Margin Protection Program for Dairy and Dairy Product Donation Program

AGENCY:

Commodity Credit Corporation and Farm Service Agency, USDA.

ACTION:

Final rule.

SUMMARY:

This rule implements regulations for the Margin Protection Program for Dairy (MPP-Dairy) and the Dairy Product Donation Program (DPDP) as authorized in subtitle D of the Agricultural Act of 2014 (the 2014 Farm Bill). MPP-Dairy provides dairy producers with risk management coverage that will pay producers when the difference between the price of milk and the cost of feed (the margin) falls below a certain level. MPP-Dairy provides basic catastrophic level coverage for an administrative fee, and greater coverage for a premium in addition to the administrative fee. Amounts of coverage and premiums vary based on producer selections. This rule specifies the eligibility requirements and payment formulas for MPP-Dairy. Under the related DPDP, which is a complimentary program designed to support producer margins by increasing the price of milk, the U.S. Department of Agriculture (USDA) will buy dairy products when the margin falls below a certain level, and will distribute those products to individuals in low-income groups through public and private non-profit organizations. The Farm Service Agency (FSA) will operate both programs using funds of the Commodity Credit Corporation (CCC). The USDA Food and Nutrition Service (FNS) will assist in the distribution of the dairy products under DPDP.

DATES:

Effective Date: This rule is effective August 29, 2014.

Comment Date: We will consider comments we receive by October 28, 2014.

ADDRESSES:

We invite you to submit comments specifically to address the questions related to intergenerational transfers in this document. In your comment, please specify RIN 0560-AI18 and include the volume, date, and page number of this issue of the Federal Register. You may submit comments by any of the following methods:

• Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting comments; or
• Mail, Hand Delivery, or Courier Danielle Cooke, Special Programs Manager, Price Support Division, FSA, USDA, STOP 0512, 1400 Independence Ave. SW., Washington, DC, 20250-0512.

All written comments will be available for inspection online at www.regulations.gov and at the mail address above during business hours from 8 a.m. to 5 p.m., Monday through Friday, except holidays. A copy of this rule is available through the FSA home page at http://www.fsa.usda.gov/.

FOR FURTHER INFORMATION CONTACT:

For MPP-Dairy: Danielle Cooke; telephone: (202) 720-1919. For DPDP purchases: Christine Gouger, telephone: (816) 926-3379. For DPDP donations: Anne Fiala, telephone: (703) 305-2662. Persons with disabilities who require alternative means for communication should contact the USDA Target Center at (202) 720-2600.

SUPPLEMENTARY INFORMATION:

MPP-Dairy—Overview

This final rule establishes the regulations for the new MPP-Dairy as specified in sections 1401-1410 of the 2014 Farm Bill (7 U.S.C. 9051-9060, Pub. L. 113-79). MPP-Dairy provides a risk management program for dairy operations and is authorized through December 31, 2018.

MPP-Dairy is a voluntary risk management program that provides payments when the margin between the national average milk price and a national average feed cost falls below a specified “trigger” level. Eligible producers may purchase coverage for their dairy operations by paying an administrative fee, and a premium as applicable. The coverage is for a dairy operation; all producers in an operation must agree to register the operation for the program in order for that operation to be eligible for MPP-Dairy coverage. MPP-Dairy pays dairy operations when the national margin falls below the operation's selected margin trigger for one of the specified 2-month periods in this rule. As part of the initial registration process, dairy operations must agree to carry MPP-Dairy coverage through calendar year 2018, but they can select a different level of coverage during each annual enrollment period. At the time of registration and annually thereafter, the dairy operation must make coverage level elections. For example, if margins are consistently above the trigger point or the dairy operations decide they want only limited coverage, the operation may switch during the annual enrollment from a coverage level with a higher premium to the catastrophic coverage level with a lower or no premium, but they cannot drop coverage altogether, except in cases where a producer is retiring, dies, or the operation goes out of business.

Eligible Operations for MPP-Dairy

Any dairy operation that produces and commercially markets milk in the United States may register for MPP-Dairy. As required by the 2014 Farm Bill, to be an eligible dairy operation for MPP-Dairy, each of the producers in an eligible dairy operation must share in the risk of production, and must make contributions (including capital, land, labor, equipment, or management) to the operation commensurate with such producer's share of the proceeds. Participating dairy operations can be operated by more than one producer. A single producer may be member of more than one operation and each operation may separately participate in MPP-Dairy.

Definition of a Dairy Operation

This rule specifies that any dairy facility that was part of a single dairy operation that was eligible for and participated in the Milk Income Loss Contract (MILC) Program administered by FSA as of February 7, 2014 (date of enactment of the Agricultural Act of 2014) is a “dairy operation” for the purposes of MPP-Dairy. All other operations must meet the requirements specified in this rule to be a dairy operation for the purposes of MPP-Dairy these include the criteria and procedures established under the MILC Program. Operations that are determined to be “new operations” under this rule, will be subject to the “affiliation” test if the operation elects to participate in MPP-Dairy separately.

For the purposes of this rule, a “new” operation is one that did not produce and commercially market milk at least 12 full months as of February 7, 2014. Under certain circumstances new operations may participate in MPP-Dairy and existing operations can restructure and still be eligible for MPP-Dairy. A dairy operation can be sold or transferred and keep MPP-Dairy eligibility. The main restriction on eligibility for a new operation is that an existing operation that restructures or reconstitutes cannot result in an increase in production history as a whole.

Production History for MPP-Dairy

MPP-Dairy payments for a given dairy operation are based on a coverage level and percentage of coverage annually elected by a participating dairy operation for the operation's production history. Such production history for existing operations with at least a year of production history as of February 7, 2014, will be the highest of the operation's annual milk marketings in any one of 2011, 2012, or 2013 calendar years, subject to an annual upward adjustment in subsequent years to reflect any increase in the national average milk production as specified in this rule.

Eligible production history for new operations will be determined by one of two methods, at the election of the dairy operation. The first option is to extrapolate from actual production data for the first calendar year with at least one full month of production history, adjusted using a national seasonality index to calculate a yearly amount of production. The national seasonality index was created by FSA using monthly milk production data for 2009 through 2013. Since milk production naturally fluctuates in some regions during different seasons of the year, the index is needed to extrapolate a full year production amount from partial year production data. To develop the index, the total milk production for the 5 years for each individual month was divided by the total annual milk production for those years to determine the share of annual milk production produced in each month. The resulting figure is the seasonality index that is set for the duration of MPP-Dairy. Alternatively, new operations may choose a second option to determine production history. Under this option, annual production would be estimated based on the herd size of the dairy operation relative to the national “rolling herd average” production data published by the Secretary.

As required by the 2014 Farm Bill, the production history amount established for an operation will never be reduced because of changes in national milk production, but may only be increased. Once a dairy operation has enrolled in MPP-Dairy and the production history is established for that operation, USDA in subsequent years will update the production amount to reflect annual changes in the national average milk production. That adjustment factor will be announced each year.

The production history is established for a participating dairy operation, and it is assigned to that operation, not to an individual producer. If a participating dairy operation, with an established production history, sells or changes ownership of the operation, the established production history will stay with that operation, and be assigned to the new owner. For participating dairy operations, with an established production history, that relocate or otherwise move their operation to another location, the production history will move to the new location. If the new location has existing production history, the production history may be reconstituted that combines the production history of the relocated operation and the new location to the new location and become available for the next calendar year of coverage.

Section 1410 of the 2014 Farm Bill specifies that USDA is required to establish regulations that “prohibit a dairy producer from reconstituting a dairy operation for the purpose of the dairy producer receiving margin protection payments.” This rule therefore prohibits an increase in production history as a result of most restructurings and reconstitutions. Only in cases where a dairy producer purchases a dairy operation with no established production history can a new history be established, subject to the affiliation rule. For example, if a father and son jointly operate a dairy and the son decides to leave and purchase a dairy operation that is already participating in MPP-Dairy with an established production history, the son would get the production history already established by the participating dairy operation and would not be considered a new dairy operation for the purposes of MPP-Dairy. (No new production history would be created; it would only be transferred.) However, if the son purchased a dairy operation that lacked any production history, then the son may be considered a new dairy operation for MPP-Dairy purposes and could establish a new production history for that operation, subject to the affiliation rule.

Other Eligibility Requirements and Limits

MPP-Dairy benefits are not subject to payment limitations or average adjusted gross income (AGI) limitations that apply to most FSA and CCC programs. However, these benefits are subject to the conversation compliance requirements provided for in 7 CFR part 12. Further, there is no set program maximum number of pounds any dairy operation can cover under the program. MPP-Dairy's coverage limitation for a specific dairy operation is 90 percent of the operation's production history.

In general, all U.S. dairy producers are eligible to participate in MPP-Dairy through their eligible dairy operation; however, producers cannot participate in both MPP-Dairy and the Livestock Gross Margin for Dairy (LGM-Dairy) insurance program administered by the USDA Risk Management Agency (RMA). For 2014 and 2015, producers already enrolled in LGM-Dairy may register for MPP-Dairy, but in no case will they receive benefits from both programs. If an operation with LGM-Dairy coverage registers for MPP-Dairy, coverage under MPP-Dairy will not become effective until after the target month of marketings under LGM-Dairy has ended or the dairy operation provides proof that the LGM-Dairy policy has been cancelled.

MPP-Dairy Coverage Levels

As part of the annual coverage election process for MPP-Dairy, the dairy operation is required to select the level of coverage and pay an administrative fee and, if applicable, a premium based on the level of coverage elected. In addition, once a participating dairy operation registers for MPP-Dairy, regardless if it fails to make a coverage election, it must annually pay the administrative fee through December 31, 2018. The level of coverage chosen by a participating dairy operation requires two selections. One is the margin trigger (between $4 and $8 per hundredweight (cwt), in 50 cent increments); the other is the percentage of production history that will be covered (from 25 percent to 90 percent, in 5 percent increments). The operation can only select one margin trigger level and one percentage of production history; the operation cannot “split” the operation's coverage and, for example, purchase $4 margin coverage on 25 percent of production history and $8 coverage on 50 percent of production history. (At the catastrophic level coverage of $4, the producer will be paid when the margin, the difference between the price of milk and the cost of feed, falls below $4.)

As specified in the 2014 Farm Bill, operations may elect a $4 per cwt margin trigger for the administrative fee of $100 with no premium owed. This rule defines this to be catastrophic level coverage, in that it provides the lowest level of margin protection offered under MPP-Dairy. If $4 margin coverage is selected, 90 percent of production history will be covered, the maximum amount of production coverage allowed by the 2014 Farm Bill. Alternatively, participating dairy operations may elect a higher margin trigger, up to $8 per cwt of milk (in 50 cent increments), for 25 percent to 90 percent of production (in 5 percent increments). Margin triggers higher than $4 require payment of a premium. At each margin trigger level, corresponding rates are different with respect to the first 4 million pounds (40,000 cwt) of covered production history and covered production history above 4 million pounds. As specified in the 2014 Farm Bill, the premiums for the first 4 million pounds of eligible covered production history will be reduced by 25 percent for each of calendar years 2014 and 2015.

The annual premium rates listed in this regulation are specified in the 2014 Farm Bill. USDA has no discretion to set different premium rates other than those in the 2014 Farm Bill. The premium will be determined based on the producer's election of each of the margin trigger and percentage of coverage. The schedule of premiums below refers to these levels as Tier 1 (first 4 million pounds of production history covered by the program) and Tier 2 (covered production in excess of 4 million pounds).

For example, a dairy operation with a production history of 6 million pounds that elects a coverage level of $6 and a 50 percent coverage percentage will pay a premium based on the premium rate for covered production history for up to 4 million pounds because as a function of the dairy operation election to cover at the 50 percent rate, only 3 million pounds of production history is being covered by the program. (Note that production history is in pounds, while the premium schedule below is per cwt, so we divide covered production by 100 to calculate the premium). Therefore, in this example, the dairy operation pays a premium for a calendar year of coverage during 2016, in the amount of $1,650 based on 6 million pounds covered at a 50 percent coverage level, yielding 3 million pounds of covered production history. The 3 million pounds of production history multiplied by $0.055, the premium at the $6 margin level for covered production up to 4 million pounds (50 percent of 6 million is 3 million; 3 million divided by 100 is 30,000 cwt; 30,000 cwt x $0.055 per cwt =$1,650). The premium schedule is as follows; the 2014 Farm Bill specifies the amounts:

The following is an example with higher coverage levels and both tiers of premium: If a dairy operation with an established production history of 10 million pounds elects a coverage level of $8 and a 75 percent coverage percentage, 7.5 million pounds would be considered covered production history (10,000,000 × 0.75), and of that 7.5 million pounds, 4 million pounds would be assessed at $0.475 rate from the lower (Tier 1) premium schedule for production at 4 million pounds or less (4,000,000 × $0.475/100 = $19,000), and the remaining 3.5 million pounds of covered production history would be assessed at the $1.360 rate from the higher premium schedule for production in excess of 4 million pounds (3,500,000 × $1.360/100 = $47,600). The dairy operation would pay a total premium for a calendar year of coverage in the amount of $66,600 ($19,000 + $47,600) based on 7.5 million pounds of covered production history that falls under each premium schedule at the $8 coverage level.

For calendar years 2014 and 2015, the premium per cwt for covered production that falls under the first 4 million pound premium schedule will be reduced by 25 percent, except at the $8 coverage level, from the table shown above. The premium reduction is required by the 2014 Farm Bill. FSA will provide premium calculators on the FSA Web site, so that producers can evaluate the costs of different coverage options easily.

Registration Process

Registration of a dairy operation under MPP-Dairy results in a multi-year contract between CCC and the dairy operation. As discussed above, dairy operations agree to pay an administrative fee to register and annually thereafter through December 31, 2018. In addition, a participating dairy operation is obligated to pay the premium, if any, associated with its annual coverage elections, through calendar year 2018.

The $4 per cwt margin level coverage is available for a $100 administrative fee, without premium; higher levels of coverage are available for a premium plus the administrative fee. Operations must pay at least half the premium for the year (if applicable), plus the $100 administrative fee, at the time of the election of coverage. Once the election period has ended, a dairy operation's election of coverage is final and it can be changed only for the next calendar year of coverage during the next election period.

The 2014 Farm Bill requires that USDA offer more than one method by which a participating dairy operation may pay the required premium in any manner that maximizes participating dairy operation payment flexibility and program integrity. Unless otherwise determined by the Deputy Administrator, at the time of coverage election, operations must pay either:

(1) The full premium plus the administrative fee; or

(2) A minimum of 50 percent of the total premium (if applicable) plus the administrative fee, with the remaining balance due no later than June 1 of the applicable calendar year of coverage.

However, a premium calculated for calendar year 2014 only (which provides coverage through December of 2014) must be paid in full at the time of coverage election. The coverage election period for 2014 partial year coverage and 2015 full year coverage will both be during the fall of 2014. New operations registered during a calendar year starting in 2015 will be allowed to pay a prorated premium for the first year of participation.

If an operation fails to pay either the required annual administrative fee or premium owed on time, it remains obligated for payment of such administrative fee and entire premium, but will lose coverage until the premium is paid. If an operation does not make an annual coverage level election, it will still be liable for the administrative fee for the following year. It will automatically receive coverage at the $4 coverage level at 90 percent, but only if the administrative fee is paid. For dairy operations that want to continue coverage levels established in the prior calendar year, the Deputy Administrator will establish a procedure to allow such coverage levels to continue that will include the requirement of a timely payment of administrative fees and any premiums, if applicable.

How Margins Are Calculated To Determine Payments

The 2014 Farm Bill specifies what prices for milk and feed USDA is required to use to calculate the “actual dairy production margin.” The margin, based on published USDA national data for milk and feed prices, is used to trigger payments under MPP-Dairy and the authority to make purchases under DPDP. The 2014 Farm Bill requires the margin to be based on the average price received, per cwt of milk, by dairy operations for all milk sold to plants and dealers in the United States. It also requires calculation of a national average feed cost, based on specific sources for the monthly price of corn, soybean meal, and alfalfa hay. Therefore, MPP-Dairy uses USDA-reported monthly national average price data for all classes of milk (the all-milk price) and the cost of the three specified feeds, which represent the bulk of purchased feeds in dairy rations (corn, soybean meal, and alfalfa hay) to calculate the “actual dairy production margin” by subtracting from the price for a cwt of milk produced the cost of an average feed ration used to produce a cwt of milk. The 2014 Farm Bill prescribes that USDA calculate the actual dairy production margin in consecutive 2-month periods.

If the actual dairy production margin falls below the selected margin coverage level of an operation for any such consecutive 2-month period, that operation will be eligible for a payment under MPP-Dairy. For example, if, for a particular consecutive 2-month period, the actual dairy production margin is $6, and the operation has chosen $4 coverage level, there will be no payment, but if the operation had chosen the $7.50 coverage level on 50 percent of production, it would have been paid $1.50 times 50 percent of its covered production history. A recalculation would occur in each subsequent 2-month period. MPP-Dairy pays only on the basis of such 2-month periods; in no case does the program pay for a period of low margins shorter than such 2-month periods.

USDA will calculate the actual dairy production margin using the national “all-milk price” minus the national “average feed cost,” as those terms are specified in the 2014 Farm Bill. If the actual dairy production margin calculation produces a negative number, then the margin will be considered zero. For example, if the cost of feed is higher than the price of milk by $1 per cwt, the margin will be considered to be zero. The term “all-milk price” is defined in the 2014 Farm Bill to mean the average price received, per cwt of milk, by dairy operations for all milk sold to plants and dealers in the United States, as determined by USDA. The term “average feed cost” is defined to mean the average cost of feed used by a dairy operation to produce a cwt of milk using the sum of:

• 1.0728 times the price of corn per bushel;
• 0.00735 times the price of soybean meal per ton; and
• 0.0137 times the price of alfalfa hay per ton.

The 2014 Farm Bill specifies which USDA-published price series FSA is required to use for such prices; FSA has no discretion in what prices to use.

The 2014 Farm Bill requires the margin to be calculated using specific consecutive 2-month pairs—January and February, March and April, May and June, July and August, September and October, and November and December.

If a dairy operation has a premium due at the time it becomes eligible for a payment under MPP-Dairy, the premium will be automatically deducted from the payment. If the premium is overdue (past June 1 of the coverage year) however, an operation will not be eligible for a payment, because it will have lost coverage. In the case of an operation with an overdue premium, the operation will regain coverage only after any overdue premium is paid, in which case it would be eligible for the next consecutive 2-month period after such payment of premium.

DPDP—Overview

In addition, this rule provides regulations for DPDP, authorized by section 1431 of the 2014 Farm Bill (7 U.S.C. 9071). DPDP shares certain goals of MPP-Dairy, in that it is intended to support dairy producer margins by triggering the obligation to purchase dairy products when the dairy production margin fall below a certain level. Under DPDP, USDA will purchase dairy products to support dairy producer margins and to provide such products to individuals in low-income groups through public and private non-profit organizations. The 2014 Farm Bill specifies that such purchases will be made whenever the “actual dairy production margin”, calculated using a formula prescribed in the 2014 Farm Bill, is determined to be $4 or less per cwt for 2 consecutive months.

The 2014 Farm Bill specifies that the same margin calculation is used for both MPP-Dairy and DPDP. The “actual dairy production margin” is, as it is under MPP-Dairy, the difference between the “all-milk price” (the average U.S. price for producer milk sold to plants and dealers as specified in section 1401 of the 2014 Farm Bill (7 U.S.C. 9051)) and the average feed cost determined using the formula specified in sections 1401 and 1402 (7 U.S.C. 9052) of the 2014 Farm Bill. The feed cost formula is the same as specified for MPP-Dairy, and was discussed above in the MPP-Dairy section of this document. Once triggered, DPDP purchases end when—

• DPDP purchases have occurred for 3 consecutive months (regardless of the actual dairy production margin at the end of those 3 months),
• The actual dairy production margin for the previous month goes above $4 per cwt, or
• The U.S. price for cheddar cheese or nonfat dry milk (NDM) exceeds the world price by certain levels (5 percent if the actual dairy production margin is at or below $4 but above $3 or 7 percent, if such margin is $3 or less).

DPDP is intended to time its purchases to support dairy producers in times of low margins, reinforcing and supporting the dairy producer support provided by MPP-Dairy. Reflecting that relationship, the 2014 Farm Bill specifies that DPDP is required to be established no later than 120 days after the Secretary certifies that MPP-Dairy is operational. USDA has chosen to make the two programs effective at the same time. The Secretary determined that additional time was not required to implement DPDP as FSA and FNS will be able to use existing expertise with purchasing and distributing similar products to the same recipients.

As specified in section 1431 of the 2014 Farm Bill, DPDP purchases will be distributed for domestic consumption by individuals in low-income groups through public and private non-profit organizations. Further, the DPDP purchases cannot be stored by CCC. DPDP purchases will be made in package sizes suitable for immediate household use, to facilitate direct distribution to individuals through participating public and private nonprofit organizations. The 2014 Farm Bill specifically prohibits re-sales of DPDP-purchased products into the commercial market.

The 2014 Farm Bill requires USDA consultation with public and private nonprofit organizations that feed low-income groups, in order to determine the types and quantities of dairy products to be purchased and distributed under DPDP. This will be achieved through existing FNS food program consultations.

Administration of DPDP

This rule implements DPDP as specified in the 2014 Farm Bill. DPDP purchases will be made using CCC funds. The 2014 Farm Bill authorizes DPDP through December 31, 2018. As specified in this rule, FSA will operate DPDP for CCC with assistance from FNS.

Distribution of DPDP purchases will be made to public and private non-profit organizations eligible to participate in FNS' food distribution programs for low-income individuals.

Purchase quantities may be limited to meet the 2014 Farm Bill's immediate distribution requirement, taking into account impacts on present demand in order to limit potential short- and long-term market disruptions.

When will FSA make DPDP purchases?

The 2014 Farm Bill specifies that the DPDP purchases are required to start after any consecutive 2 month period when margins are below $4, with a maximum of 3 consecutive months of purchases. If prices rise above the $4 margin level during a month of purchases, DPDP purchases will terminate at the end of that month, so in that case it might operate for only 1 or 2 months. As specified in the 2014 Farm Bill, after 3 consecutive months of purchases, the DPDP purchases are required to cease (terminate) until there have been at least 2 more consecutive months of margins of $4 or less.

Because full data for a given month is not available until the following month (see example below) and the 2014 Farm Bill requires that program activity be on a monthly basis, this effectively means that no purchases may be made for 3 months following the end of a purchase period, even if margins remain below the trigger level. This rolling “up to 3 months on, 3 months off” procedure for DPDP purchases is consistent with the 2014 Farm Bill goal of having a long-term intermittent tool for addressing low margins and providing nutrition assistance. DPDP is intended to time its purchases to support dairy producer margins by reducing the supply of dairy products. Given relatively inelastic (constant) demand, such purchases should drive the market price of dairy products up, hopefully also driving margins above the trigger level. In some cases, prices and margins will rise sufficiently to engender only a 1or 2-month purchase period. In that case, the 3 month “off” requirement still applies, as required by the 2014 Farm Bill.

Data for calculating the domestic versus world price differential will not be available immediately at the end of a month, so DPDP purchases will not commence or terminate until the full month after all data for a month becomes available. For example, and as shown in the chart below if actual dairy production margins in May and June fall below the “trigger” level, the data for June would be available in July, but not in time to start making DPDP purchases immediately on July 1. Therefore, the DPDP purchases would start in August based on May and June data. If July data, which would be available in August, showed that margins were still below the trigger, DPDP purchases would continue in September. If margins rise above the trigger level in July, the DPDP purchases would terminate at the end of August, and the next eligible month for calculations would be September. If margins in September and October were below the trigger level, with October data available in November, the DPDP purchases would start up again in December. But if margins remained consistently below the trigger level for the entire period in this example, the DPDP purchases would continue in September and October, based on May, June, July, and August data, and could not start up again until February, based on November data and December data, which would become available in January. The following chart shows an example of the timing for the determination of DPDP purchases.

The trigger level is a $4 margin per cwt of milk, with an additional requirement from the 2014 Farm Bill that USDA's authority for purchases will end if the U.S. price and world price differential for cheddar cheese or nonfat dry milk exceeds certain percentage levels, even when margins remain at $4 or less. In other words, FSA will stop making DPDP purchases, even if the margins are at $4 or less, if the U.S. price for certain dairy products is significantly above world prices. As required by the 2014 Farm Bill, FSA will stop making DPDP purchases if the margin is $4 or less but above $3 and the U.S. price is more than 5 percent above the world price or if the margin is at or below $3, DPDP will not make purchases if the price differential is more than 7 percent.

If DPDP purchases were suspended due to domestic prices being sufficiently above world prices, margins would be tracked for the next 2 months, and purchases could begin after 3 months. For example, at the end of July, it would be known if May and June margins were at or below $4 per cwt. If margins for both May and June were at $4 or less per cwt, and the relation between domestic and world prices did not preclude it, the DPDP purchasing process would start August 1. At the end of August, the July margin could be calculated and if at $4 or less per cwt, DPDP purchases would continue in September (the second consecutive month “on”). If the July margin were above $4 per cwt, DPDP purchase activity would cease August 31, and DPDP purchases could next be made in December (after the required 3 months “off”), if September and October margins were at $4 or less per cwt. If July and August margins were both at $4 or less per cwt, DPDP purchases would continue in September and October and end due to the 3-month maximum of purchases. If November and December margins were at $4 or less per cwt, DPDP purchase activities could begin again in February (after the required 3 months “off”).

DPDP will not stop or start making purchases in the middle of a month even if the margin or the world price data has hit one of the “trigger” numbers mid-month.

U.S. Price Versus World Market Price Differential Trigger

The calculations for the price differential determination (which require a comparison of U.S. prices and world prices) as specified in this rule allow FSA to consult with other agencies of USDA that collect foreign and domestic price data, such as the Agricultural Marketing Service (AMS). The 2014 Farm Bill specifies that USDA is required to calculate the differential between U.S. prices and world prices for cheddar cheese and nonfat dry milk; it does not specify what data FSA should use for U.S. prices or world prices. For world prices FSA expects (although not specified in the regulations) to use the AMS Oceania price series because of the quantity of sales in that series. Alternatively, FSA could use a multi-region weighted average or some other method to make the determinations, if those other methods are more appropriate for calculating a relevant world price. FSA expects to base U.S. prices on the AMS monthly prices for cheddar cheese and nonfat dry milk, although FSA may use a different data set, as needed.

FSA intends to post the price calculation method and results, and purchase determinations, on the FSA Web site. If another method proves to be more appropriate for providing information to the public, it will replace the planned on-line posting.

Product Determinations

The 2014 Farm Bill requires USDA consultation with public and private nonprofit organizations to determine the types and quantities of products to purchase through DPDP. This requirement will be met by FNS's existing food program consultations with groups involved in the distribution of food to low-income people, including food banks, State and local agencies, and advocacy organizations. DPDP purchases are expected to be made in package sizes suitable for immediate household use, to best accommodate the immediate distribution requirement of the 2014 Farm Bill, in a manner that is cost effective to the U.S. taxpayer.

Comments Requested on Cost Effective Purchases

FSA is requesting comments on how to best administer the dairy product purchases for DPDP to ensure that dairy prices are increased in the most cost effective way. In your comments, please suggest options and provide data to show the cost effectiveness of the suggestion as it relates to the goals of DPDP.

Distribution and Use of DPDP Purchases

The 2014 Farm Bill requires that products purchased under DPDP will:

• Be distributed in a manner that encourages their domestic consumption by individuals in low-income groups;
• Be distributed using the services of public and private nonprofit organizations; and
• Not be resold back into commercial markets by any organization that receives them.

It is expected that all these requirements will be addressed as specified in the regulations for the existing FNS programs through which the products will be distributed. Public or private nonprofit organizations that receive DPDP products may transfer those products to other nonprofits only if the transferee will likewise distribute to domestic low-income recipients without cost or waste, consistent with existing FNS regulations. FNS regulations in 7 CFR 250.13(d)(1) provide that donated foods “be distributed only to recipient agencies and individual recipients eligible to receive them” under applicable program regulations. FNS regulations in 7 CFR 250.13(a)(1)(ii) provide that donated foods “not be sold, exchanged or otherwise disposed of without the approval of the Department.” Any losses of donated foods resulting from improper distribution or use will be subject to the requirements of 7 CFR part 250 and the instruction and guidance provided in FNS Instruction 410-1, Rev 2 “Claims for Losses of Donated Foods and Related Administrative Losses—Procedures for the State Distributing Agency,” and in FNS Instruction 420-1, “Managing Agency Debts.”

Start of DPDP

This rule specifies that DPDP is effective the day this rule is published, in the sense that it provides the regulations and purchase authority necessary to operate DPDP, but FSA will not make DPDP purchases unless other price and margin requirements are met.

Because MPP-Dairy and DPDP use the same definition of actual dairy production margin, which is defined in the 2014 Farm Bill using existing USDA reported data, FSA will have data on actual dairy production margins the day this rule is effective. Therefore, if margins have been at $4 or less for the 2 months before the effective date of this rule, and all other requirements are met for eligible purchase months, including the world price differential, DPDP can begin making purchases the first full month that DPDP is effective.

In preparation of starting to make DPDP purchased, FSA will closely monitor the margins and related information to analyze the potential need for starting DPDP purchases. If the analysis shows that DPDP would be expected to trigger, FSA will consult with FNS, then FNS will determine the types and quantities of products that will be purchased, in consultation with public or private nonprofit organizations and State and local agencies eligible to receive such products. When the list of products and other details, such as size of the packaged products is identified, FSA will analyze various factors, including the expected result on the dairy market of the various purchasing options to determine the best combination and quantity of dairy products to purchase to meet the dual goals of the program: (1) To support dairy producer margins and (2) to provide dairy products to individuals in low-income groups through public and private non-profit organizations. The process of determining the exact combination of dairy products to be purchased and the quantity to purchase will continue through the bid solicitation process to ensure the dual goals of DPDP are achieved at the least cost to taxpayers. FSA will purchase the types and quantities of products determined through this process.

Structure of This Rule

This rule specifies the regulations for MPP-Dairy in 7 CFR part 1430, subpart A, replacing the regulations for the Dairy Product Price Support Program, which is no longer authorized. It specifies the regulations for DPDP in subpart C, replacing the regulations for the 2004 Dairy Disaster Assistance Payments Program, which is also no longer authorized. As part of FSA's ongoing retrospective review efforts, this rule also removes the regulations in subpart D for the Market Loss Assistance Program and subpart E for the 2005 Dairy Disaster Assistance Payment Program, both of which are also no longer authorized.

Notice and Comment

In general, the Administrative Procedure Act (5 U.S.C. 553) requires that a notice of proposed rulemaking be published in the Federal Register and interested persons be given an opportunity to participate in the rulemaking through submission of written data, views, or arguments with or without opportunity for oral presentation, except when the rule involves a matter relating to public property, loans, grants, benefits, or contracts. Regulations to implement the provisions of Title I of the 2014 Farm Bill and the administration of Title I are exempt from the notice and comment provisions of 5 U.S.C. 553 and the Paperwork Reduction Act (44 U.S.C. chapter 35), as specified in section 1601(c)(2) of the 2014 Farm Bill.

Comments Requested on Intergenerational Transfers and Family Members Joining an Operation

The 2014 Farm Bill exempts CCC from notice and comment rulemaking under 5 U.S.C. 553 with respect to MPP-Dairy and DPDP; however, FSA would like to invite comments with respect to the establishment of additional production history under MPP-Dairy.

Section 1401(9) of the 2014 Farm Bill and this rule define the term “production history” as the production history determined for a dairy operation when a participating dairy operation first registers to participate in MPP-Dairy. Section 1405(a) provides, except as provided in section 1405(b), the production history of the dairy operation is equal to the highest annual milk marketings of the dairy operation during any one of the 2011, 2012, or 2013 calendar years, with an adjustment in subsequent years to reflect any increase in national average milk production. Section 1405(b) provides that in the case of a participating dairy operation that has been in operation for less than a year, the dairy operation elect one of two methods for the Department to determine the production history of the dairy operation:

• The volume of the actual milk marketings extrapolated to a yearly amount, or
• An estimate of actual milk marketings based on the herd size relative to the national rolling average data.

The provisions in this regulation are consistent with the 2014 Farm Bill.

The 2014 Farm Bill provisions regarding MPP-Dairy and the rule do not address the establishment of additional production history for a participating dairy operation in specific instances, such as an inter-generational transfer or when a family member joins a participating dairy operation. Other statutory provisions of MPP-Dairy do suggest that Congress intended to benefit smaller dairy operations, which tend to be family owned and operated. These provisions include the establishment of lower premium rates for insured annual production of less than 4,000,000 pounds. This rule does not take into account the size and structure of the dairy operation in determining whether the operation can adjust its production history to assist small, family dairy operations, especially with intergenerational transfers of the operation. FSA invites interested parties to address whether the regulation should be amended to authorize the establishment of additional production history, and if so, whether limitations should be imposed on any increases. Specifically, FSA requests comments on the following questions; please include any data that supports your comments:

1. Does the provision in the rule regarding transfers of production history hinder intergenerational transfers of dairy operations? If so, how?

2. How would you suggest the rule be amended to accommodate intergenerational transfers or adult children who want to join their parent's dairy operation and obtain additional production history for the dairy operation?

3. If additions to production history based on intergenerational transfers or adult children joining family dairies are allowed, should there be a cap on the overall amount of production history that cannot be exceeded or a percentage or quantity limitation on the amount by which the production history could be increased per participating dairy operation under this provision? If so, what amount?

Effective Date

The Administrative Procedure Act (5 U.S.C. 553) provides generally that before rules are issued by Government agencies, the rule is required to be published in the Federal Register, and the required publication of a substantive rule is to be not less than 30 days before its effective date. One of the exceptions is when the agency finds good cause for not delaying the effective date. Subsection 1601(c)(2) of the 2014 Farm Bill makes this final rule exempt from notice and comment. Therefore, using the administrative procedure provisions in 5 U.S.C. 553, FSA finds that there is good cause for making this rule effective less than 30 days after publication in the Federal Register. This rule allows FSA to provide adequate notice to dairy operations about the new MPP-Dairy so they will be ready to begin enrollment no later than September 1, 2014, as required by section 1403 of the 2014 Farm Bill. Therefore, to begin providing benefits to operations in a timely fashion, the MPP-Dairy regulations in 7 CFR part 1430, subpart A are effective when published in the Federal Register.

Section 1431 of the 2014 Farm Bill requires that DPDP be operational no later than 120 days after MPP-Dairy, but as discussed above, USDA decided to make DPDP effective at the same time as MPP-Dairy, so as not to delay needed assistance to dairy operations and low income groups. A 30 day delay in the effective date would unnecessarily delay needed assistance to dairy operations and individuals in low income groups.

Executive Orders 12866 and 13563

Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review,” direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasized the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

The Office of Management and Budget (OMB) designated this rule as economically significant under Executive Order 12866, “Regulatory Planning and Review,” and therefore, OMB has reviewed this rule. This regulatory action is being taken to implement two programs required by the 2014 Farm Bill. A summary of the cost-benefit analysis of this rule is provided below and the full cost benefit analysis is available on regulations.gov.

Cost Benefit Analysis Summary

The current actual dairy production margin is about $12, so neither DPDP nor MPP-Dairy would have any cost in the first month. If current milk prices and cattle feed prices continue through the end of 2018, the payments to dairy producers from the government via MPP-Dairy and DPDP will be zero. Any program payments would be more than offset by MPP-Dairy premiums and fees. However, in the event of prolonged low margins, programs outlays could exceed $100 million per year.

If actual margins vary significantly from mean projections used for the 2015 President's Budget Midsession Review, DPDP is expected to trigger twice during the 2015 to 2018 period and total cost is expected to be about $400 million over the 4-year period, for an average cost of $100 million per year. That is a net cost to the government for both MPP-Dairy and DPDP, meaning the projected total payments to producers and the cost of the dairy products purchased minus the MPP-Dairy fees and premiums paid to CCC. Nearly all of the impacts estimated in this analysis are transfers between entities within society. For example, DPDP results in an average annual cost to the government of about $30 million for dairy product purchases (cost side of the transfer), which would be balanced by low income individuals receiving $30 million worth of free dairy products (benefit side of the transfer).

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to the notice and comment rulemaking requirements under the Administrative Procedure Act or any other law, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule is not subject to the Regulatory Flexibility Act because the 2014 Farm Bill exempts CCC from notice and comment rulemaking under 5 USC 553 with respect to these programs and therefore, CCC is not required by any law to publish a proposed rule for public comment for this rulemaking.

Environmental Review

The environmental impacts of this final rule have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and the FSA regulations for compliance with NEPA (7 CFR part 799). FSA has determined that the provisions identified in this final rule are administrative in nature, intended to clarify the mandatory requirements of the programs, as defined in the 2014 Farm Bill, and do not constitute a major Federal action that would significantly affect the quality of the human environment, individually or cumulatively. The few discretionary features of the rules include establishing deadlines, determinations of eligibility and prices, and purchase procedures, and have been selected largely based on pre-existing USDA programs. While these dairy programs are new, their creation is mandated by the 2014 Farm Bill, and are therefore not subject to review under NEPA. The few discretionary provisions left for FSA to determine were all purely administrative and would not alter any environmental impacts resulting from implementing the mandatory programs. Therefore, as this rule presents administrative clarifications only, FSA will not prepare an environmental assessment or environmental impact statement for this regulatory action.

Executive Order 12372

Executive Order 12372, “Intergovernmental Review of Federal Programs,” requires consultation with State and local officials. The objectives of the Executive Order are to foster an intergovernmental partnership and a strengthened Federalism, by relying on State and local processes for State and local government coordination and review of proposed Federal Financial assistance and direct Federal development. For reasons specified in the final rule related notice regarding 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), the programs and activities within this rule are excluded from the scope of Executive Order 12372, which requires intergovernmental consultation with State and local officials.

Executive Order 12988

This rule has been reviewed under Executive Order 12988, “Civil Justice Reform.” This rule will not preempt State or local laws, regulations, or policies unless they represent an irreconcilable conflict with this rule. The rule will not have retroactive effect. Before any judicial action may be brought regarding the provisions of this rule, the administrative appeal provisions of 7 CFR parts 11 and 780 are to be exhausted.

Executive Order 13132

This rule has been reviewed under Executive Order 13132, “Federalism.” The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government, except as required by law. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

Executive Order 13175

This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires Federal agencies to consult and coordinate with tribes on a government-to-government basis on policies that have tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

FSA has assessed the impact of this rule on Indian tribes and determined that this rule does not, to our knowledge, have tribal implications that require tribal consultation under Executive Order 13175. If a Tribe requests consultation, FSA will work with the USDA Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions, and modifications identified in this rule are not expressly mandated by the 2014 Farm Bill.

The Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104-4) requires Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments, or the private sector. Agencies generally need to prepare a written statement, including a cost benefit analysis, for proposed and final rules with Federal mandates that may result in expenditures of $100 million or more in any year for State, local, or Tribal governments, in the aggregate, or to the private sector. UMRA generally requires agencies to consider alternatives and adopt the more cost effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates, as defined in Title II of UMRA, for State, local, and Tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

This rule is a major rule under the Small Business Regulatory Enforcement Fairness Act of 1996, (Pub. L. 104-121, SBREFA). SBREFA normally requires that an agency delay the effective date of a major rule for 60 days from the date of publication to allow for Congressional review. Section 808 of SBREFA allows an agency to make a major regulation effective immediately if the agency finds there is good cause to do so. Section 1601(c)(3) of the 2014 Farm Bill provides that the authority in section 808 of SBREFA be used in implementing the changes required by Title I of the 2014 Farm Bill, such as for the changes being made by this rule. Consistent with section 1601(c)(3) of the 2014 Farm Bill, FSA therefore finds that it would be contrary to the public interest to delay the effective date of this rule, because it would delay implementation MPP-Dairy as required in the 2014 Farm Bill. The regulation needs to be effective to provide adequate time for producers to be ready to begin the sign-up process in a timely fashion to allow coverage to begin by September 1, 2014. Therefore, the rule is effective when published in the Federal Register.

Federal Assistance Programs

The title and number of the Federal Domestic Assistance Program found in the Catalog of Federal Domestic Assistance to which this rule applies are:

10.116—Margin Protection Program-Dairy

10.115—Dairy Product Donation Program

Paperwork Reduction Act of 1995

The regulations in this rule are exempt from the requirements of the Paperwork Reduction Act (44 U.S.C. Chapter 35), as specified in subsection 1601(c)(2)(B) of the 2014 Farm Bill, which provides that these regulations be promulgated and administered without regard to the Paperwork Reduction Act.

E-Government Act Compliance

FSA and CCC are committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

List of Subjects in 7 CFR Part 430

• Dairy products
• Fraud
• Penalties
• Price support programs
• Reporting and recordkeeping requirements

For the reasons discussed above, the regulations at 7 CFR part 1430 are amended as follows:

PART 1430—DAIRY PRODUCTS

1. The authority for part 1430 is revised to read as follows:

Authority: 7 U.S.C. 8773, 9051-9060, and 9071 and 15 U.S.C. 714b and 714c.

2. Revise 7 CFR part 1430, subpart A to read as follows:

Subpart A—Margin Protection Program for Dairy Producers

3. Revise 7 CFR part 1430, subpart C to read as follows:

Subpart C—Dairy Product Donation Program

4. Remove subparts D and E.