APPROVED MINUTES

COMMISSION MEETING OCTOBER 7, 1998

QUECHEE CLUB -- QUECHEE, VT

Commission Members in Attendance:

Connecticut: Mae Schmidle, Bob Jacquier, and Gabe Moquin

Massachusetts: Sam Shields, Gordie Cook, Charlie Arbing and Jay Healy

Maine: Cindy Masterman

New Hampshire: Debora Erb and Doug Morris

Rhode Island: Peter Petrone, Ron Newman and Aaron Briggs

Vermont: Bobby Starr, Millicent Rooney, Jacques Couture, Harold Howrigan and Andy Dykstra

Commission Staff Present:

Ken Becker, Executive Director; Dixie Henry, Staff Counsel; Carmen Ross, Regulations Administrator; Becky Holden, Office Manager; and Tina Wisell, Public Information Director

The meeting was called to order by Vice-Chair Mae Schmidle at 9:25 a.m.

Public Participation:

Bob Wellington said that Agri-Mark has put together a report card on the Compact (Attachment I) which he distributed to Commission members. He added that a 6-month extension of the Compact had been approved in conference as well as by the House, but had not yet been approved by the Senate and faced a veto threat by President Clinton.

Mr. Wellington said butter and cheese prices are still high. The BFP is $15.10 and is expected to rise to $16 and beyond. The Class IIIA price going into October is $19.87. He anticipated that prices would remain high for the next few months and a collapse could come in the late winter or early spring.

Introduction and Guests:

Members of the public introduced themselves at the request of the Vice Chair. Tom Berry, aide to Senator James Jeffords (R-VT), said the Senate had passed the Compact extension as well. He expected that Congress would hear that day whether the President would veto the Agriculture Appropriations bill that the extension was included in.

Vermont Agriculture Commissioner Leon Graves said Northeast and Southeast commissioners and secretaries of agriculture met at their annual meeting and have been participating in weekly conference calls to discuss compact reauthorization and ratification efforts. He said a 6-member committee was formed, co-chaired by Commissioner Bob Odum of Louisiana and Mr. Graves, which would look at political and fund-raising activities connected with efforts to reauthorize the Northeast Compact and ratify the Southeast Compact. Mr. Graves said Gov. Dean of Vermont recently pledged $50,000 towards reauthorization efforts and three northeastern coops pledged funding, for a total of $180,000 pledged so far. The commissioners will also target feed dealers, Farm Credit and agricultural-related banks as possible funding sources.

Consideration and Approval of Minutes:

A motion was made by Andy Dykstra to accept the minutes of the September 2, 1998 regular session Commission meeting as presented. Motion was seconded by Debora Erb, passed by unanimous vote of the six State delegations.

Consideration of Communications:

Ken Becker said he had written the Maine Milk Commission thanking the Commission for the $100,000 it had appropriated to the Compact Commission. The letter detailed how the funds from Maine had been used.

Mr. Becker said Gov. Dean of Vermont recently held a press conference at which he said he would ask the legislature to appropriate $50,000 towards Compact reauthorization efforts if reelected.

Financial and Budget Report -- Month Ending August 31, 1998:

Mr. Becker gave an update on the Commission's financial condition, referring to the Actual Expenditures to Date Compared to the 1998 Yearly Budget, the Monthly Expenditures for August and the Balance Sheet as of August 31, 1998 (Attachment II). Mr. Becker said he had also drafted a proposed, revised budget for the remainder of the fiscal year (Attachment III) for the Commission to review. The proposal compared the figures from the actual 1997 budget to those in the original budget for 1998 and the revised, proposed budget for 1998. The proposal included an explanation as to what the changes to the budget consisted of and why they were needed.

Reports:

Chair:

There was no report from the Chair since Mike Wiers was unable to attend the meeting.

Executive Director:

Ken Becker said that for the August pool that was paid in September the over-order obligation was 60 per hundredweight which amounted in a total pool of $1.48 million dollars. The producer price was 24 per cwt. Because it appears that the Class I price for September and October milk will be above $16.94, there will be no Compact over-order obligation for those months.

Mr. Becker said he had received a call from the USDA's Office of Inspector General (OIG) which had received an inquiry from a Congressman from Virginia and two Senators from the Mid-West requesting that the OIG look into the Commission's handling of the Commodities Credit Corporation obligation. Subsequently, OIG auditors visited both the offices of the Market Administrator and the Compact Commission and reviewed the process by which the Commission escrowed funds for the CCC. Staff showed auditors the accounting process used to keep the escrowed funds separate from the producer-settlement funds. Auditors indicated that they felt the Commission had put appropriate systems in place and paid the CCC on time. No report has been released yet by the OIG, but Mr. Becker has formally requested one.

Committee on Administration:

Mae Schmidle said the Committee felt there were some critical issues that the Commission needed to address in Executive Session. Ron Newman made a motion to enter into Executive Session to consider personnel issues. The motion was seconded by Millicent Rooney, passed by unanimous vote of the six State delegations. The Commission entered into Executive Session and returned to Regular Session shortly thereafter.

Audit Committee:

Ken Becker said auditors would be coming to the Commission Office in Montpelier later this month to begin the audit. Commission members would receive an update at the next monthly meeting.

Bylaws Committee:

Debora Erb said the Committee had presented the Commission with a proposed amendment to the Bylaws at the last Commission meeting which addressed the occasion when a Commission member participates as a witness or a commenter in a formal rulemaking procedure (Attachment IV). The Committee recommended that the Commission approve the Bylaws change later in the meeting. Discussion then followed concerning the need for the Bylaws change and the possible ramifications if the amendment was not instituted. Mae Schmidle emphasized that the Committee had proposed the amendment in order to preserve the integrity of the rulemaking process.

Committee on Regulations and Rulemaking:

Bobby Starr said the Committee had met the previous evening and discussed several issues. These included supply management, the CCC reserve fund balance and a possible subjects and issues rulemaking.

Mr. Starr said the Commission has not yet received all the reports from the market impact studies and that information may be useful in helping the Commission to determine what, if any, type of supply management system to implement. He said Mr. Becker had provided the Committee with a summary of various supply management proposals that had been instituted in the past, but the Committee did not come to a conclusion on any specific proposal. Therefore, the Committee recommended that the Commission address the issue of supply management in an upcoming subjects and issues rulemaking.

The Committee would be making a recommendation later in the meeting concerning the disbursement of the CCC reserve fund balance.

Mr. Starr said the Committee also received a proposal from the Massachusetts delegation that would place a limit on the amount of milk that the Compact over-order price would be paid on. While the Committee discussed the issue at length it felt it could not endorse the proposal without a more extensive review of the measure. The Committee decided to form a working group that would study the proposal intensely over the next month and report back to the full Commission with a recommendation at the November meeting. Mr. Starr suggested that the recommendation on the proposal might be addressed during the Commission's discussion of the topics to include in the subjects and issues rulemaking. Jay Healy said the Massachusetts delegation submitted the proposal because it felt the Compact wasn't working as well as the delegation would like in Massachusetts. He felt the proposal would better help small and medium-sized dairy farms not only in Massachusetts but also in other Compact states.

Mae Schmidle asked if there were any members of the public who had not yet had a chance to speak. Don Edwards, staff member for Congressman Bernie Sanders (I-VT), said the Congressman would be working very hard to keep the 6-month extension of the Compact in an omnibus appropriations bill if the President followed through with his threat to veto the Agriculture Appropriations bill. Mr. Edwards said it would be very difficult to get the Compact reauthorized without the extension.

Unfinished Business:

Bylaws Committee:

Debora Erb made a motion on behalf of the Bylaws Committee to accept the recommended change to the Bylaws which addresses the occasion when a Commission member participates as a witness or commenter in a formal rulemaking proceeding. No second to the motion was required. Voting yes for the motion were the State delegations of VT, RI, ME, NH, and CT. MA voted no. Motion passed.

Committee on Regulations:

Subjects and Issues:

The Committee decided to postpone the consideration of initiation of a Subjects and Issues Rulemaking until the November meeting.

Deliberation & Decision on Proposed Rule re Diverted/Transferred Milk:

Bobby Starr said the Committee would be recommending that the Commission adopt as a final rule on the issue of diversions and transfers of milk, the proposal that was set forth in the Revised Proposed Amendments and Pre-discussion Draft for Commission Deliberative Meeting (Attachment 5). The approval of the rule would involve a series of four motions.

Mr. Starr made a motion on behalf of the Committee on Regulations that pursuant to Compact Article V. Section 12, the Compact Commission finds:

That the public interest will be served by the amendment of minimum milk price regulation to dairy farms under Article IV. to: 1) exclude milk from the pool which is either diverted or transferred, in bulk, out of the compact regulated area, in excess of a seasonally adjusted allowance of total producer receipts, set at 10% for the Transition months of January, February, July and December, 13% for the Spring months of March, April, May and June and 8% for the Fall months of August, September, October and November, with specified exclusions; 2) to amend the definitions of producer and producer milk to be consistent with the amended provisions regarding diverted and transferred milk; and 3) to amend the definition of producer to include December 1998 as a requirement.

Regulations Administrator Carmen Ross explained what the proposed amendments to the regulation consisted of. He said the sections concerning Diverted Milk and Classification of Transfers and Diversions were the culmination of the testimony that was given at two public hearings and written testimony that was submitted during the public comment period on the proposed rule. The two sections set limits on how much of a handler's total producer receipts can be diverted or transferred based on different seasonal needs in the marketplace. He said the amendments also adjust the regulation to exclude certain types of milk from that milk that is considered under diverted or transferred milk. The amendments would not be applicable to plants that had to divert or transfer milk due to a fire, flood, or other extraordinary circumstances beyond its control. The amendments also amend the definition of producers and producer milk to be consistent with the amended sections on diversions and transfers and include December 1998 as an additional requirement.

Mr. Ross said that Bob Wellington had testified that seasonal caps of 10%, 12% and 15% were acceptable to Agri-Mark. However, an analysis of the schedules submitted by Mr. Wellington that reflected the operations of Agri-Mark showed that the figures representing the milk that was transferred by Agri-Mark had also included milk that Agri-Mark had diverted or transferred for other coops -- Dairylea and DFA. Once the milk from those coops were subtracted from the figures, 8%, 10% and 13% were the resulting acceptable caps. Mr. Ross said the amendments would also provide handlers the right of selection to allow them to assign diverted or transferred milk to the handlers that they had to divert or transfer the milk for.

Gabe Moquin noted that Bill Gillmeister had submitted testimony suggesting the same percentages for seasonal caps on diversions and transfers as the caps included in the pre-discussion draft that the Commission was currently considering. He said Mr. Gillmeister had basically agreed with Mr. Wellington's figures but felt that Mr. Wellington's proposed caps could be reduced by two percent. Mr. Ross said that both he and Mr. Gillmeister had, in fact, arrived at the same percentages for the same periods, but each had used two different methodologies to reach those percentages. This reaffirmed to Mr. Ross that the percentages included in the final proposal were the right ones to use.

Bobby Starr then moved the question. Staff Counsel Dixie Henry stated that to adopt the final rule, the Compact requires the Commission to make four specific findings which would have to be carried out in a series of four motions, as well as approve a producer referendum procedure. The Commission then approved the first of the motions, as moved previously by Mr. Starr. The motion passed by unanimous vote.

Mr. Starr made a motion on behalf of the Regulations Committee that pursuant to Compact Article V. Section 12, the Compact Commission finds:

That a level price of $16.94 (Zone 1) to dairy farmers under Article IV will assure that producers supplying the New England market receive a price sufficient to cover their costs of production and will elicit an adequate supply of milk for the inhabitants of the regulated area and for manufacturing purposes. Discussion followed concerning the $16.94 price. Motion passed by unanimous vote of the six State delegations.

Mr. Starr made a motion on behalf of the Committee on Regulations that pursuant to Compact Article V. Section 12, the Compact Commission finds:

That the major provisions of the order, other than those fixing minimum prices, are in the public interest and are reasonably designed to achieve the purposes of the order. Motion passed by unanimous vote of the six State delegations.

Mr. Starr made a motion on behalf of the Committee on Regulations that pursuant to Compact Article V. Section 12, the Compact Commission finds:

That the terms of the proposed amendment are approved by producers pursuant to a producer referendum required by Article V. Section 13. Motion passed by unanimous vote of the six State delegations.

Mr. Starr made a motion on behalf of the Committee on Regulations that the commission certifies the following referendum procedure:

1. The representative period shall be the month of June 1998.

2. Ballots will be distributed to eligible producers and qualified cooperatives by Monday, October 26, 1998.

3. Qualified cooperatives must mail notice of block vote, or decision not to cast a block vote, to eligible producer members by Wednesday, October 28, 1998.

4. Qualified cooperatives must mail notice to the Commission of notice of block vote, or decision not to cast a block vote by Friday, October 30, 1998.

5. All producer ballots and cooperative ballots must be received in the Commission office by 5:00 p.m. on Friday, November 6, 1998.

6. Mae Schmidle shall serve as designated referendum agent.

Motion passed by unanimous vote of the six State delegations.

Commodities Credit Corporation -- Escrow Account Balance:

Bobby Starr made a motion as Chair of the Committee on Regulations to refund the balance of the CCC escrow account to producers who document their annual production from the period of October 1, 1997 through September 30, 1998 was equal to or less than their annual production from the period of October 1, 1996 through September 30, 1997.

He said the Committee had discussed the issue at length and felt this was the fairest way to refund the $400,000 remaining balance to farmers. Mr. Starr said the Committee estimated during its deliberations that between 1,200 to 1,400 farmers might qualify for the refund. The motion passed by unanimous vote of the six State delegations.

Members of the public were allowed to address the Commission. New York dairy farmer Ken Dibbell expressed his opinion on the Bylaws change the Commission had addressed previously. He discussed farmers' costs of production and recent farm prices and provided Commission members with charts consisting of information on milk production cash costs and returns and mailbox prices (Attachment 6).

Committee on Administration -- Recommendation for 1998 Budget Adjustment:

Ken Becker said the 1998 Proposed Revised Budget (Attachment III) was the result of adjustments he had made to the budget following a request by the Commission to revise the budget to more accurately reflect actual expenses. Actual costs and income were both outlined in the proposal. He said the proposed budget would be used for the remainder of the year and as a model to build the budget for the upcoming year.

Harold Howrigan said the Committee on Administration had a very in-depth discussion on the budget, felt that it was easily understood, and that there was enough money available in the remaining balance following expenses that should be used to pay down debt to banks. Mr. Howrigan made a motion on behalf of the Committee on Administration to adopt as presented the proposed, revised budget that included a payment of $150,000 on the Commission's long-term debt.

Discussion followed concerning repayment of the Commission's long-term debt. Mr. Becker noted that the Commission currently owed a total of $204,000 to banks and that paying off $150,000 of that debt would still leave a cushion of funds available in the budget for operating and litigation expenses. Motion passed by unanimous vote of the six State delegations.

Mae Schmidle said there were two recommendations made in Executive Session by the Committee on Administration that needed to be considered. The first concerned the Commission's Legal Counsel. Harold Howrigan made a motion on behalf of the Committee on Administration to accept the Committee's recommendation to upgrade the position of Staff Counsel to General Counsel, with a corresponding annual salary adjustment from $45,000 annually to $49,500, effective September 21, 1998. Motion passed by unanimous vote of the six State delegations.

Ms. Schmidle said the second recommendation made in Executive Session concerned former Executive Director Dan Smith. Jay Healy made a motion to table until the November 4, 1998 Commission meeting, the Committee on Administration's recommendation to consider a final accounting payment for former Executive Director Dan Smith. The motion was seconded by Ron Newman and passed by unanimous vote of the six State delegations.

New Business:

Federal Milk Market Invoice:

Ken Becker explained that the Market Administrator's invoice (Attachment 7) was for work performed for the monthly pool, several audits (including a lengthy audit that took 120 hours to complete), as well as statistical research that had been done at the Commission's request for the rulemaking on diversions and transfers. Bobby Starr made a motion to approve the Market Administrator's invoice of $13,770 for the August pool, audits that were completed in August and statistical research performed at the Compact Commission's request. The motion was seconded by Bob Jacquier, passed by unanimous vote of the six State delegations.

Litigation Co-counsel, Daniel Smith, Invoice:

Mae Schmidle said the Commission had received an invoice from Dan Smith for legal services performed for the Commission (Attachment 8). Harold Howrigan made a motion on behalf of the Committee on Administration to approve payment of Co-counsel Dan Smith's invoice of $7,028.99 for period ending July 17, 1998. Mr. Howrigan noted that 49.4 hours of the 56.1 hours of legal services performed by Mr. Smith were spent on The Organic Cow case. Discussion followed concerning Mr. Smith's contract with the Commission. Voting yes for the motion were the State delegations of VT, RI, ME, NH and CT. MA voted no. Motion passed.

Consideration and Recommendation on Loan Payments -- National Bank of Middlebury and Peoples Trust Company:

Mae Schmidle noted that the loan payments had already been approved by the Commission previously when it adopted the proposed, revised budget. Mr. Becker said the payments would be prorated between the National Bank of Middlebury and the Peoples Trust Company based on the Commission's outstanding obligation at each.

Ad Hoc Committees -- University Studies: Presentation by University of MA at Amherst and University of Vermont:

Researchers from the Universities of Massachusetts and Vermont gave the Commission a preliminary report on market impact studies that they were conducting.

Rick Wackernagel, a farm management specialist in dairy economics from the University of Vermont, said researchers were examining the milk market impacts of the Compact, which included its impact on the retail milk market and milk supply. Researchers at UVM and UMASS were conducting the retail portion of the study and researchers from UVM were conducting the milk supply portion of the study.

Dan Lass, a researcher from the University of Massachusetts, said researchers were using data from the Ag. Marketing Service from the Hartford and Boston areas for their analysis of the Compact's impact on retail prices. Researchers were conducting an econometric analysis and had reviewed previous research on retail milk prices to determine what model to use for their analysis. Their research included a review of rising and falling farm prices as well as processing cost indexes.

Chuck Nicholson, a researcher from the University of Vermont, said the portion of the study that examined the Compact's impact on milk supply evaluated the impact of the Compact on milk production in the six New England states. The methods researchers were using to evaluate the impacts of the Compact included a graphical summary of trends and an econometric analysis. Mr. Nicholson then explained the econometric model that researchers were using and what relationships it would help them to predict.

Mr. Nicholson said researchers were also looking at the impact of the Compact on the composition of the milk shed. He explained what variables were being reviewed in this study as well as what models were being used.

A question and answer period followed. Researchers expected to have a final report for the Commission in December.

Meeting adjourned at 3:10 p.m.

Respectfully submitted,

Tina Wisell

Public Information Director

The next Commission meeting will be held at 10:00 a.m., Wednesday,

November 18, 1998 in rooms 306 and 308 of the State Legislative Office Building,

33 North State Street in Concord, NH.

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