher. Anderson, Awokuse, and Siebert allowance of $0.1702 is for block Currently, nearly all testing of milk showed that the formulas contained in cheese, the barrel cheese price must be for payment purposes is performed the proposed rule outperformed the adjusted to account for the difference in using infrared electronic testing current basic formula price in reflecting cost for making block versus barrel equipment. At the wave-length filter at supply and demand. Under the revised cheese. The three cents that is added to which protein is measured, only true formulas the level of prices will be the barrel cheese price is generally protein is detectable. To calibrate for changed, but not their relationship to considered to be the industry standard total nitrogen a bias factor has to be supply and demand. cost difference between processing used to compensate for the non-protein Nearly all comments on the cheese barrel cheese and processing block nitrogen. It is also likely that the level make allowance proposed for use in cheese. of non-protein nitrogen will vary in computation of the protein price The make allowance used in every set of calibration samples, creating described the proposed $ .127 make computing the protein price, $0.1702, more problems in accurately calibrating allowance as too low, resulting in a too- was established by computing a electronic infrared instruments. high protein price. NMPF supported use weighted average make allowance using Calibration for the true protein content of the RCBS survey results ($ .1421), the RCBS survey and the California of milk is more accurate than the which were somewhat higher than the processing costs. The RCBS survey was calibration for total nitrogen protein. proposal. IDFA supported using an adjusted by adding a marketing cost of Because the accuracy of testing for true average of the RCBS survey and $0.015 and a return on investment of protein is higher than for total nitrogen California make allowances, which $0.0104 for a total of $0.1540 while the protein, which has relatively little generally are higher still ($ .152). A California processing costs were value, Federal milk orders should price number of other commenters argued increased by a marketing cost of $0.015 milk on the basis of its true protein that the proposed cheese make for a total of $0.1855. The weighted content rather than its total nitrogen allowance would cover the cost of average was then computed by protein content.

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Comments on the proposed rule manufacturing plants. The resulting protein concentrate make allowances. included discussion of the proposal to increased accounting, reporting, and The Cornell study was used since incorporate the difference in butterfat administrative costs were determined to California does not audit dry whey value between cheese and butter within not be warranted when viewed against manufacturing costs and the RCBS the protein price. NMPF suggested that the small gain from having an additional survey has very limited data on dry the .90 factor that results in a 1.582 butterfat price. whey manufacturing costs. The data on multiplier should, instead, be .91 and Use of the protein price formula dry whey in the RCBS study expresses result in a 1.60 multiplier because that adopted in this decision will increase the costs on a per pound of cheese basis factor more closely reflects the current the protein price by approximately 15 rather than on a per pound of dry whey retention of butterfat in cheddar cheese cents per pound when compared with basis. The $0.137 figure is slightly above manufacturing. The IDFA comment calculating the protein price on the the average cost of the model plants in argued that using the 1.60 multiplier basis of total nitrogen protein. However, the Cornell study and the same as was would increase an already-high protein the increase is almost entirely negated used for nonfat solids. price. Another comment urged that the by the lower content of true protein than A value for other solids is included in Grade A butter price be used instead of of total nitrogen protein in milk. On a Class III to assure that the Class III price the AA price, because the value of hundredweight basis, the change to true reflects most of the value of milk used butterfat in cheese shouldn’t be protein results in an increase to the in Class III products. In the Federal milk increased over its value in butter. Class III price of an average of 2 cents orders currently pricing three Further, the comment argued that the when compared to the formula using components, the other solids price is additional value of butterfat in cheese is total nitrogen protein. determined by subtracting the value of added by the cheesemakers, and Use of true protein instead of total butterfat and protein from the BFP. In shouldn’t be used to increase prices to nitrogen protein for determining this final rule the other solids price is producers. payments to producers should have a established independently of the Since Class III includes other types of minimal impact on producer revenues. butterfat and protein price. Even though cheese, such as mozzarella that has a Producers with relatively high levels of there is not a market for other solids as lower fat retention than cheddar cheese, non-protein nitrogen in their milk could such, the dry whey price was increasing the value attributed to that see a slight drop in their revenue determined to be the best indicator of retention is not appropriate. Increasing derived from the protein content of their value for other solids and provides a the protein price for all milk used in milk. method of accounting for and Class III based on only a portion of the In addition to changing the distributing the value in Class III milk products included in Class III would put coefficients in the protein price formula that is not accounted for in the protein the other Class III products at a to adjust for the use of true protein, the and butterfat components. Other competitive disadvantage. Calculation fixed protein and other solids values potential price series that could be used of a minimum price will enable used in computing a per hundredweight to determine the value of other solids handlers to adjust prices paid to Class III price must be adjusted. were whey protein concentrate and producers to account for additional Accordingly, the Class III price will be lactose. Under present market value above the minimum Federal order computed by multiplying the butterfat conditions, dry whey offers more market prices. Therefore, the 1.582 factor will price by 3.5 and adding the result of activity with less specialization than be used in the protein price formula multiplying .965 times the sum of 3.1 either whey protein concentrate or contained in this decision. times the protein price and 5.9 times the lactose, and therefore constitutes a Since Class III and Class IV use the other solids price. better price series for determining a same butterfat price, accounting for the In comments filed in response to the minimum Federal order price. difference in value of butterfat in cheese proposed rule, NMPF suggested a Comments filed by several parties versus the value of butterfat in butter is $.1575 whey make allowance plus the supported the use of dry whey for the necessary. This difference in value is $.0015 marketing cost, for $.1590, rather determination of the other solids price. included with the protein price than the $.10 proposed. IDFA argued The 0.968 factor in the formula calculation as a means of quantifying that a $.171 make allowance would be represents the pounds of solids the amount by which the value of more appropriate. Wisconsin contained in a pound of dry whey. butterfat in cheese varies from the value Since the make allowances are Cheesemakers indicated that the Class of butterfat in butter. Attributing the applied on a component basis rather III price should not include a value for additional value to protein is possible than on a hundredweight of milk basis whey, as it frequently represents a cost because it is the casein in protein that comparisons to traditional make to manufacturers. The Dairy Institute of forms the molecular matrix that retains allowances may be difficult. Also, a California agreed that a whey factor the butterfat in cheese. Without enough make allowance that may seem protein in milk to retain the butterfat in should not be included, but that if it is, reasonable when applied to a cheese, the butterfat would have a lower the yield factor (divisor) should be .98 component may be seen as value in whey butter in most months. (instead of .968). inappropriate when combined with the The ratio of butterfat to protein, 1:1.28, The formula used for computing the other components in the finished is calculated from the protein and other solids price is: product. To evaluate the make butterfat yield factors of 1.405 and Other solids price = ((NASS dry whey allowances on a per hundredweight 1.582. survey price¥.137)/0.968). basis the Class III and Class IV milk An alternative to incorporating the The determination of the $0.137 make prices were compared to the value of butterfat value in cheese with the allowances was based on several factors. cheese and butter/powder using the protein price is to compute a separate Whereas the other make allowances CCC yield factors. These results were butterfat price for Class III. This would were based on a weighted average of the compared to the same calculation using be a relatively simple formula to RCBS study and California make the current BFP and the CCC yield compute. However, having multiple allowances, the other solids make factors. A comparison over time butterfat prices would require full plant allowance is based primarily on the between the current level of class prices accountability of components in all Cornell study of dry whey and whey paid for producer milk and the value of

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00075 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.082 pfrm08 PsN: 02APP2 16100 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules the manufactured products made from positive make allowance change for substitutes for historical price survey that price class of milk shows a nonfat dry milk will result in a decline data in this analysis include a cheese reasonably stable difference between the in the nonfat solids price. A one-cent price computed by comparing the two levels. This difference is the change in the nonfat dry milk make current NASS cheese price series to the implied make allowance. allowance will result in a $0.0098 per comparable NCE/CME price series for The implied make allowance for pound or $0.0882 per hundredweight the purpose of determining a historical butter/powder using the current BFP for opposite change in the nonfat solids protein price. The NCE/CME series was the period January 1994 through July price. A one-cent change in the protein then adjusted by means of a regression 1998 was $0.83 per hundredweight, make allowance will cause an opposite analysis to reflect the differences while the implied make allowance for change in the protein price by $0.0322 between the NASS prices and the butter/powder versus the Class III–A per pound or $0.1014 per exchanges. The resulting price series price was $1.37 per hundredweight. The hundredweight for milk with 3.15 simulates the use of the NASS series for implied make allowance calculated for percent protein. Finally, a one-cent the time period studied. For the butter the Class IV price, based on historical change in the other solids (dry whey) price, the data from the ‘‘BFP prices, would have been $1.41 per make allowance will change the other Committee Commodity Price Study’’ hundredweight. With the implied make solids price by $0.0103 per pound or was compared to the CME Grade AA allowance for the Class IV price being $0.0567 per hundredweight in the cash butter price series. The CME Grade only $0.04 from the actual implied Class opposite direction. AA price series was then adjusted III–A make allowance, the butter make This pricing system eliminates the accordingly to make it more comparable allowance and the nonfat dry milk make need for regional yields based on with the Committee Price Study. allowance, in combination, appear to regional differences in milk Available survey prices used were approximate the current implied make composition. The value of milk will be nonfat dry milk prices and dry whey allowance. adjusted automatically based on the prices, both of which are published Determination of the make allowance level of components contained in the monthly by NASS in ‘‘Dairy Products’’. for Class III is more difficult than for milk in each order even though the While a nonfat dry milk price and dry Class IV, in which butterfat and skim component prices are the same whey price are published in ‘‘Dairy solids make two unique finished nationally. This automatic adjustment Products’’ at the beginning of each products. In cheese manufacture, most means that handlers will pay the same month for the second previous month, of the butterfat remains in the cheese price per pound of component but may the new weekly NASS survey discussed with most of the protein, and a portion have differing per hundredweight earlier is necessary to determine prices of the protein, butterfat and remaining values based on the milk component on a more current basis. nonfat solids are contained in the whey, levels, creating equity in the minimum One of the initial requirements of a which can be made into various cost of milk used for manufacturing basic formula price replacement, based products. The combination of the purposes. on the assumption that the national butterfat, protein, and other solids make Several comments were received supply and demand for manufacturing allowances resulted in an implied make suggesting that regional BFP milk as reflected in the current BFP is allowance of $2.72 for Class III (cheese) replacement prices be used rather than in relatively good balance, is that the compared to the implied make a national BFP replacement. The price level not deviate greatly from the allowance of $2.21 for the current BFP. commenters explained that cheese, current basic formula price. The Even though the implied make butter, and nonfat dry milk have examples contained in the proposed allowance using the Class III formulas in different values in different regions of rule resulted in the Class III portion of this decision is greater than the current the country, and that the Cornell study the BFP replacement averaging $0.45 implied make allowance it is described a price surface for milk used per hundredweight above the current appropriate since the CCC formula is in manufactured products across the Class III price, and the Class IV portion basically a cheddar cheese yield formula United States. Therefore, they of the BFP replacement averaging $0.13 whereas Class III contains multiple concluded, the replacement BFP also per hundredweight above the current varieties of cheese and certain other should be determined regionally. Class III price, both for the 48-month products. A slightly larger make This decision replaces the current period January 1994 through December allowance in Class III will not place BFP with a national Class III price and 1997. makers of products that have a national Class IV price. Although there In addition to comparing the Class III significantly different cost structures may be some justification for regional and Class IV price series to the current than cheddar cheese at a competitive pricing, there are two principal reasons BFP, the Class III price was also disadvantage when participating in for using national pricing. First, pricing compared to the California 4b price, Federal orders relative to handlers who milk on the basis of the pounds of while the Class IV price was compared do not participate in the Federal orders. components contained in the milk to the Class III–A price and to the Changes in make allowances will eliminates some of the regional California 4a price. Comparisons to the affect component prices and per differences in milk prices. Second, California prices are included because hundredweight milk values. A one-cent regional commodity price data, and for many commenters expressed the view per pound change in the butter make that matter regional competitive pay that the proposed rule resulted in prices allowance will affect the butterfat price price data, are unavailable. Resulting that put plants regulated by Federal in the opposite direction by $0.0122 per attempts to estimate regional orders at a competitive disadvantage to pound. This would be $0.0427 per differences, with the ensuing regional California plants and that alignment hundredweight for milk at 3.5 percent differences of opinion, would yield with California pricing was essential. butterfat. The butterfat price also is used minimal benefits. Most commenters did not express the in the computation of the protein price. An analysis of the basic formula price view that Federal order prices should The protein price will change inversely replacement requires several equal California prices, but that Federal to the butter make allowance by $0.0146 assumptions. Historical commodity order prices should be in alignment, i.e. per pound or $0.046 per hundredweight price surveys are not available for all of ‘‘reasonably close’’. For comparison for milk with 3.15 percent protein. A the commodities. Prices used as purposes all prices are expressed on a

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00076 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.083 pfrm08 PsN: 02APP2 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16101 per hundredweight basis with 3.5 during 1993 and 1994 the price of butter on the proposed rule and to address percent butterfat. The Class III price was and nonfat dry milk was relatively low class price inversion that occurred determined by using 3.1 pounds of and stable compared to the price of during the second half of 1998. protein and 5.9 pounds of other solids cheese. The degree of variability of Comments relating to replacement of in 100 pounds of skim milk. To individual months’ prices from the the BFP as a Class I price mover that compute a 3.5 percent hundredweight average for the year is expressed by a were filed before issuance of the price the skim milk value was standard deviation. A lower standard proposed rule ranged from favoring multiplied by .965 and added to the deviation indicates that individual continuation of the current system to butterfat price that was multiplied by observations (in this case, monthly establishment of the Class I price 3.5. The same procedure was used for product prices) vary less from the mean independently of the basic formula the Class IV price, with 9 pounds of than would be indicated by higher price(s) for milk used in manufactured nonfat solids in a hundred pounds of standard deviations. These statistical products. One comment suggested skim milk. descriptions indicate the difference in eliminating the basic formula price and For the period January 1994 through variability of prices between butter/ pooling only the Class I and Class II December 1998, the Class III price powder and cheese in 1993 and 1994. differentials. These comments were averaged $0.47 below the current BFP During 1994 the Class IV price would fully considered in the proposed rule. and $0.20 above the California 4b price, have averaged $10.26 with a standard Numerous comments received in while the Class IV price averaged $0.50 deviation of $0.11, compared to the response to the proposed rule favored cents below the current BFP, $.04 cents 1994 BFP average of $12.00 with a advance pricing of Class I skim and below the current Class III–A price, and standard deviation of $0.57, and the butterfat separately. However, a number $0.15 above the California 4a price. average Class III price of $11.47 with a of commenters expressed concern that In addition to comparing the value standard deviation of $0.69. For 1998, use of the higher of the Class III or Class differences between the Class III and when the economic conditions for IV prices in the calculation of the Class Class IV prices and the current BFP, it butter and nonfat dry milk had changed I price mover would result in undue is important to compare the relationship and prices became more volatile, the enhancement of Class I prices. The most in price movements between the Class Class IV price would have averaged controversial aspect of the Class I price III and Class IV prices and the current $14.79 with a standard deviation of mover proposal was the use of a 6- basic formula price. Correlation $2.13 versus the 1998 BFP average of month declining average. Many of the coefficients were computed to $14.20 with a standard deviation of comments received concerning the Class statistically test the relationships $1.97, and the Class III average price I mover expressed the view that the between the Class III and Class IV calculation of $13.84 with a standard Class I price must be closely and prices, the current basic formula price, deviation of $2.14. and the California prices. The The Class III and Class IV prices directly linked to the manufacturing correlation coefficient between the Class clearly reflect the value of the milk used price in the same manner that occurs III price and the current basic formula in the respective manufactured currently. Commenters expressed the price is above .98 while the correlation products, whereas the current basic view that the current system, two-month coefficient between the Class IV price formula price reflects primarily the advance pricing, closely links the and the current basic formula price is value of milk used to manufacture manufacturing value of milk to Class I approximately .74. The correlation cheese in a particular region of the U.S. and therefore gives appropriate price between the Class IV price and the (Minnesota and Wisconsin). signals to producers. They opposed the current Class III–A price is .99. The six-month declining average on the Class I correlations between the Class III and basis that the delay in linkage with the Class IV prices and California prices are As in the proposed rule and currently, Class I price would be too long and that also quite high, with the Class III price the basic formula price replacement will Class I pricing would be counter and the California 4b price having a act as a mover for the Class I price in cyclical. Some who opposed the time correlation coefficient of .97 while the addition to establishing prices for milk lag built into the 6-month declining Class IV price and the California 4a used in Class III and Class IV. Also as average suggested that a 3-month price show a correlation coefficient of proposed, the Class I value will be average would do as well at attaining .99. These relationships are expected separated into two parts: skim milk and some stability without as much ‘‘de- since the current basic formula price is butterfat. However, instead of the linking.’’ weighted more heavily on milk used for proposed six-month declining average Several commenters opposed building the manufacture of cheese than on the of the higher of each month’s Class III less volatility into Class I prices than value of milk used in the manufacture and Class IV skim and butterfat prices, into manufacturing class prices. Among of butter and nonfat dry milk. the Class I price mover will be the reasons given were that added The Class III and Class IV formulas determined by the most recent stability for Class I would mean greater are computed from product prices manufacturing product prices available. volatility in prices for manufactured representing the use of milk in each The advanced price aspect of the Class products, and that added stability class. That is, the Class III price is I price mover will also be shortened would favor producers in high Class I derived from the value of cheese while from the current and proposed timing of markets. the Class IV price is derived from the the Class I price announcement. Both Other comments on the proposed rule value of butter and nonfat dry milk. the Class I skim and butterfat supported variations of a 12-month Therefore the Class III and Class IV components will be announced on the rolling average Class I price mover, prices can be expected to vary 23rd day of the preceding month using some with seasonal adjustments. A significantly from the current BFP in advance pricing factors based on number of comments favored the individual months, reflecting the product prices for the most recent two stability of the longer-term basis for economic (supply and demand) weeks. The Class II skim milk price will Class I prices. One graph submitted conditions for cheese, butter, and nonfat be announced similarly. This change shows a very close relationship between dry milk. This situation is particularly from the proposed rule is being made to the 6-month declining average mover true of the Class IV price. For example, respond to numerous handler comments and the current BFP.

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There are several conflicting issues inversion occurs when a markets’s advance pricing, the effective Class I that must be balanced when establishing regulated price for milk used in differential—that is, the actual the Class I price mover. First, the retail manufacturing exceeds the Class I difference between the Class I and demand for Class I milk is independent (fluid) milk price in a given month, and manufacturing use prices in a month— of the demand for manufactured dairy causes serious competitive inequities is not the same as the Class I differential products. Second, the raw material used among dairy farmers and regulated stated in an order. While the effective in both Class I products and handlers. Advanced pricing of Class I Class I differential varies monthly, it manufactured dairy products is the milk actually causes this situation when generally has remained positive. Recent same and therefore the separate uses manufactured product prices are increased volatility in the manufactured must compete for the given supply of increasing rapidly. product markets has resulted in more milk. Third, the elasticity of demand for Since the Class I price is announced instances in which the effective Class I the various dairy products is in advance, in a rapidly changing differential has been negative, especially significantly different, creating different market the Class I price may not reflect in markets with low minimum Class I consumer responses to the changing the value needed to compete for the differentials. prices for various dairy products. The necessary raw milk supply or the Class In the past when price inversions Federal milk orders have attempted to I price may be overvalued relative to the have occurred, the industry has address these issues through classified raw milk price. Undervaluing Class I contended with them by taking a loss on pricing. This system allows a higher milk is a particular problem since it the milk that had to be pooled because price to be applied to milk used for reduces producers’ pay prices at a time of commitments to the Class I market, Class I uses due to inelastic demand for when the producers should be receiving and by choosing not to pool large Class I products. This higher price also a positive price signal. As an example, volumes of milk that normally would allows Class I uses of milk to compete in July 1998 the Class I price in every have been associated with Federal milk for the raw milk supply against Federal order market except one was order pools. When the effective Class I manufactured dairy products. At the below the Class III price. Although July differential is negative, it places fluid same time, marketers of Class I products is not a period of very high Class I milk processors and dairy farmers or support some degree of forward pricing, demand, it is a time when Class I cooperatives who service the Class I requiring processors of Class I products demand is starting to increase in some market at a competitive disadvantage to know the Class I price in advance. regions relative to total milk production. relative to those who service the Most of those commenting on the At this same time producers in these manufacturing milk market. proposed rule and the Department regions received lower pay prices. Many Milk used in Class I in Federal order perceive the need to reflect changes in Federal milk orders also experienced a markets must be pooled, but milk for the prices for milk used in Class I price below the Class III price in manufacturing is pooled voluntarily and manufactured products in the price of August as a result of two-month will not be pooled if the returns from milk used in fluid products. Since Class advance pricing of Class I. Demand for manufacturing exceed the blend price of I handlers must compete with Class I milk increases substantially in the marketwide pool. Thus, an manufacturing plants for a supply of August. While producer prices rose in inequitable situation has developed milk, the Class I price must be related August, the increase would have been where milk for manufacturing is pooled to the price of milk used for larger had Class I prices been based on only when associating it with a manufacturing. more current Class III prices. Under marketwide pool increases returns. It is apparent from the price patterns these pricing relationships, the Class I Illustrative of the worsening class of a large part of 1998 that the current handler may have a more difficult time price inversion problem are the growing two-month lag between manufacturing acquiring milk as the minimum Federal volumes of milk that, while normally and fluid pricing does not establish as order Class I price puts the handler at associated with Federal milk orders, are close a relationship between the two a disadvantage to handlers demanding not being pooled due to price inversion price levels as is desirable. Indeed, from milk for manufacturing purposes. Since problems. When the Class II, III, and/or an analysis of the differences between Class I handlers must compete with III–A prices are higher than a handler’s prices generated by a six-month manufacturing plants for a supply of blend price adjusted for location, it declining average and the current milk, the Class I price must be related becomes disadvantageous for handlers pricing system, it is clear that the to the price of milk for manufacturing. processing soft and hard manufactured current two-month lag does not Another problem inherent in the products to pool milk. That is, instead accomplish any closer relationship current method of announcing Class I of drawing money out of the pool, they between manufacturing and fluid prices prices in advance is that the price for have to pay money into the pool. In than would the six-month declining milk established in advance is for milk 1995, the volume of milk not pooled average. containing 3.5 percent butterfat. The due to class price inversion was 5.3 When manufactured dairy product current system does not determine the billion pounds. In 1997, nearly 7.8 prices are relatively stable the advance price of butterfat in advance, therefore billion pounds were not pooled for this pricing of Class I milk works quite well. the Class I handler does not know the reason. In 1998, 14.1 billion pounds However, since 1988 the volatility in the value of milk at butterfat contents other were not pooled due to class price manufactured dairy product market has than 3.5, until the butterfat differential inversions. During each of five of the caused problems with the advance is announced in the month following seven months of June through December pricing of Class I milk. The first problem sale of the processed product. Under 1998, the volume of milk not pooled is readily evident in class price this final decision, Class I handlers will exceeded 2 billion pounds. In July 1998, relationships during the latter part of have advanced price information for class price inversion occurred in all 1998. The frequent occurrence of price both the skim and butterfat portions of Federal order markets except inversions during that period indicates the Class I price. Southeastern Florida, and in 19 markets that some alteration to both the The purpose of the minimum Class I some milk was not pooled due to class proposed and current methods of differential is to generate enough price inversion. computing and announcing Class I revenue to assure that the fluid market Since volatility in the manufactured prices may be necessary. Class price is adequately supplied. As a result of product markets is expected to

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The range of the price not the same between regions, and it provided in this final decision results in inversion would have been $.02 to $.86. would be difficult, if not impossible, to a Class I price that is based on a more The shortened period of advance pricing attempt to work out seasonal pricing as recent manufacturing use price, thus reduces both the occurrences and level a part of the BFP replacement. reducing (but not eliminating) the time of price inversion. As discussed previously, the price lag that contributes to class price To further illustrate that the advance link between Class I use and Grade A inversion. For example, the January pricing procedure in this final decision milk used to manufacture Class III and 1999 Class I price for each market provides a Class I price level that is less Class IV products should be maintained would be announced on December 23, likely to be below the manufacturing since Grade A milk can be used for fluid 1998 and would be based on product use price, the following analysis was uses as well as for manufacturing uses. prices reported on December 10 and 17. done. Averages of the 1998 NASS Because handlers compete for the same (The prices reported on these dates are product prices for the current month, milk for different uses, Class I prices for the weeks ending December 4 and the second preceding month, and the should exceed Class III and Class IV 11.) Under the current procedure, the two-week period available on the 23rd prices to assure an adequate supply of January Class I price was announced on of the preceding month were computed milk for fluid use. Federal milk orders December 3, 1998 and was based on and compared. For all four products, the traditionally have viewed fluid use as product prices reported for weeks preceding month two-week average having a higher value than ending November 6, 13, 20, and 27. provided a better estimate of the current manufacturing use. The replacement While the advance pricing procedure month average than did the average for Class I price mover reflects this in this decision reduces the time period the second preceding month. Looking at philosophy by using the higher of the of advance notice by about 18 days, the the Cheddar cheese price series, the Class III or Class IV price for computing reduction in advance notice of Class I two-week preceding month price was the Class I price. and II prices should not add significant $.03 closer to the current month on a In some markets the use of a simple risk or burden to handlers. The pricing simple average basis, and $.04 closer on or even weighted average of the various formulas are based solely on product an absolute average basis. This means manufacturing values may inhibit the prices which are announced weekly; that using preceding month two-week ability of Class I handlers to procure therefore, handlers can update formulas average Cheddar cheese price would milk supplies in competition with those on a weekly basis to estimate what the result in a Class III skim milk price that plants that make the higher-valued of Class I price will be before the price is would be about $.40 per cwt. closer to the manufactured products. Use of the announced. Also, as more NASS the following month’s Class III skim higher of the Class III or Class IV price product price survey observations milk price than if the second preceding will make it more difficult to draw milk become available, basis differences from month’s price is used. away from Class I uses for earlier traded/issued product price As stated earlier, advance pricing manufacturing. For example, if the Class surveys such as those from the Chicago affects the function of the minimum IV price were used as the Class I price Mercantile Exchange or Dairy Market Class I differential. The advance pricing mover there would be months in which News will be more predictable and, procedure in this decision reduces the the Class III price would be more than therefore, should provide for more difference between the manufacturing two dollars above the Class IV price. As accurate predictions of future price use price used to establish the Class I a result, the Class I differential would levels. In addition, futures markets have price and the manufacturing use price have to be well over two dollars for the been established for the four dairy in the current month. This procedure Class I price to remain above the Class products in the NASS price surveys. will result in an effective Class I III price. If the Class III price is used as While trading to date in these contracts differential that would be closer to the the Class I price mover, the reverse has not been large, interest in these Class I differential stated in each order. situation of having the Class IV price markets may increase as the industry Thus, reducing the time lag of the Class well above the Class III price would learns to use them as effective hedges to I pricing advance improves the result in the same problem. The the component values determined under functionality of the minimum Class I potential of having a Class III or IV price this final decision. These markets also differential. in excess of the Class I price is not will assist handlers in estimating the Comments filed by some southern entirely eliminated by using the higher Class I price. interests indicated that stability in of the Class III or Class IV price because Using the current two-month advance pricing in the southeast U.S. should of the advance Class I pricing feature. pricing system, but substituting for the incorporate seasonal price incentive However, reducing the time period for current BFP the higher of the Class III programs as a necessary part of which Class I pricing is advanced or IV prices as defined under this rule, adequately supplying the fluid markets should reduce the potential markets with a Class I differential of of the southeast. According to the considerably, allowing Class I handlers $1.60 per hundredweight or less would commenters, such a program would to compete more effectively with have faced a price inversion in four of encourage balancing production with manufacturing plants for fluid milk. the last seven months of 1998. The fluid milk demand. The comments state range of the price inversion would have that because such a pricing plan would Class II been $.21 to $1.49. In a fifth month, be revenue neutral, it would allow for Under this final decision, the value of price inversion would have occurred at more price stability and more reliable Class II skim milk will be computed by a Class I differential of $1.49 or lower. price signals than is currently available multiplying the hundredweight of In September 1998, price inversion for producers in high Class I utilization producer skim milk allocated to Class II would have occurred in all Federal areas. by the sum of an advanced Class IV order markets except Florida. However, Addition of seasonal adjustments for skim price, calculated from nonfat dry using the shortened advance period marketing areas would disrupt the milk product prices reported by NASS

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00079 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.087 pfrm08 PsN: 02APP2 16104 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules for the most recent two-week period for differential, $0.30, was established by a course, eliminate some of the desired which prices are available on the 23rd national hearing conducted in 1991. At direct linkage between the nonfat solids day of the preceding month, and the 70- that hearing proponents of a $0.30 Class price in Class II and the nonfat solids cent Class II differential. The price used II differential explained that the average price in Class IV. However, especially for valuing Class II butterfat will be the difference between Class II prices and with the shortened period of advanced current month’s butterfat price Class III prices over a recent time period pricing, in most cases the linkage determined from the NASS-reported had averaged $0.30. The $0.30 should remain close enough so that the butter price, as in Classes III and IV, difference was not based on the actual Class II differential does not encourage plus .7 cents per pound to incorporate cost differences between existing classes the drying of milk for Class II uses just the Class II differential. of milk. to receive a price advantage. This Generally, the source of inputs The Class II price level determined alignment also should reduce perceived alternative to producer milk for the under this final rule should not, on problems in the use of nonfat dry milk manufacture of Class II products is dry average, be higher than its predecessor. to make Class II products. Tying the milk products and butterfat that The concern of commenters that the Class II price to the Class IV price by otherwise would be used in butter. level of the proposed Class II price this fixed differential, even with Basing the price of milk used to make would be excessive should be mitigated advanced pricing for Class II skim, Class II products on these alternative somewhat by the reduction in the level should reduce the incentive to produce ingredients should help considerably to of the Class IV formula adopted in this nonfat dry milk for use in Class II remedy a situation in which it is rule. For the period January 1994 products. perceived that a separate product class through December 1998, the Class II for dry milk (Class III–A) has resulted in price as determined in this final rule Quality Adjustments a competitive advantage over producer averaged $0.01 higher than the current This final decision provides for the milk used to produce Class II products. Class II price. There is a very large adjustment of producer payments for The 70-cent differential between the variation from year to year in the the somatic cell count of producers’ Class IV and Class II skim milk prices differences between the current and milk under most orders using multiple is an estimate of the cost of drying adopted Class II prices. In 1994, the component pricing. Payments made by condensed milk and re-wetting the current Class II price averaged $1.50 handlers for milk used in Class II, Class solids to be used in Class II products. more than the Class II price calculated III, and Class IV also will be adjusted on One commenter suggested that there according to this decision. For 1998, the basis of the somatic cell count of the should be a $1.00 difference between however, with butter prices at record milk. Class IV and Class II. levels, the Class II price computed from A somatic cell count (SCC) Comments filed in response to the butter and powder prices averaged $1.58 adjustment is appropriate for several proposed rule generally supported higher than the current Class II price. reasons. First, SCCs are not only an basing the Class II price on the Class IV These price differences illustrate the indicator of general milk quality, but price. However, many commenters, result of pricing Class II milk on the also are an indicator of the potential including operators of plants basis of manufactured ingredients yield of milk in cheese and other manufacturing food products, argued instead of on the basis of cheese. that the proposed $0.70 differential is Many of the comments received products that require casein for their too high. In many cases they stated that concerning the Class II price opposed structure and body. Research has shown the cost for rehydration is substantially the proposal to price Class II on a a direct link between increased SCCs lower than $0.70, if the nonfat dry milk current basis rather than on an advance and decreased cheese yields. is rehydrated at all. basis as is currently the case. The Second, many producers currently are Only a small portion of the $0.70 commenters argued that since Class II subject to some type of multiple differential is intended to represent the products are sold on an advance basis component pricing plan or quality cost of rehydration. The majority of the similar to Class I products the premium program that adjusts their pay $0.70, $0.57, represents the cost of continuation of advance pricing of Class prices for somatic cell levels even if the drying condensed milk. Comments filed II is essential. Other commenters order in which their milk is pooled does by Kraft, Inc., stated that the cost of expressed the view that the skim not incorporate such adjustments. using nonfat dry milk (NFDM) in Class portion of Class II could be forward Although many producers’ returns are II is 0–3 cents per pound. At a rate of priced but butterfat should be priced on affected by the SCC of the milk, there is 9 pounds of NFDM per hundredweight a current basis since competing uses for little, if any, oversight of the testing for of skim milk, this cost could represent butterfat such as cheese and butter somatic cells if the order does not as much as 27 cents per hundredweight. would be priced on a current basis. include pricing adjustments. Fair and When added to the 57-cent cost of Class II products high in butterfat, such accurate testing can be assured by drying condensed milk, the 70-cent as ice cream, could be placed at a incorporating multiple component differential appears to be justified. It competitive disadvantage in procuring pricing and somatic cell adjustments should be noted that the cost to butterfat if the current month’s butterfat into Federal orders. purchase or manufacture NFDM for use prices are substantially different than The somatic cell adjustment will in Class II products would include not the advanced priced butterfat price. apply on a hundredweight basis and be only the cost of milk at the Class IV The Class II price adopted under this computed by subtracting the SCC (in price, but the cost of making NFDM (in rule will result in forward pricing the thousands) from 350 and multiplying excess of $1.20 per hundredweight of skim milk portion of Class II while the result by the product of .0005 times skim milk when the make allowance for pricing butterfat on a current basis. the monthly average cheese price used a pound of NFDM is multiplied by the Butterfat used in Class II products to compute the protein price. This level yield). competes on a current-month basis with of adjustment has worked well in orders Many of the commenters suggested butterfat for used in cheese and butter, currently containing somatic cell that a rate of $0.30 is appropriate since and its price should be determined on adjustments, and is supported by data that is what is used currently in the the basis of the same month’s values. and research contained in Federal milk Federal orders. The current Class II Forward pricing of skim milk will, of order hearing records.

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There was not a great deal of some portions of most of the adjustment of protein value to reflect agreement on how to determine which consolidated orders for which the SCC the effect of additional butterfat in orders should provide for SCC adjustment is provided already contain cheese would increase costs in the adjustments. Some commenters favored such provisions. Mideast because of the high percentage their inclusion in all markets and some Several comments suggested of milk used in (lowfat) Italian and favored a SCC adjustment on all milk including a maximum count of 25,000 Swiss cheese in that market, and priced under multiple component psychrotrophic bacteria as a criterion for requested that the Mideast market pricing. NMPF favored SCC adjustments payment of positive SCC adjustments. provide for the same kind of MCP for regions that want them. A Northeast Even though there may be a valid reason pricing currently used in the Southern producer group argued that the limited for including psychrotrophic bacteria Michigan market. effect of SCCs on Class II and Class IV for payment purposes, bacteria counts All Federal orders outside of the three uses makes them unsuitable for use as will not be included with this decision. southeast orders with relatively high an adjustment factor for milk in the Somatic cell counts are the only quality Class I use (Appalachian, Florida and Northeast. One fluid milk handler adjustments in this final decision. The Southeast) and Arizona-Las Vegas opposed their application to Class I use, issue of whether to include should contain the same component while several others opposed excluding psychrotropic bacteria as a payment pricing plan. The affected orders have a Class I milk from using somatic cell criteria is better left to a Federal order large portion of their milk used in count as a cost component because such hearing that specifically addresses the manufactured products, and the an adjustment could result in fluid issue. In contrast to a somatic cell components in that milk that determine handlers receiving lower-quality milk. adjustment, which already is contained the yield of product available for The application of somatic cell in many of the orders with multiple handlers to sell are the most appropriate adjustments will be limited to orders component pricing, none of the orders basis for determining its value. At the providing for multiple component currently provide for adjustments for same time, there is no indication that pricing, since the detrimental economic bacteria counts. MCP should apply to Class I milk, and effect of somatic cells has been shown it is difficult to justify pricing fluid milk Application of the Replacement Basic to occur principally with respect to the on an MCP basis in terms of the Formula Price(s) protein component of milk. SCCs economic value of components in those unquestionably do have detrimental Under this final rule, producers in products. effects on the flavor and keeping quality most Federal order markets will be paid Although the proposed rule included of fluid milk products, and undoubtedly on a multiple component basis since the provisions for the Mideast order that on other dairy products as well, but the basic formula price replacement is would continue elements of the current economic quantification of those effects based on individual milk component Southern Michigan MCP plan, further is not part of the information available prices. Producers will be paid for the study supports the conclusion that there for this decision. There are three order pounds of butterfat, pounds of protein, is no benefit to establishing a areas in which producer sentiment is pounds of other solids, a per component pricing plan under one opposed to the inclusion of SCC hundredweight price known as the order that differs significantly from the adjustments, and these adjustments are producer price differential, and a per rest of the consolidated orders. This not adopted for the three orders. In the hundredweight somatic cell adjustment. issue is discussed more thoroughly in case of the Pacific Northwest and The producer price differential returns the Mideast section of this decision. Western consolidated orders, most to producers their pro rata share of the All of the Federal milk orders will producers already are covered under proceeds of the classified pricing require changes to accommodate very effective SCC payment programs, system. The butterfat, protein, and other replacement of the current BFP with the and the average SCC in these markets is solids prices paid to producers will be multiple component pricing plan or less than 250,000 (below the neutral the same as the prices for those with its hundredweight price level for SCC value adjustments). There components announced for Class III use equivalent. There will no longer be a would seem to be little reason to require regardless of the utilization of the milk. butterfat differential under any order, additional SCC programs for these Handler obligations and producer but butterfat prices. The same butterfat orders. In addition, the Northeast order payments under the Federal orders that price will be used for butterfat in Class does not contain a SCC adjustment. do not provide for component pricing II (with an addition of .7 cents per Comments filed by Northeast interested will be based on hundredweight prices pound to reflect the Class II differential), persons argued that the predominant computed from these component prices. Class III, and Class IV, while a separate use of milk for manufacturing in that Although several comments butterfat price, announced in advance, area is nonfat dry milk and butter, and supported the proposal that multiple will apply to butterfat used in Class I. that yields of these products are not component pricing (MCP) be applied For purposes of allocation of producer affected by SCCs. A somatic cell value only to milk used in Classes II, III and receipts the assumption will be made adjustment is not, therefore, included in IV, several comments from the that the total nonfat solids, protein and the Northeast order. Southwest area argued that it should be other (nonfat) solids cannot be separated As in the proposed rule, for the orders applied to all milk or not adopted at all. easily from skim milk. These nonfat containing a somatic cell adjustment National Farmers Organization (NFO) solids will therefore be allocated provision the adjustment will be also favored the adoption of component proportionately with the skim milk applied to milk used in Classes II, III pricing for all classes of milk, and other based on the percentage of protein and and IV for handler billings, and to all comments favored the adoption of MCP other solids in the skim milk received producer milk for payment to for all Federal milk orders. from producers. producers. This application of a SCC Several New York comments stated For the Market Administrator to adjustment has worked well in the that MCP would not benefit producers, compute the producer price differential, orders currently providing for it, and would serve only to impose higher costs handlers will need to supply additional should result in no additional on handlers, and shouldn’t be adopted information on their monthly reports of marketing, testing or accounting for the Northeast. Michigan Milk receipts and utilization. Handlers that requirements in those orders. At least Producers expressed concern that the are filing reports in orders that currently

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00081 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.090 pfrm08 PsN: 02APP2 16106 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules have multiple component pricing and a nonfat solids in Class IV times the equaling the combined value of the skim somatic cell adjustment will see little or nonfat solids price, and the pounds of and butterfat prices for the lowest- no change in their reporting butterfat in Class IV times the butterfat priced class in the previous month. By requirements. Under orders that are price will comprise the value of Class IV computing the partial payment on a adopting component pricing for the first producer milk. Milk used in Classes III hundredweight basis, confusion about time, the pounds of protein, the pounds and IV in orders that do not include the use of partial month component test of other solids, and somatic cell MCP will be paid for on the basis of the averages will be eliminated and information will be needed in addition butterfat price per pound and the handler’s partial payroll processing to the product pounds and the butterfat applicable skim milk price per costs should not be affected. Final currently reported. This data will be hundredweight. Also included will be payments to producers and for 9(c) milk required from each handler for all the appropriate somatic cell adjustment will be based on: (a) the hundredweight producer receipts, including milk applied to milk in Class II, Class III, and of milk times the producer price diverted by the handler, receipts from Class IV, the value of overage, the value differential adjusted for location, (b) the cooperatives as 9(c) handlers and, in of inventory reclassification, the value pounds of protein times the protein some cases, receipts of bulk milk of other source receipts and receipts price, (c) the pounds of other solids received by transfer or diversion. from unregulated supply plants times the other solids price, (d) the Payments by handlers to cooperative allocated to Class I, and the value of pounds of butterfat times the butterfat associations for Class I milk will be handler location adjustments. price, and (e) the somatic cell calculated on the basis of the For each marketwide pool using MCP, adjustment rate times the hundredweight of Class I skim milk a producer price differential price per hundredweight of milk. times the Class I skim price plus the hundredweight will be computed that Since producers will be receiving pounds of Class I butterfat times the will represent producers’ shares of the payments based on the component Class I butterfat price. Payment for Class value of the pool. The total value of levels of their milk, the payroll reports II milk will be determined on the basis milk to handlers in excess of the value that handlers supply to producers and of the Class II pounds of nonfat solids of producer protein, other nonfat solids to the Market Administrator must reflect times the Class II nonfat solids price (or, and butterfat at the applicable the basis for such payment. Therefore in non-MCP orders, the Class II skim component prices will be determined by the handler will be required to supply milk price times the hundredweight of dividing that value by the the producer not only with the Class II skim milk), and the pounds of hundredweight of milk in the pool. For information currently supplied, but butterfat in Class II times the Class II orders without MCP, the value of milk also: (a) The pounds of butterfat, butterfat price. The Class II nonfat solids to handlers will be divided by the protein, and other solids in the price is computed by dividing the Class hundredweight of producer milk to producer’s milk, as well as the average II skim milk price by 9. Class III milk compute a uniform price per somatic cell count of the producer’s will be paid for based on the pounds of hundredweight to producers. milk, and (b) the minimum rates that are protein in Class III times the protein The handler’s obligation to the required for payment for each pricing price, the pounds of other solids in producer settlement fund under MCP factor and, if a different rate is paid, the Class III times the other solids price, orders will be determined by subtracting effective rate also. The requirement that and the pounds of butterfat in Class III from the handler’s value of milk the payment factors be reported to times the butterfat price. The pounds of following values: (a) The total pounds of producers when producers are paid nonfat solids in Class IV times the producer milk times the producer price currently exists in all of the orders. nonfat solids price, and the pounds of differential adjusted for location, (b) the Addition of the component information butterfat in Class IV times the butterfat total pounds of butterfat times the is purely a conforming change. price will be used to calculate butterfat price, (c) the total pounds of Administration of these provisions obligations for Class IV milk. Milk used protein times the protein price, (d) the should not be changed from current in Classes III and IV in orders that do total pounds of other solids times the practices. not include MCP will be paid for on the other solids price, (e) the total value of With advance pricing of Class I and basis of the butterfat price per pound the somatic cell adjustments to the inherent instability of the and the applicable skim milk price per producers’ milk, and (f) the value of commodity markets there may be hundredweight. The appropriate other source milk in Class I at the occasions when the computation of the somatic cell adjustment will apply to producer price differential with any producer price differential results in a milk in Class II, Class III, and Class IV. applicable location adjustment at the value of zero or below. The orders The Class I value of milk to handlers plant from which the milk was shipped should contain no provision to prevent will be calculated by multiplying the deducted from the handler’s value of the producer price differential from hundredweight of producer skim milk milk. In orders without MCP, handler being a negative value. in Class I times the Class I skim price obligations will be computed by The following tables contain the plus the pounds of Class I butterfat subtracting the value of producer milk prices computed based on the formulas times the Class I butterfat price. Class II at the uniform price per hundredweight and data series described in this final milk value will be computed on the from the value of milk to the handler. decision for the period of January 1994 basis of the Class II nonfat solids price Payments to producers traditionally through December 1998. The prices are times the pounds of total nonfat solids have been made in two payments, a shown for information purposes only. in skim milk allocated to Class II and partial payment based, in most cases, on These prices result from the strict the pounds of butterfat in Class II times the prior month’s Class III price and a application of the formulas to prior the Class II butterfat price. Class III milk final payment at the uniform price to marketing situations. These prices value will be computed based on the producers. This traditional payment should not be interpreted as prices that pounds of protein in Class III times the system will continue, with any would have actually occurred protein price, the pounds of other solids exceptions for local marketing practices throughout the data period because in Class III times the other solids price, noted in the regional discussions. The industry participants likely would have and the pounds of butterfat in Class III partial payment will be paid on a per reacted differently to the price levels times the butterfat price. The pounds of hundredweight basis with the price that would have resulted from the

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ACTUAL CLASS PRICES AND FINAL DECISION CLASS PRICES AND CLASS I PRICE MOVER,* BY MONTH, JANUARY 1994 THROUGH DECEMBER 1998 [Dollars per cwt.]

Final class I Year and month Basic for- price Final class Class III±A Final class Class II Final class mula price mover * III price price IV price price II price

1994 January ...... $12.41 $11.72 $11.49 $10.22 $10.22 $13.25 $11.05 February ...... 12.41 11.73 11.64 10.23 10.19 12.26 10.90 March ...... 12.77 12.02 12.33 10.32 10.33 12.61 11.01 April ...... 12.99 12.90 12.89 10.34 10.41 13.19 11.10 May ...... 11.51 12.15 11.05 10.24 10.17 13.88 11.06 June ...... 11.25 10.56 10.37 10.09 10.10 12.18 10.72 July ...... 11.41 11.10 10.90 10.13 10.18 10.35 10.80 August ...... 11.73 11.63 11.06 10.38 10.42 11.84 11.03 September ...... 12.04 11.84 11.76 10.35 10.32 12.95 10.93 October ...... 12.29 11.92 11.74 10.36 10.31 12.15 10.90 November ...... 11.86 11.80 11.49 10.40 10.36 12.53 11.01 December ...... 11.38 10.91 10.88 10.17 10.16 12.24 10.87 Average ...... 12.00 11.69 11.47 10.27 10.26 12.45 10.95 1995 January ...... 11.35 10.64 10.66 10.06 10.07 11.02 10.71 February ...... 11.79 11.19 11.33 10.12 10.23 11.35 10.85 March ...... 11.89 11.59 11.49 10.22 10.25 12.20 10.85 April ...... 11.16 11.07 11.08 10.27 10.28 12.09 10.89 May ...... 11.12 10.74 10.55 10.21 10.29 12.19 10.89 June ...... 11.42 10.78 10.56 10.37 10.36 11.46 11.04 July ...... 11.23 11.10 10.64 10.61 10.60 11.42 11.23 August ...... 11.55 11.00 10.88 10.82 10.94 11.72 11.52 September ...... 12.08 12.51 12.37 10.90 10.89 11.53 11.52 October ...... 12.61 12.93 12.69 11.66 11.46 11.85 12.09 November ...... 12.87 13.19 12.96 12.40 11.95 12.38 12.52 December ...... 12.91 13.34 12.84 11.24 11.13 12.91 11.61 Average ...... 11.83 11.67 11.50 10.74 10.70 11.84 11.31 1996 January ...... 12.73 12.82 12.32 11.16 11.15 13.17 11.84 February ...... 12.59 12.62 12.37 10.39 10.70 13.21 11.63 March ...... 12.70 12.66 12.52 10.32 10.49 13.03 11.17 April ...... 13.09 12.84 13.15 10.52 10.65 12.89 11.29 May ...... 13.77 13.68 13.12 11.90 11.74 13.00 12.12 June ...... 13.92 14.28 13.31 15.12 14.25 13.39 14.07 July ...... 14.49 15.41 13.41 16.01 15.32 14.07 15.95 August ...... 14.94 15.32 14.02 15.82 15.44 14.22 16.35 September ...... 15.37 15.74 15.17 15.85 16.09 14.79 15.89 October ...... 14.13 15.28 13.54 14.94 14.82 15.24 15.62 November ...... 11.61 12.33 11.33 12.18 12.10 15.67 13.03 December ...... 11.34 11.06 10.68 11.75 11.76 14.43 12.67 Average ...... 13.39 13.67 12.91 13.00 12.88 13.93 13.47 1997 January ...... 11.94 11.62 11.05 11.50 11.68 11.91 12.52 February ...... 12.46 11.95 11.56 12.36 12.34 11.64 13.02 March ...... 12.49 12.74 11.55 12.78 12.80 12.24 13.33 April ...... 11.44 12.65 11.23 12.10 12.13 12.76 12.87 May ...... 10.70 11.20 10.23 11.56 11.58 12.79 12.53 June ...... 10.74 11.95 9.96 12.22 12.06 11.74 12.77 July ...... 10.86 11.98 10.13 12.06 11.93 11.00 12.54 August ...... 12.07 11.97 11.50 11.88 11.91 11.04 12.63 September ...... 12.79 12.42 12.32 11.87 11.83 11.16 12.55 October ...... 12.83 12.76 12.54 13.50 13.29 12.37 13.98 November ...... 12.96 13.80 12.59 14.01 13.86 13.09 14.56 December ...... 13.29 13.81 12.55 12.46 12.72 13.13 13.43 Average ...... 12.05 12.40 11.43 12.36 12.34 12.07 13.06 1998 January ...... 13.25 12.76 12.51 12.04 12.29 13.26 13.02 February ...... 13.32 13.03 12.87 12.89 13.07 13.59 13.78 March ...... 12.81 12.75 12.50 12.67 12.79 13.55 13.49

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ACTUAL CLASS PRICES AND FINAL DECISION CLASS PRICES AND CLASS I PRICE MOVER,* BY MONTH, JANUARY 1994 THROUGH DECEMBER 1998ÐContinued [Dollars per cwt.]

Final class I Year and month Basic for- price Final class Class III±A Final class Class II Final class mula price mover * III price price IV price price II price

April ...... 12.01 12.69 11.50 12.88 12.90 13.62 13.59 May ...... 10.88 13.27 10.65 13.96 13.54 13.11 14.24 June ...... 13.10 14.20 12.65 15.38 14.89 12.31 15.54 July ...... 14.77 15.35 14.12 15.59 15.62 11.18 16.15 August ...... 14.99 16.25 14.21 16.52 16.38 13.40 16.96 September ...... 15.10 18.32 14.66 19.81 18.71 15.07 19.28 October ...... 16.04 18.06 16.05 18.13 18.19 15.29 18.67 November ...... 16.84 16.82 16.90 14.87 15.71 15.40 16.39 December ...... 17.34 17.44 17.51 13.48 13.39 16.34 13.98 Average ...... 14.20 15.08 13.84 14.85 14.79 13.84 15.42 60-Month Avg ...... 12.70 12.90 12.23 12.24 12.20 12.83 12.84 * Developed for informational purposes only. Advanced skim milk and butterfat prices will be used to calculate Class I price for succeeding month.

BILLING CODE 3410±02±M opportunity to consider and establish a and supply points—to simplify a very 3. Class I Pricing Structure nationally coordinated Class I pricing complex problem. The production of surface that uses location adjustments to milk and the consumption of dairy This decision adopts a Class I pricing the differential levels to price milk for products are fixed at the various supply structure that provides incentives for fluid use in every county in the United and consumption points used by the greater structural efficiencies in the States. model. Plant locations were restricted to assembly and shipment of milk and The PR provided an extensive review those presently processing products but dairy products. In conjunction with of 7 options that were developed and plant processing locations were not other reforms discussed in this decision, considered. After qualitative and/or constrained with respect to the volume the adopted Class I price structure quantitative analysis, all but Option 1A processed. Processing costs were provides the necessary changes needed and Option 1B were preliminarily assumed to be uniform between to improve milk pricing in the eliminated for various stated reasons. locations and across plant volumes (no consolidated markets. The adopted Nonetheless, the PR invited comments economies of scale). Therefore, the Class I pricing structure results from on any of the seven pricing options or model allowed processing to move additional quantitative and qualitative any other pricing ideas. Also, the among available locations to find the analyses of Option 1A and Option 1B Department indicated a preference for least cost solution in terms of assembly that were presented in the proposed rule Option 1B for a number of reasons. from supply points through distribution issued January 21, 1998 (the PR), Nearly all of the public comments to consumption points. consideration of public comments received in response to the PR on Class received to these options, and the I price structure focused on the relative Transportation costs in the model legislative requirements of the AMAA. merits of Option 1A and Option 1B. No include costs of raw milk assembly, The adopted Class I pricing structure persuasive comments were received to interplant bulk shipment, and the cost utilizes USDSS model results adjusted cause the Department to further of hauling finished products. for all known plant locations and consider the other five options. Transportation costs among regions establishes differential levels that will reflected not only distance traveled, but generate sufficient revenue to assure an The USDSS Model also differences in wage rates and State adequate supply of milk while Option 1A and Option 1B were based highway weight limit restrictions. While maintaining equity among handlers in to a significant degree on the U.S. Dairy assembly costs and interplant bulk the minimum prices they pay for milk Sector Simulator Model (USDSS). The shipments were calculated using a bought from dairy farmers. USDSS was used to evaluate the linear cost function, the finished geographic or ‘‘spatial’’ value of milk product functions were non-linear. In Background and milk components across the U.S. fact, finished product hauling costs (e.g., Although not required by the 1996 Using 240 supply locations, 334 packaged milk) fell below raw milk Farm Bill, the legislation provided consumption locations, 622 dairy assembly and hauling costs on an authorization for the Secretary to review processing plant locations, 5 product equivalent unit basis in many cases at the Class I price structure as part of the groups, 2 milk components (fat and distances more than 900 miles. Previous consolidation of the orders including solids-not-fat) and transportation and spatial modeling had assumed the consideration of utilization rates and distribution costs among all locations, constantly higher finished product multiple basing points for developing a USDSS determines economic efficient transportation costs versus raw milk pricing system. In any event, the location values for milk and milk assembly and shipping costs for all consolidation of orders requires the components. The model initially used distances. The updated model results review of the pricing system because data from May and October 1995, and were based on transportation cost historically, Class I pricing provisions, for this decision used updated data from analyses, particularly the reduction in as well as other Federal order May and October 1997. distribution costs for finished products provisions, have been reviewed The supply and consumption of milk resulting in distribution costs for these primarily on an individual market basis. used by the model are aggregated to products on par with bulk milk The reform effort provides the geographic points—consumption points assembly and hauling costs.

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The output from the USDSS model USDSS model does provide an objective recognized that the objective of the provided information as to optimal and quantitative guidepost from which AMAA is to stabilize the marketplace processing locations and volumes at to compare current federal order with minimum prices, not to set market those locations, milk assembly, and differentials and in considering possible prices. The pricing criterion of the intermediate and finished product alternatives. AMAA, section 608c(18), requires prices distribution flows. It represented a least Several factors were considered in that are reflective of economic cost, or ‘‘most efficient’’ organization of selecting a replacement for the current 14 conditions affecting supply and demand the industry. Importantly for the Class I price structure that served to for milk and its products. In this regard, research, the model provided the form the criteria used to examine consideration was given to whether the marginal values (i.e., the value of one options. First, a Class I price structure proposed prices would generate more unit) of milk at each location. must be considered from a national, as sufficient revenue for producers These values, technically known as well as a local or regional, perspective. necessary to maintain an adequate shadow prices, are indicative of values Many comments from industry supply of milk. Equally important, the that are consistent with the optimized addressed Class I pricing issues from a prices need to provide equity to solution. A shadow price on one unit of local or regional perspective in the handlers with regard to raw product milk at any processing location can be development of options presented in the costs as required by section 608c(5) of interpreted as follows: If the processor PR. These comments provided valuable the AMAA. at a particular location had one more information about particular markets unit of milk, the entire pattern of milk but generally did not consider the Evaluation Criteria assembly, and product transportation feasibility or impact of a local or In evaluating the final Class I pricing could be reorganized in such a way that regional issue on a national basis. While options, nine performance criteria, marketing costs, equal to the shadow remaining mindful of local and regional based upon regulatory objectives and price, could be saved. This notion of concerns, USDA has also evaluated requirements of the AMAA, were again marginal value is consistent with alternative Class I pricing structures used as they were in the PR. The economic theory on how prices are from a national perspective, as should evaluation criteria are divided into two determined in a competitive market. be expected, given the national concerns categories, objective and administrative. The significance of the shadow value expressed about milk pricing. The objective criteria are as follows: in terms of milk price regulation may be Second, a Class I price structure must 1. Ensure an adequate supply of milk stated: If the regulated price, or cost of recognize the location value of milk. for fluid use. Class I price levels need milk, is arbitrarily set higher than the Results from the USDSS model confirm to provide a sufficient price signal to shadow price at a particular processing that milk has value at location. As maintain an adequate supply of milk for location, a lower cost solution could be described earlier, the model provided fluid use. This supply level can be shadow prices reflecting the relative found by processing more milk at achieved through either the movement values of milk and milk components at another location. This would imply of milk to where it is needed, increased geographic locations. While the model higher transportation costs for either production, or some combination of shadow prices did not suggest Class I raw milk assembly, finished product both. distribution, or both. Such a result differentials for specific locations, they 2. Recognize quality (Grade A) value clearly leads to a higher cost, less do provide a means to evaluate price of milk. Grade A milk is required for efficient system. It is also contrary to relationships among locations. fluid use. Additional costs of obtaining what is generally thought of as the Third, a Class I price structure must and maintaining Grade A status need to ‘‘orderly marketing’’ of milk which is a recognize all uses of milk. The classified be reflected in Class I prices. fundamental reason for the existence pricing system contained in the Federal and goal of Federal milk marketing milk order program values milk for fluid 3. Provide appropriate market signals. orders. use higher than milk used for soft or A Class I price should send timely It should be stressed that the hard manufactured products. The higher signals to the market regarding supply/ calculated shadow prices of the model Class I price encourages all milk to be demand conditions. output provide information regarding used first to satisfy Class I needs. At the 4. Recognize value of milk at location. the relationship of the prices among point where the cost of moving milk Basic economic theory, validated by geographic locations. They do not from an alternate location for Class I use actual market observations and provide guidance regarding the overall is equal to the cost to supply milk for University-based research, affirms that level of Class I prices or differential manufactured products, demand for milk for Class I use has a different value values. That is, the model does not help manufactured products influences a at different locations. This value needs us understand whether the Class I market’s ability to procure milk for to be reflected in the Class I price in differential should arrive at a Class I Class I needs. Thus, all uses of milk order for the system to recognize and price of $14 in Minneapolis and $15 in must be considered when evaluating a resemble the market rather than New York City, or $15 in Minneapolis national Class I pricing structure. interfere with the market. and $16 in New York City. However, it Finally, a Class I price structure must 5. Facilitate orderly marketing with does tell us that the resulting Class I meet the requirements of the AMAA. coordinated system of prices. A system price difference between the two The broad tenet of the AMAA is to of Class I prices needs to be coordinated locations should be about one dollar. establish and maintain orderly on a national level. Appropriate levels A positive aspect of the USDSS model marketing conditions. For the Federal of prices will provide alignment both is the degree of detail available in the milk order program, this is achieved within and among marketing areas. This output. This detail is achieved through primarily through classified pricing and coordination is necessary for the the careful assembly of spatially pooling. With regard to pricing, it is efficient and orderly marketing of milk. disaggregated data. However, it should 6. Recognize handler equity with be remembered that by its construction, 14 Any references to the ‘‘current’’ system of Class regard to raw product costs. the USDSS is a ‘‘model’’ and thus a I prices or the ‘‘current’’ price structure are to be Appropriate levels of Class I prices interpreted as those established in or after the final simplification of a complex dairy decision based on the 1990 national hearing issued provide known and visible prices at all industry. That notwithstanding, the March 5, 1993 (58 FR 12634). locations thereby ensuring that handlers

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The hundredweight fixed differential for Model Class I price structure should not three surplus zones (Upper Midwest, West, and Southwest) within a nine- Option 1A, modified Option 1B and significantly increase the burden on the adopted Class I pricing structure handlers, particularly small businesses. zone national price surface, and for the other six zones, an added component were evaluated qualitatively against the This would include increased reporting evaluation criteria and quantitatively requirements and record keeping, as that reflects regional differences in the value of fluid and manufacturing milk. utilizing the USDA multi-regional dairy well as possible increases in sector model. This model was administrative assessments should This option emphasized current supply and demand conditions with the USDSS developed to answer some very specific Market Administrators be required to questions about possible changes in the manage a more complex regulatory model output. Some minor changes were made to dairy sector, particularly changes being system. considered in milk marketing orders. 2. Minimize impact on small the Option 1A differential levels presented in the PR. The changes only The main focus of the model’s businesses. The Class I price should be development and use was to set at a level that does not disadvantage involved adjusting certain county specific differentials to provide for more quantitatively examine the impacts of small businesses in competition with the changes under consideration in the large businesses. appropriate price alignment in several counties in the northeast, seven classified pricing of milk and dairy 3. Provide long-term viability. The products in the milk order system on an Class I price structure should be counties in Florida, and one county in North Carolina. Other than these minor order-by-order and regional basis, and expected to operate for an extended for other areas of the country not time period without major changes, Option 1A is the same as published in the PR. currently a part of the milk order modifications. system. The nine evaluation criteria listed Modified Option 1B: Relative Value- The multi-regional model establishes above are used to qualitatively evaluate Specific Differentials each of the options. Each option is a baseline consistent with the USDA evaluated based on how the option This option continues to establish official baseline projections for the dairy performed compared to the current Class I differentials based on a sector. It assumes 36 regions. These system, either better than, worse than, relationship between prices and include: 32 Federal Milk Marketing or the same as, for each performance geographic location as indicated by the Order areas (including Tennessee Valley criterion. The results of the qualitative USDSS model, but uses more current that was terminated on October 1, 1997) analysis provided a preliminary data. Modifications were made to and four non-Federally regulated areas framework for quantitative analysis Option 1B with respect to how adjusted (California, Other Unregulated Western using a multi-regional model developed Class I differentials were established for Counties, Unregulated Northern New by the Economic Research Service (ERS) each county in the United States. This York and New England and Other of the Department. modified version of Option 1B Unregulated Eastern Counties) and As previously indicated, Option 2— continues to establish differential levels projects baseline information through Relative Use Differentials, Option 3A— by setting and equating the relative the year 2005. The demarcation between Flat Differentials, Option 3B—Modified value-specific differential of $1.20 per the unregulated Western and Eastern Flat Differentials, Option 4—Demand- hundredweight in Minneapolis, counties follows a line extending north Based Differentials, and Option 5— Minnesota. The Option 1B differentials to south on the eastern State borders of Decoupled Baseline Class I Prices with in the PR relied on an algorithm to set North Dakota, South Dakota, Nebraska, Adjustors, were eliminated from further location adjusted differentials in every Kansas, Oklahoma and Texas. consideration. They were eliminated for county. The modified Option 1B price The model baseline also assumes that various reasons including failure to surface takes into full account all known the Class III price would be the Basic adhere to AMAA requirements, the plant locations as was done in the Formula Price (BFP), the Class II price likelihood of creating disorderly development of Option 1A. This would be the BFP plus 30 cents, each marketing conditions, and impacts on approach ensures that all plants region’s Class I price would be the BFP small businesses. A discussion of the similarly located would have similar plus the current Class I differential and five eliminated options, including the prices. the Class III-a price would continue. All other changes to milk order provisions evaluation against the criteria and/or The Adopted Class I Price Structure quantitative analysis were described in together with the three price surface detail in the PR. The adopted Class I pricing structure alternatives are presented as changes establishes a price surface that also from the baseline over the period of the The Final Options utilizes USDSS model results adjusted years 2000 through 2005. Each of the Three options formed the basis for for all known plant locations and alternatives include the impact of final consideration and are described establishes differential levels that will consolidation into 11 regional markets below. All options present national result in prices that generate sufficient and moving to wholesale product price Class I pricing structures developed revenue to assure an adequate supply of formulas in setting the class prices. utilizing the USDSS model. The options milk. The differential levels will better From its baseline, the model has the continue to vary in their reliance and maintain equity by raising the level 40 ability to quantify the impacts of pricing application of the USDSS model but all cents per hundredweight higher than changes in the consolidated regions and remain based on economic principles the level proposed in Option 1B and in in estimating how the end use of milk contained within the model. These modified Option 1B. The higher may be expected to change with the options include Option 1A, a modified differential level reduces the likelihood changes in how the order program will Option 1B, and the adopted Class I of class-price inversions, where the price milk. The model can generate pricing structure. Class I prices are below the long-term supply, demand, and price

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00086 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.096 pfrm08 PsN: 02APP2 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16111 projections that are consistent with the A Class III and Class III-a (or Class IV) based on results of the USDSS model, USDA official baseline projections. price is calculated from the model’s knowledge of current supply and The model estimates regional milk estimates of wholesale cheese, butter, demand conditions, and recognition of production based estimates of milk-per- and nonfat dry milk prices; and these other marketing conditions such as fluid cow and number-of-cows for the 36 Class III and Class III-a (or Class IV) versus manufacturing markets, urban defined areas. The milk cow inventory prices are used to predict Class I and versus rural areas, and surplus versus and milk-per-cow estimates for each Class II prices. Changes in Class I and deficit markets. area is based upon reported state data. Class II prices affect demand for Class Class I differentials under this option Changes in the inventory of cow I and Class II products and the amount range from a low of $1.60 per numbers and output-per-cow for each of milk available nationally for cheese, hundredweight in the lowest valued region are related to regional farm milk butter, and nonfat dry milk production. zones of the Upper Midwest, Southwest, prices and feed costs, and past regional Likewise, the amount of milk used in and West, where there are abundant net returns to dairy farmers (a measure each class in each region and the supplies of milk in excess of fluid milk of profitability). Milk marketings in the regional class prices affect the farm level use, to a high of $4.30 per region are in direct relationship to milk all-milk price and the supply of raw hundredweight in Florida, where there production in the region. milk in the region and therefore the are deficit supplies of milk for fluid use. Once the volume of regional milk amount of milk available nationally for Analysis Based on Evaluation marketings is determined, marketings cheese, butter, and nonfat dry milk Criteria. Option 1A performs equal to or are distributed to seven uses: bottled production. The model iterates until an better than the current Class I system in whole milk, bottled low-fat milk, soft equilibrium is achieved for the year in each of the evaluation criteria. This is manufactured dairy products, American the wholesale product markets and then largely explained by the adjustments, cheese, other cheese, butter, and nonfat advances to the next year. improvements, and fine-tuning made to dry milk. Each of the seven uses has a A brief summary of the quantitative the current system of Class I retail demand equation. Generally, the impacts of each alternative price surface differentials Option 1A was evaluated demand for the specific product is a is included with the qualitative analysis against the objective criteria as follows: function of per capita income, the retail presented below. A detailed description 1. Ensure an adequate supply of milk price or the Consumer Price Index (CPI) of the USDA multi-regional dairy for fluid use. Option 1A performs of the product, and the price or CPI of model, as well as a complete discussion essentially the same as the current price a substitute product (e.g. margarine for of the impacts of the pricing alternatives structure in ensuring an adequate butter). are contained in the Final RIA. supply of milk for fluid use. Option 1A Demands for raw milk for use in fluid changes current differential levels in milk products and soft manufactured Option 1A: Location-Specific some regions to more accurately reflect dairy products have priority in the Differentials current milk supply-demand conditions. model and such demands are filled Option 1A would establish a Option 1A will have minimal impacts regionally from the region’s raw milk nationally coordinated system of on farm level milk prices and should supply before the national demands of location-specific Class I differentials ensure adequate supplies of milk for the hard manufactured product markets reflecting the relative economic value of fluid use. are met. The Class I and Class II uses of milk by location. An important feature 2. Recognize quality (Grade A) value milk in each region are based upon of the option is the location adjustments of milk. Option 1A recognizes the differences in prices and population by that geographically align minimum quality value (Grade A) of milk through region. A CPI for fluid milk and other Class I milk prices paid by fluid milk the addition of a differential that begins dairy products are estimated for each processors nationwide regardless of the at $1.60 per hundredweight in the base region based upon a margin mark-up defined milk marketing area boundaries zone. equation and the region’s Class I and or order pooling provisions. A basic 3. Provide appropriate market signals. Class II prices. These values are used to premise of Option 1A is that the value Option 1A adjusts and refines the estimate regional per capita use, and of milk varies according to location existing Class I price structure to when multiplied by projected across the United States. provide appropriate market signals. In population for each region, determine Compared to the modified Option 1B some geographical areas, Class I the amount of milk allocated to Class I and the adopted Class I price structure, differentials would be increased. These and Class II uses. this option tends to most reflect the changes indicate that current Class I The sum of each region’s raw milk current Class I pricing surface. Although differential levels are not high enough to supply less the milk used in Class I and extremely similar to the current Class I attract adequate supplies of milk to the Class II results in a measure of the price surface, there are distinct applicable fluid milk markets. In certain national manufacturing milk supply. differences. Option 1A would establish other areas, Class I differentials would The model solves for equilibrium in a nationally coordinated price surface be lowered, indicating that they exceed supply and demand by solving for that uses location adjustments to adjust levels necessary to adequately supply wholesale prices of cheese, butter, and the price of milk for fluid use for every the associated markets with their fluid nonfat dry milk that equate the supply county of the United States. milk needs. and demand in the hard manufactured Under Option 1A, Class I differentials 4. Recognize value of milk at location. dairy product markets. The hard are the lowest in geographical areas The spatial values of milk reflected in manufactured product markets, the evidencing the largest supplies of milk Option 1A recognize the value of milk Class I markets, the Class II markets, and relative to local/regional fluid milk at location more accurately than the the farm level raw milk supply are needs. The differentials become current system for two principal linked through price equations that progressively higher as they move from considerations. First, in structuring the relate the changes in wholesale product these areas to markets with less differentials in Option 1A, the effect of prices to changes in prices for milk used production relative to demand for fluid current Class I differential levels on in Class I, Class II, Class III, Class III-a milk. Nine differential zones provide milk supplies, demand, and dairy (or Class IV) and the farm level all-milk the basis for establishing the price farmer returns regionally during the past price. structure. These zones were established decade were considered. Second, the

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00087 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.097 pfrm08 PsN: 02APP2 16112 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules relative values of milk and milk for fluid milk between location, it could ‘‘zoned’’ structure of relative price components at geographic locations not be used for determining an differences that are aligned. throughout the United States from the appropriate differential level. Option 1A Modified 1B Differential Level USDSS model results were considered. utilizes $1.60 per hundredweight as the 5. Facilitate orderly marketing with minimum differential level. A complete As pointed out in the Option 1A coordinated system of prices. Option 1A explanation of the factors that discussion, the USDSS model only provides a comprehensive national developed and explain this differential provided information regarding relative pricing surface for Class I milk that level was set forth in the PR. In differences in prices between establishes a value for Class I milk in summary of those reasons, the $1.60 per geographic locations and offers no every county. Thus the price any hundredweight differential level is used information for determining the level of processor would pay for milk would be in Option 1A because it would ensure Class I differentials used in setting Class the same regardless of which order the a sufficient supply of milk for fluid uses I prices. The same is true for modified processor is regulated under. As such, in the most surplus regions. Option 1B. Modified Option 1B relies Option 1A is an improvement over the Option 1A will have little impact on much more directly on the geographic current price structure which evolved in small businesses, either producers and price relationship results of the USDSS a piecemeal fashion. Additionally, the processors. In certain situations, it may model in defining the structure and Class I differentials and location improve a small business’ competitive relative differences represented in its adjustments in Option 1A would marketing position as compared to differential schedule for all locations. While modified Option 1A establishes facilitate more efficient and orderly current levels. Because the $1.60 base a $1.70 Class I differential at marketing of milk for fluid use through zone differential includes a competitive Minneapolis, adjusted from a minimum the nationwide coordination of prices factor as discussed previously, more of level of $1.60 (the lowest differential when compared to the current system. the actual value of fluid milk will be level at any location in Option 1A), 6. Recognize handler equity with reflected in the minimum Federal order modified Option 1B sets a Class I regard to raw product costs. Class I price. This may decrease the level of the differentials proposed under Option 1A differential at Minneapolis at the over-order value that must be negotiated are consistent with the inherent current level of $1.20 per between processors and producers. economic value of milk at location. The hundredweight. It is important to note Doing this would provide small coordination and alignment of prices, that any modified Option 1B zone could businesses with a more equitable based upon cost differences and current be discussed as the ‘‘starting’’ point competitive position. marketing conditions, better ensures differential. This decision only refers to handlers of equity in competing for Quantitative analysis of Option 1A and references Minneapolis at the $1.20 available milk supplies. using the USDA multi-regional model level for illustrative purposes since it Option 1A was evaluated against the evaluated the various impacts of this provides a degree of continuity in how objective criteria as follows: pricing option. Overall, the magnitude Option 1B was presented and discussed 1. Minimize regulatory burden. of price and income changes under in the PR. Option 1A would not change the Option 1A is relatively small when Because Option 1B was expected to regulatory burden of the Federal order compared to the baseline. Option 1A result in a significant change to the program. Option 1A would not result in results in an 8-cent increase in the industry in both the pricing surface and increased reporting, record keeping, average Class I price for all current the level of Class I differentials, it was compliance, or administrative costs to Federal orders. Further details of the proposed in the PR in conjunction with handlers. impact of these Class I price changes, three alternative transitional phase-in 2. Minimize impact on small and others, that are based on the USDA programs. However, none of the phase- businesses. In regions where more of the model results are available in the final in programs received public support. actual value of fluid milk would be Regulatory Impact Analysis (RIA). The final RIA statement provides the reflected in the differentials than is Modified Option 1B—Relative Value- full measure of the USDA multi-regional currently reflected, small businesses Specific Differentials model analysis of this option. In short, may have a marginal improvement in modified Option 1B is rejected because their relative competitive bargaining Modified Option 1B would also the differential levels it would set position vis-a-vis large businesses. This establish a nationally coordinated would result in minimum prices that is based on the concept that large system of Class I differentials and would not generate sufficient revenue to businesses (producers, cooperatives or adjustments that recognizes several low assure an adequate milk supply. handlers) are better able to negotiate pricing areas. Modified Option 1B more Additionally, for markets with lower premiums above minimum order prices directly applies the USDSS model’s differential levels, there is a greater due to advantages attained from their optimal solution in developing the Class potential for class-price inversions that size. Overall, this option is not expected I price structure. would increase the likelihood of to materially impact small businesses The modified Option 1B differentials disorderly marketing conditions. differently than the current price differ from those published in the PR. The Adopted Class I Price Structure structure. The differences are explained largely by 3. Provide long-term viability. To the a more complete consideration of all The adopted Class I pricing structure extent the location adjusted Class I known plant locations. The Option 1B results from additional quantitative and differentials under Option 1A will differential values published in the PR qualitative analyses of Option 1A and correct instances of price misalignment relied on an algorithm to establish Option 1B, consideration of public and more accurately reflect the differential levels for those counties that comments received to these options, economic value of milk by location, the were not part of the optimal solution. and the legislative requirements of the long-term viability of Option 1A is However, all plant locations need to be AMAA. The adopted Class I pricing expected to exceed that of the current considered for setting prices at these structure utilizes USDSS model results price structure. locations and prices must be aligned adjusted for all known plant locations Because the USDSS model only between locations. This has been done and establishes differential levels that determines the relative value differences in modified Option 1B and results in a will generate sufficient revenue to

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COMPARATIVE CLASS I DIFFERENTIALS AT SELECTED CITIES UNDER THE ADOPTED CLASS I PRICE STRUCTURE [Dollars per hundredweight]

City Current Adopted Difference

New York City, NY ...... 3.14 2.50 (0.64) Charlotte, NC ...... 3.08 2.55 (0.53) Atlanta, GA ...... 3.08 2.90 (0.18) Tampa, FL ...... 3.88 4.20 0.32 Cleveland, OH ...... 2.00 2.00 0.00 Kansas City, MO ...... 1.92 1.90 (0.02) Minneapolis, MN ...... 1.20 1.60 0.40 Chicago, IL ...... 1.40 1.95 0.55 Dallas, TX ...... 3.16 2.10 (1.06) Salt Lake City, UT ...... 1.90 1.50 (0.40) Phoenix, AZ ...... 2.52 1.55 (0.97) Seattle, WA ...... 1.90 1.45 (0.45)

The adopted Class I pricing structure all markets even though the adopted 5. Facilitate orderly marketing with was evaluated against the objective Class I pricing structure lowers coordinated system of prices. The criteria as follows: differentials in some markets. Over- adopted Class I pricing structure 1. Ensure an adequate supply of milk order pricing will likely function in establishes a coordinated system of for fluid use. The adopted Class I most, if not all markets, even with the differentials with appropriate location pricing structure establishes lower higher-level differentials. However, the adjustments. Like the other two options, differentials than current levels in many higher differential level better ensures a comprehensive national pricing of the proposed markets. Because the that the minimum prices established surface has been developed that differential level is higher than under under the orders will generate a establishes a value for Class I milk in modified Option 1B, the adopted Class sufficient supply of milk and better every county. As a result, a processor’s I pricing structure relies less on the use ensures equitable minimum prices regulated price will be the same of over-order premiums as the method among regulated handlers than does regardless of the order regulating it. to attract adequate milk supplies for modified Option 1B. Additionally, 6. Recognize handler equity with fluid purposes. While over-order because class-price inversions are premiums will remain useful for mitigated, more appropriate price regard to raw product costs. With the allowing the market to find the final signals are provided to the marketplace. 40-cent per hundredweight increase in value of Class I milk, the higher-level the differential level, processor equity is 4. Recognize value of milk at location. better maintained under the adopted differentials of the adopted Class I The adopted Class I pricing structure Class I pricing structure. With price pricing structure will better serve to appropriately recognizes the value of increases or decreases in some areas, the ensure that the minimum prices set by milk at location. It is based on the markets will need to adapt to the new the orders will attract an adequate location value of milk as determined by supply of milk for fluid use. the May 1997 results of the USDSS pricing structure. While it is not the 2. Recognize quality (Grade A) value model. It also aligns the relative-value intent of the Federal order system to set of milk. As with Option 1A and differences while adhering to spatial- market prices, the reflection of a larger modified Option 1B, the adopted Class value differences determined by the portion of the price under regulation I pricing structure similarly recognizes model giving full consideration to all provided by the adopted Class I pricing the quality (Grade A) value of milk plant locations. Thus, in utilizing the structure, better assures handlers a through the use of a differential added model results that determine the most reasonable degree of equity with regard to the basic formula price. efficient spatial value of milk for fluid to raw product costs. 3. Provide appropriate market signals. use to establish the price surface, the The adopted Class I pricing structure The adopted Class I pricing structure adopted Class I pricing structure should was evaluated against the administrative provides appropriate market signals in perform better than the current system. criteria as follows:

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1. Minimize regulatory burden. The the adopted Class I pricing structure with shortening the advance pricing adopted Class I pricing structure would minimizes this potential outcome. The notice of Class I prices by 18 days as not change the regulatory burden of the inability of small processors to compete discussed in the BFP section of this Federal order program in terms of with large processors at price levels decision, minimizes class-price reporting, recordkeeping, compliance, above Federal order minimums is inversions. The rise in the all-milk price and administrative costs to handlers. similarly eased. in the first year of implementation is 2. Minimize impact on small 3. Provide long-term viability. The expected to stimulate additional milk businesses. Under the adopted Class I adopted Class I pricing structure production in the milk order system. pricing structure, a fuller measure of the provides for a more efficient pricing This additional milk production results Class I value needed to attract adequate structure. This option is an alternative primarily from Class I prices being milk supplies will come from regulated from the current way the Federal order established by using the expected higher prices. Reliance on over-order payments program has approached Class I pricing. Class IV prices in the year 2000. Over negotiated outside the Federal order Historically the Class I price established the six-year analytical period, the system is diminished, but continues to under Federal orders represented the annual all-milk price is expected to be recognized as in either the current minimum value of Class I milk in the drop by about two cents per system or in Option 1A. As a result, it marketplace based on the cost of hundredweight, but the annual average is likely that small handlers who might maintaining Grade A milk and of marketings in the entire milk order have been disadvantaged by the original associated marketing costs together with system is expected to increase by about Option 1B will not be under this the cost of alternative milk supplies. 8.3 million pounds when compared to modified version. The adopted Class I pricing structure the baseline. This increase in Federal order Class I prices are provides the opportunity for increased marketings is largely explained by the mandatory and affect processors in a marketing efficiencies by promoting a pooling of milk that was not pooled in specific area equally as minimum more optimal organization in the recent years because of class-price enforced price levels. Since more of the assembly and distribution of milk inversions. actual value of Class I milk is products while establishing prices that The USDA analytical model suggests represented in regulated prices, the will assure an adequate milk supply. In that annual cash receipts, or revenue, potential for large handlers to have an this way, it is expected to have long- for producers under the adopted Class I advantage over small handlers is term viability. pricing structure will increase in many mitigated in competing for a supply of Quantitative analysis of the adopted markets when compared to the baseline. milk under the adopted Class I pricing Class I pricing structure using the USDA The marketing areas expected to have structure. Large processors often have multi-regional model evaluated the the largest average annual increases in advantages related to economies of scale various impacts of this pricing option. producer revenue include the following and may be able to temporarily inflate The evaluation assumed the eleven orders: Chicago Regional—$43.1 over-order prices they are willing to pay market order consolidation, four classes million, New York-New Jersey—$18.7 until they have forced smaller of milk use, and the BFP replacement businesses out of business who could presented earlier in this decision. Class million, Iowa—$17.5 million, Southern not afford to pay higher prices. I differentials are reduced from current Michigan—$14.1 million, and Tampa Additionally, with higher differentials levels in about half of the marketing Bay—$12.2 million. Other markets and resulting higher producer blend orders. The reductions range from 4 would be expected to have lower prices, the balance of market power cents per hundredweight in the Ohio estimated annual cash receipts over a between producers and processors is Valley order to as much as $1.18 per six-year analytical period of the years better maintained. Producers will not hundredweight in the Eastern Colorado 2000–2005 from the baseline. The need to negotiate with processors to order. The Class I differential for the marketing orders with the largest obtain a better price for their milk to the Eastern Ohio-Western Pennsylvania reductions include: Texas (¥$39.7 extent that would have been expected order would be unchanged. For the million), Middle Atlantic (¥$39.5 under modified Option 1B. Small dairy other markets, the Class I differential is million), Eastern Colorado (¥$11.4 farmers have less production volume, increased, ranging from 8 cents per million), Southwest Plains (¥$11.3 and typically have higher per hundredweight in the Greater Kansas million) and Central Arizona (¥$10.4 hundredweight production costs. City order, to 57 cents in the million). Hence, small producers who are less Southeastern Florida order. The USDA analytical model suggests able to negotiate for prices that may be Under the adopted Class I pricing that as the adopted Class I pricing higher than the Federal order minimum structure, six current milk orders would structure results in lower Class I prices price will be better served under the have Class I differentials lower than the in many markets, the average annual adopted Class I pricing structure. When differential established at Minneapolis. impact on retail prices to the consumer too much reliance is placed on the use This gives explicit recognition that these for fluid milk will be about 2 cents per of over-order premiums (as in modified other areas have adequate milk supplies gallon less, on average, over the six-year Option 1B), it is likely that dairy farmers to satisfy Class I demands at lower costs. period of the years 2000–2005 when defined as small businesses would For areas needing supplemental compared to the baseline. From a benefit less from the regulation of milk supplies of milk for fluid use, the Class national perspective, this translates into marketing. I differentials are reflective of consumer savings of about $79 million Small businesses may be impacted transportation costs from the closest for fluid milk products annually. Sales under the adopted Class I pricing alternative supply area. of manufactured dairy products over the structure as adjustments are made in According to the USDA model same time period are expected to response to the new pricing structure. analysis, the adopted Class I pricing decrease somewhat, but expenditures However, to the extent that small structure differential level would for these products will be higher. producers may not be able to bargain increase order marketings over the six- While only summarized here, the with processors for over-order year analytical period of the years 2000– complete USDA multi-regional model premiums to adequately cover their 2005 when compared to the baseline. analysis of Options 1A, modified Option costs, the increased differential level in Raising the differential, in conjunction 1B and the adopted Class I pricing

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00090 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.101 pfrm08 PsN: 02APP2 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules 16115 structure are included in the final RIA Public Comments began. They point out that even though statement. The majority of comments received in there are fewer and larger dairy farms with greater milk production, the Comparison of Option 1A and the response to the PR dealt with the Class number of plants at which to sell milk Adopted Class I Price Structure I price structure. In all, 4,217 comments were received on this issue. Of this are fewer than when the order program Option 1A and the adopted Class I number, 3,579 comments indicated first began. Implicit in this relationship, pricing structure have similarities but support for the adoption of Option 1A they said, is the degree of uneven rely on differing methods in and 436 comments supported the market power that handlers have over constructing a nationally coordinated adoption of Option 1B. Some support producers. One commenter noted that Class I price structure. Both recognize USDA of both Class I pricing options the ratio of dairy farmers to milk plants today has increased threefold since that milk has a location value. Both called for changes in each of the 1960, an indicator of the growth in the utilized the USDSS model results to Option’s details. No comments were concentration of market power among establish the price surface. Both received that supported any sort of handlers. Even the prominence of dairy establish Class I prices by adding a fixed transition programs suggested in farmer cooperatives over the years has differential to the implied value of milk adopting Option 1B. Some comments, had little significant impact on the used in manufacturing. Both establish a while supporting Option 1B in its relative bargaining power of dairy price surface that assigns a price to general theme, proposed adopting farmers, noted many commenters. While every county in the United States and Option 1A initially and phasing in the these organizations have served with would assure that a price at any adoption of Option 1B over an extended particular location will not vary varying degrees of success in negotiating time period. for higher milk prices for their members, depending upon the marketing order It is clear from the comments received they said, cooperatives do not and under which the milk is pooled. that there is broad-based support for cannot have the ability to significantly Although similar in the above adopting Option 1A. These commenters impact prices because no entity can respects, they also differ. First, they explained what they thought were and control or limit the supply of milk to the differ in the method of determining the should be the most important goals of level of the Class I differential. Option marketplace. Because dairy farmers face the milk marketing order program, the such a skewed marketing situation, most 1A relies on finding that Class I pricing policies and features that it differentials would be established at a commenters view milk marketing orders should contain to achieve these goals, as the only practicable tool to assure level that more fully reflects the and their view of the legislative additional value of Class I milk in the farmers receive a fair price for their requirements that must be incorporated milk. most surplus regions. The adopted Class into milk orders. Such was similarly I pricing structure relies on the finding Supporters of Option 1A indicated expressed in explaining both the that because of the continuing that the national system of milk order support for, and opposition to, Option marketing situation they face, no basis needs to result in prices that will 1B. exists for concluding that more generate sufficient revenue to bring Supporters for Option 1A generally emphasis should be placed on a dairy forth an adequate milk supply. saw it as the best Class I pricing option farmer’s ability to negotiate prices with Secondly, they differ in how the price that would properly reflect the fullest handlers. According to these surface should be established regardless measure of the AMAA’s articulated commenters, relying too much on the of the level. Option 1A provides for the goals and requirements. These marketplace would only provide the alignment of resulting Class I prices by supporters expressed the limitations of incentive for producers to needlessly evaluating the cost of alternative relying too much on the free market in compete with each other to supply the supplies based upon the current Class I setting milk prices. For example, higher-valued fluid market. Those that differential structure. This results in a supporters of Option 1A indicated that are successful might receive more for surface that is smoother and flows milk marketing orders exist because their milk than those who could not, but primarily from north to south and west dairy farmers are at a distinct to this end, there is no guarantee that all to east. However, the adopted Class I disadvantage in their marketing handlers would pay the same price for pricing structure relies on a cost relationship with handlers who buy milk. Nor is there a guarantee that minimization model to provide for a their milk. They cited the characteristics handlers would share the higher-valued more efficient organization and of milk—that it is highly perishable, use of milk equitably with those structure in milk supply and bulky, is produced daily and must be producers. This, they said, results in distribution. Thus, it results in more marketed nearly as often, and is disorderly marketing conditions and the limited relative price differences and in expensive to transport—as making it a pitting of farmer against farmer in a price surface that is flatter. unique commodity. Unlike other unnecessary and destructive price Thirdly, they differ in their reliance commodities, grains for example, milk competition. It was these conditions, on the USDSS model results. Option 1A cannot be withheld from the market in they note, that led to creation of milk recognizes the value associated with the the hope for a better price, nor can it be orders and justified the marketwide model results but relies on knowledge of shipped long distances in search of a pooling and minimum pricing specific marketing conditions and higher price because transportation provisions contained in milk orders practices to make adjustments to costs quickly erode the benefits of a today. Only Option 1A, say its existing differentials. The adopted Class higher price. Dairy farmers don’t even supporters, best establishes the proper I pricing structure, on the other hand, know the price they will receive for value of milk that, together with relies more directly on the USDSS their milk in advance of having to ship classified pricing and marketwide model results that indicate the optimal to market, they noted. pooling, assures the highest degree of spatial values for fluid milk which serve Also, supporters of Option 1A were of equity for both producers and handlers. to promote market efficiencies, and the opinion that marketing conditions Supporters of Option 1A agreed and implements this structure to encourage faced by dairy farmers today are recognized that it is important to have market efficiency within the dairy fundamentally no different than they a Class I pricing structure that is industry. were when the order program first national and more reflective of

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However, the supporters can be expected to remain as it is today. negatively impacted because the of Option 1B think that Class I They noted further that Option 1A gives overproduced milk supply drives down differential levels should be set at explicit recognition to more than a prices for milk used in manufactured minimum levels that will allow the single reserve supply area in the dairy products which compete in a effective price for milk to be much more country, and that Option 1A would national market. They noted this is determined by the marketplace. In this assign the lowest differential in each of especially injurious to dairy farmers in way, they said, milk production and these reserve supply areas, what many markets where most of the milk prices would respond more effectively supporters of Option 1A viewed as produced is used in manufactured dairy to changing supply and demand significant pricing reform. products. conditions. By taking this approach, Option 1A supporters also thought Adding to this, the opponents of the they say, Option 1B Class I differential that the USDSS model served as an current Class I pricing system and levels will provide a sufficient degree of excellent tool in developing a Class I Option 1A are also of the opinion that the structure needed for producers and price structure. However, they also technology is available today to meet handlers, while reducing market recognized the limitations of relying too the supplemental milk needs of any distortions that result from regulation- much on this analytical model because milk-deficit area. Not only do they think induced prices that discriminate against it does not bring into consideration all that higher-than-necessary Class I producers, especially in the Upper of the other necessary judgements and differentials result in artificially- Midwest region. factors that cannot be included in a induced overproduction, they also As mentioned above, supporters of model. For example, many commenters believe that resulting high Class I prices Option 1B called for certain pointed out that while Option 1A used may be reducing fluid milk modifications. The most significant the USDSS model as a guide, it cannot consumption by consumers. They are of change included the lowering of the be relied upon for making adjustments the opinion that it is more appropriate Class I differential level for to conform with known relationships and efficient to attract milk to meet fluid Minneapolis, Minnesota. These between and among geographic and demands by compensating those who commenters offered a $1.08 per actual plant locations. Further, said incur the cost of shipping milk from hundredweight Class I differential level supporters of Option 1A, the model is surplus areas rather than paying a high for this location. They based this static, and cannot estimate the dynamics price to local producers in milk-deficit recommendation on their own study of changes that may result in supply and areas to bring forth a sufficient supply and survey of prevailing conditions in demand conditions over time. of local milk to meet fluid demands. the Minneapolis area. This proposal is In summary, Option 1A supporters Supporters of Option 1B indicated consistent with their view that Class I indicated Option 1A best assures the support for the more market-oriented differential levels should be set at continuation of dairy farmers receiving theme reflected in this Class I pricing minimum levels. This level included, a fair price for their milk. Processors, option. These supporters commented they said, premiums above the Upper they also pointed out, would not see a that Option 1B will allow milk prices to Midwest’s order blend price, quantity significant change in their ability to respond more appropriately to changing and quality premiums, and hauling compete for a milk supply since most of supply and demand conditions. Because subsidies. From this level, all other the value of fluid milk would be of this, they said, the milk order differential levels should be set and contained in the regulated minimum program will become more market- adjusted. price. They concluded that any changes oriented. The overall pricing structure These commenters also cited the to milk orders that would diminish offered in Option 1B, they say, flattens USDSS model’s limitation in these outcomes would be harmful to the the resulting level of Class I prices determining the proper alignment of dairy industry and to the public interest. throughout a larger portion of the Class I differential levels, a similar Opponents to Option 1A view it as country, thereby providing more of a criticism voiced by Option 1A maintaining too much of the status quo level playing field for producers supporters. These commenters are also and not addressing the reform needed in everywhere. of the opinion that, due to more than 60 Class I pricing. The opponents of Option Supporters of Option 1B view the years of Federal regulation, the relative 1A also view the current Class I pricing increased market-oriented theme as the value differences implied in the model structure as seriously flawed. In their proper direction in which to bring the results were too much like existing view, the current system relies on Class I pricing structure as the milk value differences than would be the case recognizing the Upper Midwest region order program is reformed. Not only is in an unregulated market. They as the reserve supply of milk for the it consistent, in their view, with the indicated that the USDSS model’s country when this is no longer the case. reform mandates established by optimal solution values should be used They see Option 1A as largely Congress in enacting the 1996 Farm Bill, conservatively as maximums in setting maintaining this viewpoint. the movement to a more market- relative geographic differences to the Opponents to Option 1A and the oriented milk order program will Class I pricing structure. Some current Class I pricing structure are of provide incentives for private sector commenters suggested that because the the opinion that today’s differential innovations that will benefit dairy model establishes geographic values for levels and Option 1A differential levels farmers and consumers. all milk uses, a bias results toward are too high, or at least higher than Supporters of Option 1B take a higher Class I values relative to necessary to attract adequate milk fundamentally different view than manufacturing values in many markets. supplies in many areas. Because Class I supporters of Option 1A on the Opponents to Option 1B did not like differentials are too high, they said, appropriate level of the Class I the idea of making the milk order improper economic incentives exist in differential. Supporters of Option 1A are program more market-oriented by many areas for increased milk of the opinion that Class I differential reducing Class I differentials in setting production—in fact overproduction— levels should be set high enough to Class I milk prices. If this is done, say beyond what is needed to meet Class I assure the least amount of price inequity Option 1B opponents, a cascading series

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Related to this, some are largely content with the current way fact calls for, the altering of current commenters noted that the relative the Federal milk order program has supply and demand conditions for milk. differences in prices that would be set approached Class I milk pricing, both in These commenters are of the opinion under Option 1B would not provide its structure and the degree to which it that the Department should not act to enough of a price difference to cause is has returned equitable prices to cause changes in either prices or milk to move from surplus to deficit producers and handlers. But some marketing conditions. Additionally, areas as would be provided in Option changes are needed to assure that this they are also of the opinion that it was 1A. Relying too much on over-order program remains viable to serve the not the intent of Congress to have milk premiums will benefit large handlers to needs of the dairy industry and the order reform result in either an increase the competitive disadvantage of small public well into the 21st century. or decrease in returns to dairy farmers. handlers, they said. Because actual milk The need to reform the milk order Opponents of Option 1B were of the prices paid by handlers would program is clearly and uniformly opinion that too much reliance was increasingly be determined outside of recognized by industry participants and placed on directly applying the USDSS the order’s minimum pricing provisions, the public. To this end, most producers model results as the Class I pricing they concluded, handlers would be and handler entities are of the opinion structure, and that inappropriate much less assured of the price their that the reform effort should result in reliance was also placed on the role of competitors are paying for milk. limited change in the prices that are over-order premiums in achieving a established under the orders, and that more market-oriented pricing plan for Conclusion any changes to the system be governed the milk order program. Opponents Milk is a unique agricultural by a minimum of change in the prices argued that today’s over-order commodity and faces unique marketing and the terms of trade between premiums are directly tied to the circumstances. It is highly perishable, is producers and handlers. Other producer differential levels and the alignment of produced daily and therefore needs to and handler entities are of the opinion Class I prices established under the be marketed in a very committed and that the ‘‘traditional’’ methods of Class existing orders. Additionally noted, continuous production-and-marketing I milk pricing are seriously flawed, current and consolidated markets have, cycle. These characteristics, together resulting in a program that has become and will continue to have, different with the fact that there are many more viewed as economically discriminatory circumstances that will dairy farmers than milk buyers, presents to dairy farmers in certain regions of the disproportionately affect the ability of the opportunity for marketing problems country and is institutionally resistant producers to negotiate over-order to occur that can be disruptive and to change. The public too, expects that premiums, especially in those markets destructive to dairy farmers. This sort of the program should be operated in a where Class I differentials are lowered marketing situation places producers at manner that will provide and promote most from current levels. a marketing disadvantage relative to efficiency and offer the potential for a Because Option 1B calls for handlers, and without some government less expensive milk supply. reductions from current differential involvement, equitable terms of trade It is the Class I pricing structure that levels nearly everywhere, they observed, between these two entities can be provides additional revenue above the less of a minimum order price is assured difficult to achieve. These unique basic value for milk to producers. to producers. In those markets where features of milk and the marketing Because of this, Class I pricing is often minimum order Class I prices are situation faced by dairy farmers were viewed as the cornerstone of the milk reduced the most, a greater burden is noted in public comments and are order program’s pricing policy. This is placed on producers and handlers in reflected in the legislation authorizing so because the Class I fluid use of milk negotiating actual prices relative to milk marketing orders. Milk marketing commands the highest-valued use in the those orders where price levels are not orders, using the tools of classified marketplace and is the preferred outlet as affected, they said. In other words, pricing and marketwide pooling, can for milk by producers. It is also this use noted one commenter, producers in significantly mitigate the undesirable of milk that has the greatest effect on milk-deficit areas would have Class I effects of this marketing situation and determining the location value of all differentials reduced the most and still satisfy the public interest by having milk and in determining the differences would be required to be much more an adequate supply of milk at in blend prices that are received by market-oriented than producers in milk- reasonable prices. producers. surplus area where the differential level As noted in public comments, the Because milk value varies by location, is maintained or increased. One structure of today’s dairy industry, it is appropriate, in using a classified commenter noted, that once over-order characterized by many dairy farmers pricing plan, to establish Class I prices premiums are established, they can and relatively few buyers, is basically that reflect these location value easily collapse because no one has the the same as it was when the milk order differences. Supporters of Option 1A ability to control or limit milk program first began. No dairy farmer, and Option 1B agree this is best production or the flow of milk to dairy farmer cooperative or bargaining accomplished with a system of Class I market. Very small additional volumes organization can effectively serve to differentials that properly links and of milk to a market can destroy over- either control milk production or limit aligns milk value. In evaluating how order premiums, this commenter added. the supply of milk to the marketplace to best to accomplish this, it is also On the producer side of relying too achieve a measure of reasonable price important to recognize the significant much on over-order premiums, they certainty. This can, from time-to-time, changes that have taken place within said, prices received would be much be achieved but such instances are the dairy industry since the full measure less equitably shared and uniform, and generally short-lived and cannot be of Class I pricing was last undertaken at would tend to force dairy farmers to relied upon for serving the public’s a 43-day national hearing in 1990.

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Today, and as evidenced in the desired and needed to achieve the goals I needs and the adopted Class I pricing hearing record of 1990, there was of the AMAA articulated by Option 1A structure accomplishes this. general satisfaction with the way Class supporters while also providing the Additionally, it continues to consider I milk pricing was developed and appropriate changes needed to obtain the cost of moving milk from an employed in a system of orders that had greater economic efficiency and alternate location for Class I use, a evolved over nearly 60 years. The record equity—an objective voiced by consideration important to both Option of that hearing evidenced that supporters of Option 1B. The adopted 1A and Option 1B supporters. This is technological and structural changes class I pricing structure will establish reflected in its aligned structure, were underway, but the record did not Class I milk prices that will result in a recognizing that in supplying milk for contain sufficient evidence for changes sufficient supply of milk for the national manufactured products, demand for at that time. The Upper Midwest region system of reformed and consolidated manufactured products influences a of the country can no longer be milk orders. market’s ability to procure milk for considered the single reserve supply of The adopted Class I pricing structure Class I needs. In this way, the adopted milk that the country can rely upon for recognizes and addresses the concerns Class I pricing structure appropriately a supply of milk to meet fluid needs in of Option 1A supporters in their view of considers all uses of milk as a national deficit areas. In fact, the reform effort the limitations of relying on the Class I pricing structure. has clearly revealed that there are marketplace in establishing milk prices Finally, the adopted Class I pricing several reserve supply areas, and the to producers that are equitable and structure meets the requirements of the Class I pricing structure changes reasonable given the marketing situation AMAA. The broad tenet of the AMAA adopted are reflective of this change. they face. Similarly, the adopted Class is to establish and maintain marketing Other issues—technological factors, I pricing structure recognizes that stability and orderly marketing improved assembly and distribution handlers will be assured a higher degree conditions for milk. The Federal milk systems allowing for sales competition of minimum price equity. As order program will continue to achieve of ever-larger geographic areas, the importantly, the adopted Class I pricing these goals primarily through classified growing importance of milk value based structure provides the necessary pricing and marketwide pooling. As to on the value of its components—all structural reform needed in the dairy pricing requirements, the AMAA speak to the need for reforming the industry. The adopted structure objective to stabilize the marketplace Federal order system. provides the incentives necessary for with minimum prices and not set The PR preliminarily narrowed the increased efficiency in the organization market prices is also achieved. As a Class I pricing structure to two options. and distribution of the milk supply and national Class I pricing structure, it Both have similarities and differences dairy products that is not offered by the specifically addresses, and adequately that have been discussed in detail. The price structure of Option 1A. adopted Class I pricing structure will As discussed earlier, it is important sets, appropriate Class I differential work in conjunction with other reforms and appropriate that the Class I price levels that will result in milk prices that to milk order provisions, especially the structure recognize all uses of milk. The are high enough to generate sufficient more transparent product price formulas classified pricing system of the Federal revenue for producers so that an and the reduced amount of advance milk order program will continue to adequate supply of milk can be notice for Class I and Class II prices. value fluid milk in the highest-priced maintained while continuing to provide Taken as a whole, the package of class. The higher-priced classification equity to handlers. reforms retain the features that are encourages all milk to first satisfy Class BILLING CODE 3410±02±P

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BILLING CODE 3410±02±C

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4. Classification of Milk and Related diverted between plants, general rules fluid milk product definition. Currently, Issues pertaining to the classification of this section exempts from the fluid milk The Federal milk order system should producer milk (including the product definition ‘‘formulas especially continue to contain uniform determination of shrinkage and prepared for infant feeding or dietary classification provisions, but with some overage), rules describing how to use that are packaged in hermetically- modification. The proposed allocate a handler’s receipts of skim sealed containers.’’ As contained in the modifications are consistent with the milk and butterfat to the handler’s proposed rule, this exemption would Agricultural Marketing Agreement Act utilization of such receipts, and have applied to ‘‘formulas especially of 1937, which requires that milk must provisions concerning the market prepared for infant feeding or meal administrator’s reports and replacement’—without regard to the be classified ‘‘in accordance with the announcements concerning type of container—and ‘‘any products form in which or the purpose for which classification. The classification and packaged in all-metal, hermetically- it is used.’’ The uniform provisions contained in classification-related provisions have sealed containers.’’ These changes were been restructured, in part, to not widely supported and have been this final decision provide for 4 classes standardize and simplify the regulatory dropped because they could result in of use. They are similar to the uniform program. reclassifying certain fluid milk products classification provisions contained in Further details concerning these from Class I to Class II. The language in the proposed rule, but with some changes are explained in the following this final decision is identical to Section modifications. In particular, cream discussion. 15(b)(1) of the present orders. cheese has been moved from Class II to Class III, and the proposed fluid milk 4a. Fluid Milk Product (§ 1000.15) 4b. Fluid Cream Product (§ 1000.16) product exclusion for products The new orders contain a modified No change has been made to the fluid packaged in ‘‘all-metal, hermetically- fluid milk product definition in cream product definition. The current sealed containers’’ has been changed § 1000.15. The changes to the fluid milk definition is uniform under all the back to the present standard: ‘‘formulas product definition include eliminating orders and should be used in the newly especially prepared for infant feeding or the term filled milk, including eggnog in merged orders. There were no dietary use (meal replacement) that are the list of specified fluid milk products, comments supporting a change in this packaged in hermetically-sealed and revising the word buttermilk to read provision. containers.’’ cultured buttermilk. The revised fluid In addition to these changes, the milk product definition reads ‘‘any milk 4c. Filled Milk proposed shrinkage provisions have products in fluid or frozen form The definition of filled milk has been been revised to more closely resemble containing less than 9 percent butterfat eliminated from all milk orders and the the provisions that are now in the and more than 6.5% nonfat milk solids term has been removed from the fluid orders, and the provision for milk that that are intended to be used as milk product definition and other is dumped or used for animal feed has beverages. Such products include, but provisions within the orders. Filled been added back to the orders, but has are not limited to, milk, skim milk, milk is a product that contains a been moved from Class III to a new lowfat milk, milk drinks, eggnog, and combination of nonmilk fat or oil with paragraph, § 1000.40(e), which specifies cultured buttermilk, including any such skim milk (whether fresh, cultured, other uses of milk that are to be priced beverage products that are flavored, reconstituted, or modified by the at the ‘‘lowest class price for the cultured, modified with added nonfat addition of nonfat milk solids). Filled month,’’ be it I, II, III, or IV. Milk that milk solids, sterilized, concentrated (to milk was first produced and marketed is lost in an accident, flood, or fire (i.e., not more than 50% total milk solids), or in the 1960s. In 1968, the orders were § 1000.40(c)(3) in the proposed rule reconstituted.’’ amended to provide a definition of published on January 30, 1998, at 63 FR The term ‘‘buttermilk,’’ as used in the filled milk. Currently, there is little or 4972) has been combined with milk that fluid milk product definition, is no filled milk being produced under is dumped or used for animal feed in changed to read ‘‘cultured buttermilk.’’ Federal orders. The term filled milk is the new paragraph (e). Finally, the The revised term clearly distinguishes used 18 times in each of the milk orders. classification for inventory of fluid milk the ‘‘beverage’’ buttermilk product from It serves little purpose today except to products and fluid cream products in the buttermilk byproduct which is complicate and lengthen the regulatory bulk form has been moved from Class III produced from a continuous churning language. For this reason, any reference to Class IV. operation. to filled milk has been removed from all Changes in the proposed rule that The fluid milk product definition also orders. have been carried forward to this final is modified to exclude ‘‘filled milk’’ and The form of filled milk and purpose decision include the reclassification of to include eggnog in its list of products. for which it is used are the same as the eggnog from Class II to Class I, the Although it is apparent that eggnog is a form and purpose for which whole milk formation of a new Class IV which beverage milk product and clearly meets is used. Filled milk is marketed by includes milk used to produce butter many of the criteria for being considered handlers in the same types of packages and any milk product in dried form, and a fluid milk product, it is not now and in the same trade channels as whole elimination of the term filled milk from included in the list of products milk, and is mainly intended to be used the orders. identified as fluid milk products. The as a beverage substitute for milk. In addition to changes in the class addition of eggnog to the list of fluid Whether made from vegetable fat and uses of milk, this final decision modifies milk products results in a change of the fresh or reconstituted skim milk, or any the definitions of fluid milk and product’s classification from a Class II combination thereof, the resulting commercial food processing product to a Class I product. The product resembles whole milk in establishment. Also, this decision elimination of the term ‘‘filled milk’’ appearance. Therefore, any filled milk contains modified administrative rules from the fluid milk product definition is produced and marketed in the future related to the classification of milk. discussed later. will be classified as a Class I product These include rules for classifying skim In the proposed rule, certain changes under the revised fluid milk product milk and butterfat that is transferred or were proposed for section 15(b)(1) of the definition.

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No letters were received commenting disposed of as fluid milk sold by the received. However, a large majority of on this change. glass from a bulk dispenser. the comments on this issue supported 4 There were no comment letters that classes of utilization as proposed. 4d. Commercial Food Processing addressed these recommendations in Establishment (§ 1000.19) response to the proposed rule. 4f. Class I Milk The definition of commercial food In this final decision, Class I milk processing establishment (CFPE) has 4e. Classes of Utilization (§ 1000.40) includes all skim milk and butterfat been revised by removing the filled milk Historically, the fluid or beverage uses contained in milk products that are reference, for the reasons previously of milk have been classified in the intended to be consumed in fluid form discussed, and by removing the word highest-priced class (Class I), and soft or as beverages, with certain exceptions. ‘‘bulk’’ from the definition. The removal spoonable products, those from which These exceptions include plain or of the word ‘‘bulk’’ will allow a CFPE some of the moisture has been removed, sweetened evaporated or condensed to receive fluid milk products and fluid have been classified in the intermediate milk, milk that is used in formulas cream products for Class II use in class of milk (Class II). The final especially prepared for infant feeding or certain sized packages as well as in decision issued on February 5, 1993 (58 meal replacement if such products are bulk. FR 12634) provided 3 uniform classes of packaged in hermetically-sealed Presently, the CFPE definition milk for all orders. Classes I and II containers, and any product that prohibits the receipt of fluid milk continued the traditional classification contains by weight less than 6.5 percent products for Class II use in relatively of milk, while the lowest-priced class nonfat milk solids. small pre-measured packages that might (Class III) contained the hard, storable Under this final decision, eggnog will reduce the CFPE’s production costs. products. In a final decision that became join lowfat eggnog as a Class I product. While packaged fluid milk products effective December 1993, a fourth Class I products are generally classified should be permitted to be transferred to class—Class III–A (actually a sub- on the basis of their fluid form and a CFPE in any size, only those products section of Class III)—was established for intended use. Eggnog, a highly seasonal that are shipped in larger-than- most orders for milk used to produce product, is clearly intended to be consumer-sized packages (i.e., larger nonfat dry milk. consumed as a beverage. Since this than one gallon) should be eligible for This final decision continues to product is manufactured, packaged and a Class II classification. If milk is provide a Class I classification for milk distributed to the consumer as a received in gallon containers or smaller, used for fluid and beverage use, with drinkable beverage, it should be the milk should be priced as Class I certain exceptions for formulas classified as a Class I product. milk since there is no way of especially prepared for infant feeding or Comments received regarding the guaranteeing that such products will not dietary use in hermetically-sealed reclassification of eggnog were generally be sold for fluid use. Permitting milk in containers and products with less than in support of its reclassification into any sized container to be sold to a CFPE 6.5 percent nonfat milk solids. Soft or Class I, although a few handlers for Class II use if the container had a spoonable products, most soft cheeses, submitted comments opposing this special label, such as ‘‘for commercial and milk that is used in the manufacture change, arguing that it would increase food processing use only,’’ was of other food products or sweetened the cost of eggnog and, therefore, reduce considered, but such a provision would condensed milk will continue to be consumer demand for this product. be impractical and it would be classified as Class II. Class III will Class I Used-to-Produce. In order to prohibitively expensive for a handler to continue to apply to milk used in hard simplify the accountability for milk prepare specially labeled products for cheeses, cream cheese, and other products classified as Class I that may small accounts. The current restriction spreadable cheese, but will no longer contain nonmilk ingredients and/or barring a CFPE from having any apply to butter. Finally, the new Class previously processed and priced skim disposition of fluid milk products other IV applies to all skim milk and butterfat milk and butterfat, the proposed rule than those in consumer-sized packages used to produce butter or any milk recommended adding a ‘‘used-to- (one gallon or less) should be retained product in dried form. Class IV will also produce’’ category to Class I. The under the new orders. apply to bulk milk that is in inventory proposed rule stated that the used-to- These two restrictions are based upon at the end of the month. produce accountability method would practical considerations. The integrity of A new paragraph (e) has been added preclude the need to develop and the classified pricing system would be to § 1000.40 that classifies other uses of maintain nonstandard conversion much more difficult to maintain if the milk that are priced at the ‘‘lowest- factors and non-milk credits (i.e., salt, market administrator were forced to priced class’’ for the month. flavoring, stabilizers) for milk product audit every CFPE on a regular basis. By Under the pricing formulas proposed accountability and would improve the prohibiting the sale of fluid milk for the new orders, it is not certain accuracy of handler reporting and products in consumer-sized packages to whether the Class III price or the Class minimize audit corrections without a CFPE for anything but Class I use, IV price will be the lowest class price sacrificing any statistical information, there would be less need to regularly for the month. In view of this price pricing considerations, or classification audit CFPE’s to be sure that such uncertainty, a new paragraph has been criteria. products are not being sold to the added to § 1000.40 to guarantee that Several comment letters were public. Similarly, since packaged fluid milk that is lost in an accident, dumped, received arguing that the proposed Class milk products in containers larger than or used for livestock feed is accounted I used-to-produce category would not one gallon are rarely, if ever, found in for at the month’s lowest class price. simplify the accounting system but retail outlets, it is unlikely that such Comments filed regarding the number instead would complicate it. No products will be sold for fluid use. By of classes of utilization for the proposed comments were received endorsing this restricting fluid milk product merged orders varied from supporters of proposal. disposition by CFPE’s to packaged one class, which would eliminate all Our analysis of the proposed Class I products not larger than one gallon in manufacturing classes, to supporters of used-to-produce category generally size, there is reasonable assurance that 5 classes of milk. Comments concerning supports those who argued against it. If milk priced as Class II will not be the addition of an export class were also there were no need to follow a pool

VerDate 23-MAR-99 11:04 Apr 01, 1999 Jkt 183247 PO 00000 Frm 00099 Fmt 4701 Sfmt 4702 E:\FR\FM\A02AP2.109 pfrm08 PsN: 02APP2 16124 Federal Register / Vol. 64, No. 63 / Friday, April 2, 1999 / Proposed Rules distributing plant’s route disposition to milk used for cream cheese under or used for livestock feed is accounted its ultimate source to determine under California’s state order is below the for at the month’s lowest class price. which order the plant would be Federal order Class II or III price and As previously noted, formulas regulated, it would be possible to moving cream cheese from Class III to especially prepared for infant feeding or simplify accounting by adopting a Class Class II would create a huge competitive dietary use (meal replacement) that are I used-to-produce category. However, disadvantage for milk used in cream packaged in hermetically-sealed with the pooling standards adopted in cheese under Federal milk orders. The containers should continue to be this final decision, the proposed used- National Milk Producers Federation, classified as Class II products. Although to-produce category would simply Dairy Farmers of America, and the proposed rule suggested a require dual accounting with no numerous individual handlers repeated modification of this exemption, there offsetting benefit. Accordingly, the Class essentially the same argument. was insufficient support to move I used-to-produce proposal has been Some comments addressed the forward with this suggestion. dropped from this final decision. classification of cottage cheese and Accordingly, no change was made from 4g. Class II, III, and IV Milk ricotta cheese, in addition to cream the language that is now in the orders. cheese. A national manufacturer of The treatment of buttermilk should The classification of milk used in cheese argued that milk used in cottage remain unchanged from the proposed Class II, III, and IV uses and products is cheese and ricotta cheese should be rule. No comments were received in essentially the same as contained in the reclassified from Class II to Class III. opposition to the proposed distinction proposed rule with a few exceptions. The handler stated that due to falling between buttermilk for drinking First, cream cheese is moved from demand for cottage cheese, it should be purposes and buttermilk for baking Class II to Class III, where it has been placed with other cheeses in Class III. purposes. As set forth in the proposed for many years. Another cottage cheese manufacturer rule, drinking buttermilk would have to Second, fluid milk products and bulk made the same suggestion. Several be labeled as ‘‘cultured buttermilk’’ fluid cream products in inventory at the comment letters also pointed out that while buttermilk for baking must end of the month have been moved from ricotta cheese was priced under contain food starch in excess of 2% of Class III to Class IV. California’s Class 4–b, giving California Third, the skim milk equivalent of the total solids in the product and the processors an advantage over processors nonfat solids used to modify a fluid product must be labeled to indicate the making ricotta from milk priced under milk product that has not been food starch content. Federal milk orders. While these accounted for in Class I has been moved The proposal to account for all Class comments may have some merit, we from Class III to Class IV. II products on a used-to-produce basis Fourth, the proposed Class II believe that more information is needed was unopposed. Accordingly, this classification for any fluid product in an before these changes can be considered. accounting method, which now applies ‘‘all-metal, hermetically-sealed Ending inventory of fluid milk to all Class II products, except for some container’’ is changed to what is now in products and fluid cream products in fluid cream products, is extended to the the orders: i.e., ‘‘formulas especially bulk form should be moved to Class IV. remaining Class II products that are prepared for infant feeding or dietary Since the Class IV price is expected to currently accounted for on a disposition use (meal replacement) that are be the lowest class price in the long run, basis. packaged in hermetically-sealed it is logical to classify ending inventory As noted above, a large majority of the containers’’. in Class IV. Also, paragraph (c)(4) of comment letters supported the 4 classes Finally, the surplus classification for § 1000.40, should be moved from Class of utilization as set forth in the milk that is dumped or used for animal III to Class IV. This paragraph prices the proposed rule, including the separate feed is added back to the orders, but, as skim milk equivalent of nonfat milk Class IV for butter and milk products in described earlier, it has been placed in solids used to modify a fluid milk dried form. Therefore, no change has a new paragraph (e) of § 1000.40 which product. With the inclusion of a Class been made to Class IV in this final prices milk in the lowest-priced class IV classification for all products in dried decision except for the addition of the for the month. For the same reasons form, the nonfat milk solids used to items already discussed. cited previously, milk which is lost in modify a fluid milk product should be Several commenters reiterated a fire, flood, or accident also has been priced as Class IV, together with other requests made prior to the proposed rule moved from Class III to the ‘‘other uses’’ dried products, rather than Class III. to reclassify bulk sweetened condensed class. Products lost by a handler in a fire, milk from Class II to Class IV. The Under the proposed rule, the flood, or vehicular accident and commenters explained that sweetened classification of cream cheese would products that are dumped or used for condensed milk is primarily used in have been changed from Class III to animal feed have been moved from commercial food processing Class II. The rationale for this change Class III to a new paragraph establishments and in the confections was that the milk used in Class II (§ 1000.40(e)) which would price skim industry and that it is interchangeable products is used to process or milk and butterfat in such uses at the with powdered milk products and sugar manufacture products for which lowest class price for the month. Under in ingredient markets for processed handlers know a consumer demand the pricing formulas proposed for the foods and candy. They argued that exists and that such products are neither new orders, the Class III price or Class manufacturers of sweetened condensed as perishable as fluid products nor IV price is likely to be the lowest class milk are currently at a competitive perform a balancing function for the price for the month, but it is possible disadvantage with manufacturers of market, as do butter, powder, and the under some orders that the Class I or II nonfat dry milk and urged that the 2 hard cheeses. price could be the lowest class price for products be classified identically. This proposal was not well received the month if component values were According to one commenter, the by a large majority of the handlers and increasing rapidly. In view of this price Galloway Company, the current system producer organizations that commented uncertainty, a new paragraph has been of classification places sweetened on it. The International Dairy Foods added to § 1000.40 to guarantee that condensed milk at a significant Association argued that the pricing of milk that is lost in an accident, dumped, disadvantage and has virtually

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