CT: Mae Schmidle, Bob Jacquier, Richard Allen, and Gabe Moquin

MA: Mary K. Kassler, Bill Gillmeister, and Sam Shields

ME: Cindy Masterman, Mike Wiers and Fred Hardy

NH: Debora Erb, Doug Morris and Powell Cabot

RI: John Smith, Ron Newman, Al Bettencourt, and Aaron Briggs

VT: Harold Howrigan, Andy Dykstra, and Bobby Starr

The meeting was called to order by Chair Mae Schmidle at 10:10 a.m.

Doug DiMento of Agri-Mark welcomed the new Commission officers and thanked the outgoing officers for the contributions they made to the Compact, dairy farmers and consumers during the last several months.

Guests introduced themselves at the request of the Chair. Mae Schmidle introduced Commission designees Gabe Moquin (CT), Bill Gillmeister (MA) and Cindy Masterman (ME).

Mike Wiers made a motion to accept the minutes of the December 16, 1999 Commission meeting as presented. Motion was seconded by Harold Howrigan, passed by unanimous vote of the six State delegations.

There were no communications to report.

Mary K. Kassler made a motion to enter into Executive Session for the purpose of considering processors' petition on the administrative assessment, HEP 98-001. Motion was seconded by Ron Newman, passed by unanimous vote of the six State delegations. Mae Schmidle, Debora Erb and Dixie Henry recused themselves from the discussion as they served on the Hearing Panel overseeing the processors' petition.

The Commission reconvened the Regular Session. Mae Schmidle, Debora Erb and Dixie Henry returned to the meeting. Mary K. Kassler made a motion on behalf of the Committee on Administration that the full Commission approve the proposed settlement with the processors regarding HEP 98-011 -- the processors' petition on the administrative assessment. Motion passed by unanimous vote of the six State delegations. Mae Schmidle and Debora Erb did not participate in the vote.

Mary K. Kassler made a motion to credit the money back to processors who paid in the administrative assessment for the months of September and October 1998. Motion was seconded by Mike Wiers, passed by unanimous vote of the six State delegations.

Mike Wiers stated that this meeting would be his last meeting as a Compact Commission member. He introduced his replacement on the Maine delegation -- Colon Durrell. Mr. Durrell is the Chair of the Maine Milk Commission. He is also a realtor in the Farmington area of Maine. Mr. Durrell has also spent twenty years working with Farmers Home Administration.

Referring to the November Income and Expenditure Report and the Income/Expenditures Year to Date Budget (Attachment I), Mary K. Kassler summarized the Commission's current financial condition. She noted that the statements do not yet include the approximately $35,000 in legal expenditures payable to Wiley, Rein and Fielding. While revenues are not on budget ($805,380.87 Jan-Dec '98 vs. $1,036,000 Budget), the Commission's expenditures are on line with the budget. Therefore, the Commission continues to be in good financial condition and has a low budget in a number of categories. Ms. Kassler said the Commission's expenditures at year's end are almost even with the budget amount for the year, which shows good budgeting and good expenditure control. Ron Newman made a motion to file the financial reports for audit. Motion was seconded by Harold Howrigan, passed by unanimous vote of the six State delegations.

Chair:

The Chair did not give a report.

Executive Director:

Ken Becker said the staff has completed the move of the Commission Office to the new location on Barre Street in Montpelier, VT.

The decision concerning New York State Dairy Foods, Inc., et. al. v. Northeast Dairy Compact Commission has been appealed by the milk processors involved in the case. The processors' briefs will be due on February 3, 1999 and the case will be scheduled for oral arguments during the May session.

Mr. Becker gave a short update concerning the Market Impact Studies being conducted by the Universities of Vermont and Massachusetts. Dr. Lass of UMASS will be mailing the office a copy of his Cost of Production study. The team of researchers at the University of Vermont will be meeting next week concerning the Market Impact Studies and hope to put together a report shortly.

Mary K. Kassler said the Commission is in good financial shape at this point in time.

Committee on Administration:

Mary K. Kassler said the Committee recommends approval of a lease agreement that will allow the Commission to lease a copier from Green Mountain Office Machines in Vermont for a period of six months. The Committee recommends having Executive Director Ken Becker speak at the Southern Dairy Conference Annual Conference in February provided that the Conference reimburse Mr. Becker's travel costs. The Committee recommends the approval of the invoices from the Market Administrator's Office for the November/December audits, October/November pools, and CCC escrow refund programming. The Committee recommends approval of a limited-use, machine-signed signature stamp for CCC refund checks. The Committee recommends skipping the monthly meeting in February. The Committee also approves the Chair's recommendations for Standing Committees.

Audit Committee:

Ken Becker said the 1997 audit is completed. It was received by the Commission Office and sent to Audit Committee members this week. The Committee will review the audit and come back with a recommendation at the next Commission meeting.

Bylaws Committee:

The Committee had no report.

Committee on Regulations and Rulemaking:

Bobby Starr said the Committee would meet at lunch to discuss several issues and would have a full report later in the meeting.

Ken Becker said that the State of New York has passed legislation allowing that state to join the Northeast Dairy Compact Commission. The Governor said he would sign the legislation. The Commission office has received questions from Pennsylvania and Missouri about how the Compact functions. Additional action concerning the Compact -- whether New York joins, or whether the Compact is reauthorized -- will require approval from Congress. But, the Senate is currently involved with the impeachment trial. Andrew Meyer, aide to Sen. James Jeffords (R-VT), is leading the reauthorization effort along with Bob Gray of the Council of Northeast Farmer Cooperatives.

Deliberation and Decision on Subjects and Issues Rulemaking:

General Counsel Dixie Henry gave a recap of the Subjects and Issues Rulemaking process on these issues. She stated that a hearing was held in Boxborough, MA on December 11, 1998 and the Commission received public comment on the issues through December 31, 1998. The Commission took testimony on specific proposals including a proposal from the Massachusetts delegation that would have limited the amount of milk that a farmer could receive Compact payments on to 95,000 pounds each month. A split pool proposal, a refund assessment proposal and a proposal that would place a cap on the largest producers were also put forth for comment. Each of these proposals was put forward to aid the Commission in determining whether supply management was needed in the region and to allow the Commission to evaluate its responsibilities under Section 9(f) of the Compact. The Commission received substantial information at the hearing and substantial written comments on these issues. Also included in the record was a history of supply management proposals which was prepared by the staff and a summary of the five meetings that were held by the Committee on Regulations and Rulemaking in the spring of 1998 on the issues of production and supply management.

Ms. Henry noted that the Commission received two submissions after the December 31, 1998 deadline that were postmarked prior to that date. Harold Howrigan made a motion to accept the two late written comment submissions concerning the Subjects and Issues Rulemaking. The motion was seconded by Bob Jacquier, passed by unanimous vote of the six State delegations.

Ms. Henry said the current Commission meeting has the potential to conclude the Subjects and Issues Rulemaking process. If the Commission wants to act further, it needs to go into another proposed rulemaking that would require a public hearing, a written comment period, and another deliberative meeting. If the Commission chose to adopt a rule at that point, a producer referendum would be required. She said the staff is not coming forward with a specific recommendation on the issues of supply management and income distribution, or organic milk. It has drafted a rule concerning the administrative assessment that would amend the price regulation.

Bobby Starr said that because of the ex parte provisions that were in effect during the rulemaking, the Committee could not meet to discuss the testimony and the various proposals. He felt the issue should be put on hold because production levels lately indicate that there will not be a supply problem during the next year. Other states joining the Compact may also change the situation. He suggested the Commission temporarily delay a decision on supply management until it received additional data.

Mike Wiers said the Commission should not lose sight of the Section 9(f) directive in the Compact concerning incentive and over supply. He said others will be looking to the Northeast Dairy Compact Commission to resolve the supply management issue. He felt the Commission always needed to keep the issue of supply management on the burner. Mr. Wiers said the best place for that issue to be dealt with is the Committee on Regulations that could continually review the issue. Mr. Wiers made a motion to end the

Subjects and Issues Rulemaking concerning the issues of supply management and income distribution and to refer those issues to the Committee on Regulations and Rulemaking to study and report back to the Commission with a recommendation. The motion was seconded by Ron Newman.

Mary K. Kassler suggested that a specific date for the Committee to report back to the Commission be included in the motion. Ms. Henry suggested that the Committee report back in May since quarterly milk production statistics would be available from the National Agriculture Statistics Service in April. This would provide the Committee with figures concerning milk production in January, February and March of 1999. Discussion followed concerning the timeline for a recommendation. Some Commission members expressed concern that waiting until May was too long. Mr. Starr said that the ex parte provisions had prevented the Committee from discussing the testimony received during the rulemaking. The Committee, therefore, needed some time to discuss all the material. Ms. Henry gave a timeline for the earliest possible date that the Commission could conclude a rulemaking process on this issue. The soonest a proposal could be put forth would be at the April meeting. Mary K. Kassler asked Mr. Wiers if he would consider including in his motion that the Regulations Committee report back to the Commission in April with a recommendation. Mr. Wiers and Ron Newman, who seconded the motion, agreed to amend their motion to state the following.

"To end the Subjects and Issues Rulemaking concerning the issues of supply management and income distribution and to refer these issues to the Committee on Regulations and Rulemaking to study and report back to the full Commission at the April meeting with a recommendation."

Mr. Becker gave a summary of the actions the Commission has already taken to address the requirement under Section 9(f) of the Compact (to ensure that the over-order price does not create an incentive for producers to generate additional supplies of milk).

The Commission recognized by instituting a diversions and transfers amendment that there is a certain amount of milk needed to supply the New England market. It also recognized that there are seasonal differences in supply and demand and set caps on diversions and transfers based on those seasonal differences. By adopting the amendment the Commission recognized that in order to meet the Class I needs in New England, sometimes milk has to be diverted and transferred outside of New England. However, it also clearly stated that once the amount of milk being diverted and transferred goes over a certain threshold, it is no longer going to receive a Compact premium. (The threshold will allow milk handlers to divert or transfer up to 8% of their total producer receipts during the fall months, 10% in transition months, and 13% in spring months.) Mr. Becker stated that, in many ways, that rule directly addresses the issue raised under Section 9(f).

The Commission recognized its obligation to reimburse the Commodities Credit Corporation (CCC). The Commission withheld funds from the producer settlement fund to pay the CCC, and is now in the process of returning the balance of the CCC escrow fund to farms that did not increase production. Approximately 940 farms applied for a refund.

In addition, when setting the Compact over-order price, the Commission chose to establish a floor price of $16.94. This limited the effect the Compact could have on milk supplies because no Compact payments are made when the market price rises above the $16.94 floor price. This does not mean the Commission doesn't have to take action on the issue. Mr. Becker said the Commission needs to continue to monitor the supply issue, especially if high dairy producing states, like New York and Pennsylvania, join the Northeast Dairy Compact.

Al Bettencourt made a motion to amend the previous motion to have the Committee on Regulations report back to the full Commission at the May meeting with a recommendation concerning the issues of supply management and income distribution. The motion was seconded by Deb Erb. Bobby Starr said the Committee would report back to the Commission each month and make a recommendation to the Commission earlier than May if it had a decision prior to the May meeting.

The motion to amend the previous motion to include May as the deadline for the Committee's recommendation was passed. Voting yes for the motion were the State delegations of RI, NH, VT and CT. Voting no were MA and ME.

The motion, as amended to reflect the May deadline, was passed. Voting yes for the motion were the State delegations of CT, ME, VT, NH and RI. MA voted no.

General Counsel Dixie Henry said the Commission included the issue of organic milk in the Subjects and Issues Rulemaking in order to receive comment on whether organic milk handlers should be exempted from the price regulation. The Commission's decision to include organic milk in the Subjects and Issues Rulemaking was in response to a petition by several organic milk handlers who asked to be exempted from the current Compact over-order price regulation and also that a separate and distinct organic producer pool be established. A hearing was held on December 16. The two major organic milk dealers in the region testified, as did some organic producers. At the hearing and in the written comments, the two major organic milk dealers supplying New England presented different requests. One suggested that organic milk be exempted entirely from the price regulation and that the exemption apply to the milk that is produced at the farm. The other handler asked that a separate producer pool be established and the milk be identified at the point of sale. In addition, one organic handler stated that their primary reason for wanting the Commission to take action was to establish the identity of organic milk through a regulatory body. The other handler's primary interest was to have this Commission be an independent third party to establish a sustainable price for organic milk. Because the recommendations from the two organic milk dealers were so different, the staff did not draft a recommendation for the Commission.

Gabe Moquin felt the Commission should not offer an exemption for organic milk, stating that organic milk represents only a small portion of the market (less than half of one percent. Al Bettencourt made a motion to exempt organic milk from the regulation. There was no second. Bob Jacquier made a motion that the Commission not exempt organic milk from the Compact regulation. Aaron Briggs seconded the motion.

Bobby Starr said he also felt there were conflicting requests presented by the organic milk handlers in the testimony. Mary K. Kassler said that the amount of administrative work involved in running such a small pool as an organic milk pool would be onerous and not a cost effective thing to do. Mr. Moquin added that less than 20% of the organic milk that is produced in the region is sold as organic milk. Approximately 80% is sold as conventional milk. The motion was passed. Voting yes for the motion were the State delegations of CT, MA, NH, RI, and VT. ME voted no. (Gabe Moquin did not vote on the motion since he had previously prepared a report on organic milk for the Commission.)

Dixie Henry said the staff prepared a pre-discussion draft and recommended that the Commission pursue a rulemaking on the administrative assessment regulation. The recommendation is that the Commission propose to amend the regulation to permit it the discretion to adjust downward or to waive the administrative assessment from the current flat rate of 3.2 cents per hundredweight. The draft proposed rule also states that the goal would be for the Commission to maintain a reserve account in the range of 80% to 120% of four months operating expenses, as determined to be necessary in the budget approved by the Commission. The range would not be binding. The Commission would retain the discretion to waive or adjust the assessment at any given time. The proposed rule would also invite comment on whether the rule should be amended to adjust the administrative assessment upward from the current rate of 3.2 cents in exceptional circumstances, and if so, what exceptional circumstances would justify such an adjustment. The proposal also proposes to promulgate a new rule that would require handlers to make payment by electronic funds transfer if the total due is greater than $25,000.

Ms. Henry further discussed the text of the pre-discussion draft. She stated that the proposed draft rejects two suggested amendments presented during the Subjects and Issues Rulemaking proceeding -- a request to amend the rule regarding the treatment of raw skim milk sold to processors for further processing and a request that the administrative assessment funds be used for the direct costs of administering the producer pool and nothing else. Ms. Henry said a public hearing on the proposed rule could be held on March 3, 1999 in Concord, NH with a written comment deadline of March 17, 1999.

Bobby Starr made a motion to accept the proposed rules and notice of hearing. Ron Newman seconded the motion. Discussion followed concerning the Commission's budget and operating expenses. Mr. Becker said the rule change is needed to offer the Commission some flexibility with the assessment, because, as currently written, the regulations only state that the Commission has the authority to charge the 3.2-cent assessment. The regulations do not allow the Commission any authority to waive or adjust the assessment. Additional discussion followed concerning the proposed rule and the settlement with processors concerning HEP 98-011 - -the processors' petition on the administrative assessment. Regulations Administrator Carmen Ross explained that the staff did not propose amending the regulation to address the request to exempt bulk raw skim milk from the administrative assessment due to the fact that the Compact's regulations closely mirror the Federal Order regulations. The Commission tries to maintain some consistency with the federal regulations so that the handlers being regulated can easily understand the Compact's regulations, and, under the current pricing and classifying system, the plant that receives the milk from producers becomes the point of pooling.

The motion passed by unanimous vote of the six State delegations.

Ms. Henry said the Commission is out of rulemaking on the issues of supply management, income distribution and the administrative assessment and therefore, could freely discuss those issues. Since the Committee approved a new rulemaking on the issue of the administrative assessment, the ex parte provision will be in effect once the Commission meeting has concluded, and members may not discuss the issue with each other.

Audit Committee Recommendation:

The Committee had no recommendation since it is in the process of reviewing the 1997 audit. It will present a recommendation to the Commission at the March meeting.

Committee on Regulations and Rulemaking:

Bobby Starr said approximately 940 farmers applied for a reimbursement from the CCC reserve fund balance. The Committee met to discuss two different formulas for returning the fund balance to farmers who qualified as not increasing their milk production during the 1998 federal fiscal year. It was the recommendation of the Committee that the money be paid on the total amount of milk that a farmer produced during the 1998 federal fiscal year. The Committee has rejected a proposal to pay farmers based on the difference between the volumes of milk produced during the 1997 federal fiscal year and the 1998 federal fiscal year. The Committee chose the option it did because it felt that farmers believed that was the method through which the remaining CCC reserve funds would be distributed. Since the Commission had escrowed the money based on all of the milk that was produced during the 1998 fiscal year, many farmers felt that the Commission was going to reimburse the remaining funds also on the total milk produced during the 1998 fiscal year. Andy Dykstra made a motion to pay farmers who are eligible for a refund from the CCC reserve balance based on their total volume of milk production in the federal fiscal year of 1998 (October 1997-September 1998). The motion was seconded by Cindy Masterman. The motion passed by unanimous vote of the six State delegations.

Mary K. Kassler made a motion on behalf of the Committee on Administration to approve payment of the December invoice of $35,838.02 from Wiley, Rein and Fielding. No second was required. Motion passed by unanimous vote of the six State delegations.

Mary K. Kassler made a motion on behalf of the Committee on Administration that the full Commission approve the lease of a Canon NP-3050 from Green Mountain Office Machines for a six-month period and reevaluate after six months. No second was required. Motion passed by unanimous vote of the six State delegations.

Mary K. Kassler made a motion on behalf of the Committee on Administration to instruct the Executive Director to accept the invitation to the Southern Dairy Conference Annual Conference for the purpose of a presentation, provided that the Conference pays all travel costs including transportation, room and meals. No second was required. Mr. Becker said the Southern Dairy Conference is comprised of the colleges of agriculture of the southeast. Mr. Becker would be one of a symposium of three speakers. Motion passed by unanimous vote of the six State delegations.

Mary K. Kassler made a motion on behalf of the Committee on Administration that the full Commission approve payment of the Federal Market Administrator's invoices of $7,830 and $10,523.10 for the November/December audits, October/November pools and programming for the CCC escrow refunds. No second was required. Motion passed by unanimous vote of the six State delegations.

Mary K. Kassler made a motion on behalf of the Committee on Administration that the full Commission adopt a resolution authorizing a limited-use, machine-signed signature stamp for CCC escrow refund checks (Attachment III). No second was required. Motion passed by unanimous vote of the six State delegations.

Mary K. Kassler made a motion on behalf of the Committee on Administration that the full Commission adopt the membership of the Standing Committees as proposed by the Chairman (Attachment IV) with the substitution of Colon Durrell for Mike Wiers under the Committee on Regulations and Rulemaking. No second was required. Motion passed by unanimous vote of the six State delegations.

Mr. Becker said the Committee on Administration recommended that the Commission skip the February meeting and hold its next meeting on the first Wednesday in March which is March 3. Several Commission members had expressed a desire to get back on the schedule of holding meetings on the first Wednesday of each month. The Commission had previously scheduled the next meeting for February 17, but if that were postponed for two weeks, the Commission would be back on schedule. Andy Dykstra made a motion that the Commission skip a regular meeting in February and set its next meeting date for Wednesday, March 3, 1999 and to set future meeting dates for the first Wednesday of each subsequent month. Motion seconded by Sam Shields. Motion passed by unanimous vote of the six State delegations.

Ron Newman thanked Mike Wiers for all the work he had done for the Commission in the last few years. Mr. Wiers said it has been a privilege and an honor to have served on the Commission.

Mr. Newman suggested having the April or May Commission meeting in Rhode Island. Gabe Moquin said that for the first time in seven years, the State of Connecticut has had an increase in the number of dairy farms. It is actually an increase of nine farms because seven farms had previously gone out of business. Mr. Moquin added that the Compact hasn't changed retail milk prices in Connecticut much at all. Harold Howrigan also thanked Mike Wiers for his leadership.

The meeting adjourned at 3:25 p.m.

Respectfully submitted,

Powell Cabot

Secretary