The Commission exercised its rulemaking authority twice in 1997 by instituting price regulation. The initial regulation was posted as a final rule in the Federal Register on May 30, 1997 and went into effect on July 1, 1997. An extension of that regulation was posted in the Federal Register on November 25, 1997, and went into effect on January 1, 1998.

Establishing the first price regulation
The Commission held its first hearings on proposed price regulation on December 17 and 19, 1996 in New Hampshire and Massachusetts respectively. Each hearing considered the following subjects and issues relating to the possible establishment of a Compact over-order price regulation:

The balance between production and consumption of Class I, fluid milk products in the territorial region of the six participating, New England states.

The costs of production in the territorial region of the six participating, New England states, including, but not limited to the price feed, transportation costs, the cost of labor, including the reasonable value of the producer's own labor and management, machinery expense and interest expense.

The prevailing farm, wholesale and retail prices for milk outside the territorial region of the six participating New England states.

The costs of processing and distributing Class I, fluid milk products within the territorial region of the six participating New England states by plants located within the region.

The costs of delivering and marketing bulk, Class I, fluid milk to plants located within the territorial region of the six participating New England states from within and outside the region.

The costs of delivering and distributing packaged, Class I, fluid milk products within the territorial region of the six participating New England states processed outside the region.

The purchasing power of the general public.

The nature and function of all government programs providing food assistance in the form of Class I, fluid, milk products, such as the Women, Infants and Children Special Supplemental Food Program of the United States Child Nutrition Act of 1996, and the potential impact of compact over-order price regulation on such programs.

The costs of retailing Class I fluid milk products.

The econometrics of price transmission from the farm to retail price for Class I, fluid milk products.

The prices needed to yield a reasonable return to producers of milk and distributors of Class I, fluid, milk products.

Feasible actions which may be taken to ensure that compact over-order price regulation, if imposed, does not create an incentive for producers to generate additional supplies of milk.

1997. This comment period closed on March 31, 1997; the reply comment period closed April 9, 1997.

The Compact Commission held a Special Meeting on April 28, 1997 at which it issued a proposed rule for a Compact over-order price regulation for the six-state New England region in the amount of $16.94 (Zone 1), for six months duration. As the basis for the proposed rule, the Commission reviewed comprehensively the comment received on all the subjects and issues concerned. The Commission’s analysis covered 20 pages of the Federal Register. The proposed rule also contained a technical regulation, which provided for the imposition of the compact over-order obligation on processors, the pooling of the proceeds and the payment to producers of an over-order price.

The Compact Commission held a Special Meeting on May 7, 1997 to review comment on the Proposed Rule which was issued on April 28 and to debate whether to adopt the proposed rule as a final rule in light of the comment received. The Commission adopted an over-order price regulation by Final Rule on May 14, 1997. To become effective the price regulation had then to be approved by at least two-thirds of all producers voting by referendum. A producer referendum was held during the period of May 15 through May 27, 1997. Mae Schmidle was the Referendum Agent. On May 27, she tallied that 3,146 of the 3,158 verified ballots, or 99.6% of all verified ballots were cast in the affirmative. Therefore, the price regulation was approved by more than two-thirds of all producers voting in the referendum.

On May 30, 1997, as a result of the above actions, the final rule was established imposing the compact over-order price regulation for all Class I, fluid milk route distributions in the territorial region of the six New England states, in the combined, Federal Milk Market Order #1 and compact over-order, amount of $16.94 (Zone 1). The price regulation was established for a six-month duration. The full Compact over-order price regulation and results of the producer referendum were published in the May 30, 1997 Federal Register, to become effective July 1 – December 31, 1997.

The Northeast Dairy Compact Commission established this price regulation based on its findings that it is necessary to assure the viability of dairy farming in New England and to assure the region's consumers of a continued, adequate, local supply of fresh and wholesome milk, reasonably priced, and that it is otherwise in the public interest. The Compact Commission also established the price regulation based on the finding that the regulation was approved by producer referendum pursuant to Article V, section 13 of the Northeast Interstate Dairy Compact.

The price regulation applies to all route dispositions of Class I fluid milk in the territorial region of the six New England states by compact ``pool plants'', or fluid processing plants located in New England, and by compact ``partially regulated plants'', or fluid processing plants located outside New England with such route dispositions in the region. The specific amount of the compact over-order price will be announced each month in coordination with the established procedure for price announcement by the Market Order #1 Administrator.

The price regulation provides for a reimbursement to the Women, Infants and Children Special Supplement Nutrition Program under the United States Child Nutrition Act of 1966. (WIC Program). The reimbursement is in the entire amount of the compact over-order price, or the difference between $16.94 and the Market Order #1 price (Zone 1) as announced monthly, for all milk purchases made by each of the six State WIC programs.

The Compact Commission will monitor production levels regionally and nationally to determine whether action is necessary to assure compliance with the provisions of 7 U.S.C. 7256(5), relating to compensation of the Commodity Credit Corporation (CCC). Finally, the price regulation establishes an administrative assessment of 3.2 cents per hundredweight of milk on all route dispositions of Class I, fluid milk in the territorial region of the six New England states.

The rule took effect on July 1, 1997.

Extending the price regulation

Because the price regulation was set to expire on December 31, 1997, the Commission began a new rulemaking procedure in the fall of 1997 in order to determine whether to extend the price regulation. On September 8, 1997, the Commission issued a notice of proposed rulemaking and proposed rule extending the current Compact Over-order Price Regulation, 7 CFR Chapter XIII, for the period January 1 through December 31, 1998 and to amend the regulation generally. On October 23, 1997, the Northeast Dairy Compact Commission adopted, by final rule, an extension of the current over-order price regulation.

To become effective, the extension of the price regulation had to be approved by at least two-thirds of all producers voting by referendum. A producer referendum was held during the period of October 24 through November 12, 1997. The extension of the

Commission's price regulation through termination of the Compact enabling legislation was approved by more than two-thirds of all producers voting in the referendum. The full Compact over-order price regulation and results of the producer referendum were published in the November 25, 1997 Federal Register.

Excerpted Summary of extension of price regulation

The rule extends the present compact over-order price regulation for all Class I, fluid milk route distributions in the territorial region of the six New England states its present expiration date of December 31, 1997. The rule extends the price regulation for the period January 1, 1998 through termination of the Compact enabling legislation. The regulation is established in the combined, Federal Milk Market Order #1 and compact over-order, amount of $16.94 (Zone 1).

In so extending the price regulation, the Northeast Dairy Compact Commission reaffirms and again bases the decision on its findings that such price regulation is necessary to assure the viability of dairy farming in New England, that it is necessary to assure the region’s consumers of a continued, adequate, local supply of fresh and wholesome milk, reasonably priced, and that it is otherwise in the public interest. The Compact Commission also establishes the price regulation based on the finding that that the regulation has been approved by producer referendum pursuant to Article V, section 13 of the Northeast Interstate Dairy Compact.

This rule also establishes a Task Force under Article VII. D. of the Compact Commission’s Bylaws to determine whether it is appropriate to provide similar reimbursement to the region’s School Lunch Programs, established under the National School Lunch Act of 1946 and the Child Nutrition Act of 1966 for any adverse financial impact. The Task Force is to report back on its assessment of whether it is appropriate to reimburse the programs and, if so, to recommend a procedure for reimbursement to the Compact Commission at its regularly scheduled meeting for February, 1998.

Finally, the price regulation extends the administrative assessment of 3.2 cents per hundredweight of milk on all route dispositions of Class I, fluid milk in the territorial region of the six New England states. It is noted that the additional start-up assessment of approximately 1.3 cents per hundredweight presently imposed will expire with final payment in December, 1997.

The final rule went into effect on January 1, 1998.

WIC Reimbursement

The Compact price regulation, among other features, provides a reimbursement to the Women, Infants and Children Special Supplement Nutrition Program under the United States Child Nutrition Act of 1996 (WIC Program). The reimbursement is the entire over-order obligation, or difference between $16.94 and the market order #1 price (Zone 1) as announced monthly, for all milk purchases made by each of the six State WIC programs.

The reason for the WIC reimbursement was two-fold. First, nutrition programs such as WIC play an important role in the prevention of health problems. Second, WIC is not an entitlement program, therefore, the number of participants that WIC is able to serve at any given time is dependent upon availability of funds from Federal and State sources, and the cost of WIC food items. Since the amount of funds is fixed, any increase in the price of WIC foods has the effect of reducing the number of women and children the available grant dollars can serve. Given this, the Compact Commission determined it is imperative that WIC’s funds be held harmless from any potential or actual adverse impact that could be due to price regulation.

School food service program exemption

The Commission used its rulemaking authority again in late 1997 and early 1998 to exempt school food service program milk from Compact price regulation.

The Advisory Committee on the Impact of the Price Regulation on School Lunch Programs was appointed on November 7, 1997 pursuant to the Commission’s decision in the final rule adopted on October 23, 1997 (was posted November 25, 1997 as a final rule in the Federal Register.) In the Final Rule, the Commission directed that a Task Force be established to determine and report at or before the February 1997 meeting of the Commission, whether it is appropriate to provide reimbursement for any adverse financial impacts to the region’s School Lunch Programs. The Committee met on November 25, 1997 to hear from concerned persons about the impact of the regulation on School Lunch Programs and to consider a staff report of a survey of state and local Child Nutrition Program administrators in the New England States.

On the basis of the testimony at the November 25^th meeting, the Advisory Committee recommended to the full Commission on December 2, 1997 that the Commission should initiate rulemaking to allow for an exemption for school lunch programs. The Committee concluded that any increased costs to schools may ultimately be borne by school children in increased prices for school milk. To avoid any adverse impact on school children, the Committee found that it is appropriate for the Commission to initiate rulemaking to hold harmless the School Lunch Programs for New England School Food Authorities for the 1998-99 contract year and allow for an exemption from the over-order price regulation.

On December 11, 1997, the Commission accepted the Committee’s recommendation and issued a notice of proposed rulemaking to amend the current Compact Over-order Price Regulation, to exempt from the regulation, fluid milk distributed by handlers during the 1998-1999 contract year under open competitive bid contracts with School Food Authorities in New England for child nutrition programs qualified for reimbursement under the National School Lunch Act of 1946 and the Child Nutrition Act of 1966. The Notice set a public hearing for December 29, 1997, and invited the public to submit written comments through January 12, 1998.

The Commission met on January 26, 1998 to consider and act on the comment received. Fifty-one separate comments were received during the hearing and written comment period. Of the total commenters, thirty-one expressed support for the regulation’s amendment and fifteen expressed opposition to its amendment. The remaining five commenters took no apparent position on the proposal.

In response to the comment, the Commission amended the proposed rule and adopted a final rule to exempt from the Compact over-order price regulation any fluid milk sold in eight-ounce containers distributed by handlers under open competitive bid contracts and sold by School Food Authorities in New England during the 1998-1999 contract year, to the extent an increased cost of such milk is documented as attributable to operation of the price regulation. The Compact will reimburse School Food Service Authorities for any documented increased costs. The procedure for documentation and reimbursement is to be set forth in a memorandum of understanding between State SFA officials and the Commission. The rule would become effective on April 1, 1998.

To become effective the proposal to exempt school lunch programs from price regulation has to be approved by at least two-thirds of all producers voting by referendum. A producer referendum was held during the period of February 10 through February 20, 1998. The Commission's price regulation was approved by 95.8 percent of the producers voting in the referendum.

The Commission’s action reflects the Commission’s governing principle, as defined in the final rule establishing price regulation, of the importance of assuring that regulation does not adversely affect operation of child nutrition programs.

The Commission at its August 5, 1998 meeting agreed that more testimony was needed on the diverted and transferred milk proposal, and decided to address the two proposed changes to the Compact price regulation separately.

The Commission adopted as a final rule the proposal to establish a reserve fund for reimbursement to school food authorities. The proposed reserve fund is required to implement the previously issued regulation exempting milk sold in 8-ounce containers by the school food authorities from the Compact price regulation. Since producers must give final approval to the measure before it can take effect, the Commission held a producer referendum August 14 through August 24, 1998. The Commission's price regulation was approved by 97.1 percent of the producers voting in the referendum.Notice of the September 2, 1998 Public Hearing on Proposed RulemakingConcerning the proposal to amend the Compact regulation to exclude milk from the pool which is either diverted or transferred out of the Compact area, the Commission determined that it needed additional information on the issue before it could make a final decision. The Commission decided that an additional public hearing and extended comment period were needed in order to obtain necessary facts on the issue. The Commission held a public hearing on September 2, 1998 and extended the public comment period to September 16, 1998. The Notice of the September 2, 1998 Public Hearing on Proposed Rulemaking can be found by clicking on Public Hearing.

After reviewing testimony from both public hearings, as well as testimony submitted during a public comment period, the Commission at its October 7, 1998 meeting, decided to place certain seasonal caps on the amount of milk that could be diverted or transferred and still receive Compact payments.

The final rule adopted by the Commission would change the regulation to limit the payment of the Compact Over-order producer price to milk disposed of in the Compact area with a seasonally adjusted allowance for diverted or transferred milk. The rule would 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. Any amount of milk diverted or transferred above those percentages would not qualify as eligible for the Compact payment. The change to the regulation must be approved by producer referendum before it can take effect. On November 9, 1998, of the 2,989 verified ballots cast during the referendum, 99.2%, or 2,966 supported the regulation change. The new rule will take effect on January 1, 1999.Notice of December 11 and December 16, 1998 Public Hearings on Subjects and Issues RulemakingThe Commission on November 18, 1998 took action to initiate a Subjects and Issues Rulemaking in order to seek testimony concerning whether the Compact price regulation should be amended to address a variety of issues. The Commission will be seeking testimony and comments on specific subjects and issues related to (1) whether to amend the formula for distribution of monies from the producer-settlement fund, including whether to adopt a cap on the amount of milk, per producer, eligible for the Compact Over-order producer price; (2) whether additional supply management policies and provisions should be incorporated into the Over-order price regulation; (3) whether organic milk should be exempted from the Compact Over-order Price Regulation; and (4) whether the amount of, or method of determining, the administrative assessment should be amended. The Summary of the Notice of the December 1998 Public Hearings on the Subjects and Issues Rulemaking can be found by clicking on Public Hearing.