4216 1 2 3 4 5 6 7 8 9 NATIONAL FEDERAL MILK MARKETING ORDER 10 PRICING FORMULA HEARING 11 12 DOCKET NO.: 23-J-0067; AMS-DA-23-0031 13 14 Before the Honorable Channing D. Strother, Judge 15 16 ---o0o--- 17 18 Carmel, Indiana 19 September 18, 2023 20 21 ---o0o--- 22 23 24 25 26 Reported by: 27 MYRA A. PISH, RPR, C.S.R. Certificate No. 11613 28 4217 1 A P P E A R A N C E S: 2 FOR THE USDA ORDER FORMULATION AND ENFORCEMENT DIVISION, USDA-AMS DAIRY PROGRAM: 3 Erin Taylor 4 Todd Wilson Brian Hill 5 FOR THE AMERICAN FARM BUREAU FEDERATION: 6 Roger Cryan 7 FOR THE INTERNATIONAL DAIRY FOODS ASSOCIATION: 8 Steve Rosenbaum 9 FOR THE MILK INNOVATION GROUP: 10 Ashley Vulin 11 Charles "Chip" English 12 FOR THE NATIONAL MILK PRODUCERS FEDERATION: 13 Nicole Hancock Brad Prowant 14 FOR SELECT MILK PRODUCERS, INC.: 15 Ryan Miltner 16 17 18 19 ---o0o--- 20 21 (Please note: Appearances for all parties are subject to 22 change daily, and may not be reported or listed on 23 subsequent days' transcripts.) 24 25 ---o0o--- 26 27 28 4218 1 M A S T E R I N D E X 2 SESSIONS 3 MONDAY, SEPTEMBER 18, 2023 PAGE 4 MORNING SESSION 4221 AFTERNOON SESSION 4369 5 6 ---o0o--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4219 1 M A S T E R I N D E X 2 WITNESSES IN CHRONOLOGICAL ORDER 3 WITNESSES: PAGE 4 Mike Brown: 5 Direct Examination by Mr. Rosenbaum 4221 Cross-Examination by Mr. Miltner 4259 6 Cross-Examination by Ms. Hancock 4300 Cross-examination by Ms. Taylor 4327 7 Chris Allen: 8 Direct Examination by Mr. Miltner 4337 9 Cross-Examination by Mr. English 4359 Cross-Examination by Ms. Hancock 4369 10 Cross-Examination by Ms. Taylor 4376 Redirect Examination by Mr. Miltner 4384 11 Harmoni Campbell: 12 Direct Examination by Mr. Miltner 4387 13 Cross-Examination by Mr. English 4401 Cross-Examination by Mr. Wilson 4405 14 Cross-Examination by Ms. Taylor 4405 Cross-Examination by Mr. Wilson 4407 15 Redirect Examination by Mr. Miltner 4408 16 Cheslie Stehouwer: 17 Direct Examination by Mr. Miltner 4410 Cross-Examination by Mr. English 4425 18 Cross-Examination by Ms. Taylor 4429 Cross-Examination by Mr. Wilson 4431 19 Redirect Examination by Mr. Miltner 4432 20 Chris Allen: 21 Direct Examination by Mr. Miltner 4433 Cross-Examination by Mr. English 4444 22 Cross-Examination by Ms. Taylor 4446 Redirect Examination by Mr. Miltner 4449 23 Chris Allen: 24 Direct Examination by Mr. Miltner 4451 25 Cross-Examination by Mr. English 4461 Cross-Examination by Ms. Taylor 4464 26 Mike Brown: 27 Redirect Examination by Mr. Rosenbaum 4468 28 4220 1 M A S T E R I N D E X 2 INDEX OF EXHIBITS 3 IN CHRONOLOGICAL ORDER: 4 NO. DESCRIPTION I.D. EVD. 5 214 Testimony of Mike Brown 4221 4337 6 215 IDFA-42 4222 4337 7 216 Testimony of Chris Allen 4339 4386 8 179 E-Mail 4386 9 217 Testimony of 4388 4409 Harmoni Campbell 10 218 Testimony of 4411 4433 11 Cheslie Stehouwer 12 219 Testimony of Chris Allen 4434 4451 13 220 Testimony of Chris Allen 4452 4467 14 221 Corrected page 12 of 4469 4474 Exhibit 215 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 4221 1 MONDAY, SEPTEMBER 18, 2023 - - MORNING SESSION 2 THE COURT: Let's go on the record. 3 Good morning, again on the record. What do we 4 have up first? 5 MR. ROSENBAUM: Steve Rosenbaum for the 6 International Dairy Foods Association, your Honor. We are 7 recalling Mike Brown to testify about Make Allowances. 8 THE COURT: Welcome back, Mr. Brown. 9 MIKE BROWN, 10 Being first duly sworn, was examined and 11 testified as follows: 12 THE COURT: Your witness. 13 DIRECT EXAMINATION 14 BY MR. ROSENBAUM: 15 Q. Good morning, Mr. Brown. I have placed before you 16 two documents. The first one is called IDFA Exhibit 6. 17 Is this your written testimony regarding 18 Make Allowance Proposals 7, 8, and 9? 19 A. Yes, it is. 20 MR. ROSENBAUM: Your Honor, I would ask that this 21 be marked with the next Hearing Exhibit number. 22 THE COURT: I don't quite have my list up. Is it 23 200? 214? 24 This will be -- IDFA Exhibit 6 is marked 214 for 25 identification. 26 (Thereafter, Exhibit Number 214 was marked 27 for identification.) 28 BY MR. ROSENBAUM: 4222 1 Q. And have you also, Mr. Brown, prepared a 2 PowerPoint presentation which you are going to use to 3 present your testimony in a more summary fashion? 4 A. Yes, I am. 5 Q. And is that the document that's been marked as 6 updated IDFA Exhibit 42? 7 A. Yes. 8 MR. ROSENBAUM: Your Honor, I ask that that be 9 marked as Hearing Exhibit 215. 10 THE COURT: So marked. 11 (Thereafter, Exhibit Number 215 was marked 12 for identification.) 13 BY MR. ROSENBAUM: 14 Q. Mr. Brown, why don't we go to page 2 of your 15 PowerPoint presentation, and please describe to us what 16 you are showing here. 17 A. Okay. How Make Allowances work. Make Allowances 18 are used to determine a minimum milk price obligation to 19 farmers. 100% of the price at which referenced 20 commodities are sold minus the Make Allowances at minimum 21 milk price. 22 To quote USDA from 2008, "The ability of a 23 manufacturer to offset cost increases is limited by the 24 level of Make Allowances in the Class III and Class IV 25 price formulas. Manufacturing processors are charged the 26 FMMO price for producer milk used to produce Class III and 27 Class IV products. However, plant manufacturing cost 28 increases may not be recovered because Class III and 4223 1 Class IV product price formulas use Make Allowances that 2 are fixed, regardless of marketing conditions, and change 3 only by regulatory action." 4 Q. And is that why we're here today seeking 5 regulatory action to change the Make Allowances to reflect 6 plant manufacturing cost increases? 7 A. Yes, it is. 8 Q. Okay. If we turn to the next page, please, 9 page 3. 10 A. According to USDA past records, it said, plant 11 costs, not farmer costs, determine Make Allowance levels. 12 "Opponents of increasing Make Allowances argue a number of 13 points, that they are already set at too high a level, 14 that dairy farmer production costs have also increased 15 significantly due to higher energy and feed costs, that 16 processors should look beyond asking dairy farmers to 17 receive less for their milk by charging more for 18 manufactured products, and that Make Allowance increases 19 should be made only when all dairy farmer production costs 20 are captured in their milk pay price." 21 These are not valid arguments for opposing how 22 Make Allowances should be determined or what levels 23 Make Allowances need to be in the Class III and Class IV 24 product pricing formulas. 25 "When dairy farmer production costs exceed the 26 value for which products are sold in the marketplace, no 27 source of revenue from the marketplace is available to 28 cover those costs." Again, quotes from 2008 4224 1 Make Allowance decision. 2 Q. Okay. Take us to page 4, please. 3 A. Again, from that decision: "In the aggregate, the 4 costs of producing milk are reflected in the supply and 5 demand conditions for the dairy products. When the supply 6 of milk is insufficient to meet the demand for Class III 7 and Class IV products, prices for those products increase 8 as do regulated minimum milk prices paid to dairy farmers, 9 because the milk is more valuable, and this greater milk 10 value is captured in the pricing formulas. 11 "It is reasonable to conclude that the 12 Make Allowances used in the Class III and Class IV product 13 price formulas should be updated to reflect changes in the 14 costs manufacturers incur in producing cheese, butter, dry 15 whey and nonfat dry milk. It is necessary to reflect 16 changes in manufacturing costs, so that with the 17 prevailing market prices for manufactured products, 18 minimum Federal Order classified prices can be set." 19 Q. Okay. If you turn to the next page, is there 20 another document where USDA set forth its position 21 regarding how properly to set Make Allowances? 22 A. Yes. After that 2008 decision that the Department 23 was sued on the cost of production issue, and they were 24 successful in defending that attack. 25 This is a quote: "It is, therefore, neither 26 inappropriate or surprising that while USDA considers 27 producer costs in fixing prices, it declined to modify the 28 Make Allowances to account for those costs. The 4225 1 Make Allowance is the input in the product-pricing formula 2 that accounts the costs manufacturers incur when 3 transforming raw milk into other dairy products. 4 "In order to extrapolate the value that raw milk 5 contributes to the commodity prices of dairy products, and 6 thereby approximate raw milk's true value in the 7 marketplace, these manufacturer costs must be included as 8 part of the formula. 9 "The cost of producing milk, in contrast, are in 10 the aggregate reflected in the supply and demand 11 conditions, that affect the NASS commodity prices of dairy 12 products. See Federal Reg. 73 at 35.234 (sic). 13 Plaintiffs' -- plaintiffs' insistence that the 14 Make Allowance -- rather than the product -- the formula 15 as a whole -- reflect producer costs misapprehends the 16 underlying price mechanisms." 17 Q. And then if we turn to the next page, still 18 focusing on this fight that broke out regarding the last 19 update of Make Allowances, could you tell us what the 20 ultimate resolution was? 21 A. "In sum, the Secretary considered the cost of 22 producing milk to producers, but reasoned that those costs 23 could be recouped through the market mechanisms. The 24 Make Allowances, by contrast, represent the cost of 25 handlers and are the only mechanism through which 26 manufacturers' costs can be recouped under the pricing 27 formulas. 28 "The Secretary concluded it was necessary to 4226 1 increase Make Allowances to reflect handlers' increased 2 costs. Although the Secretary increased Make Allowances 3 and thereby decreased the amount received by producers for 4 a given market price, his well-reasoned analysis in the 5 rulemaking record constitutes 'consider[ing producers' 6 feed and fuel] prices in determining whether or not to 7 adjust Make Allowances." 8 Q. And you're quoting from the decision that affirmed 9 USDA's 2008 Make Allowances; is that correct? 10 A. That is correct. 11 Q. Okay. And turn to page 7, please, and tell us 12 about some additional guidance on -- that you think is 13 relevant. 14 A. Okay. I certainly can. This goes back to '99. 15 USDA has also emphasized the need for those 16 allowances that result in minimum milk prices that clear 17 markets. And the quote is: "The importance of using 18 minimum prices that are market-clearing for milk used to 19 make cheese and butter, nonfat dry milk cannot be 20 overstated. The prices for milk used in these products 21 must reflect supply and demand and must not exceed a level 22 that would require handlers to pay more for milk than 23 needed to clear the market and make a profit." 24 Q. Okay. Let's turn to page 8, and now switch, if 25 you will, from the philosophy of how to set 26 Make Allowances to the question of how one determines what 27 the cost of manufacturer actually is. Obviously, we have 28 already heard from Dr. Stephenson and Dr. Schiek regarding 4227 1 the survey information, and then for Dr. Schiek the 2 econometric study that he then performed. 3 Tell us what the history has been on these 4 subjects. 5 A. Since Order Reform, that's always been the case. 6 The quote from the decision in April of '99: "The 7 Make Allowances contained in the proposed rule were 8 developed primarily from Make Allowance studies conducted 9 at and published by Cornell University and an analysis of 10 manufacturing plant size in relationship to the data 11 contained in the Cornell studies. Audited cost of 12 production data published by the California Department of 13 Food and Agriculture was also used in determining a 14 reasonable level of Make Allowances." 15 Q. Now, are you aware that Dr. Stephenson was at 16 Cornell when he performed some of his Make Allowance 17 analyses, or I should say cost of manufacture analyses? 18 A. Yes, I was. 19 Q. Okay. And does the IDFA proposal now -- that is 20 now pending before USDA, does it depend upon a combination 21 of study by Dr. Stephenson as well as information from the 22 California Department of Food and Agriculture? 23 A. Yes, it does. 24 Q. Okay. If we turn to the next page, please. 25 A. December 7th, 2000 decision, increasing 26 Make Allowances: "Manufacturing costs used to determine 27 appropriate Make Allowances for cheddar cheese, butter and 28 nonfat dry milk in this proceeding are calculated 4228 1 primarily from a weighted average of the RBCS" -- which is 2 the Rural Business Cooperative Service -- "and CDFA" -- 3 California Department of Food and Agriculture -- "surveys, 4 with a check against the NCI, National Cheese Institute, 5 survey cost of manufacturing cheddar cheese. The cost of 6 manufacturing nonfat dry milk continues to be used as the 7 cost of making whey powder due to the nature of the 8 information in the hearing record about the actual cost of 9 drying whey." 10 Q. So in this December 7, 2000, decision, was USDA 11 continuing to rely upon survey data to determine a cost of 12 manufacture? 13 A. Yes, they were. 14 Q. And at that particular juncture, I think there was 15 not an updated Cornell study, so they relied here on the 16 Rural Business Cooperative Service study; is that correct? 17 A. To the best of my memory, yes. 18 Q. That was not an audited or mandatory study; is 19 that correct? 20 A. No, it was not. 21 Q. And the National Cheese Institute survey, to which 22 reference is made, that also was not an audited or 23 mandatory survey, correct? 24 A. That is correct. 25 Q. All right. If we turn to the next page, please, 26 we're going forward chronologically. We're now up to the 27 decisions in 2006 and 2008 by USDA regarding 28 Make Allowances. So tell us what happened there. 4229 1 A. Okay. In November 2006, USDA, in their decision, 2 said: "This tentative final decision finds that combining 3 the weighted average manufacturing cost of the most recent 4 CDFA survey and CPDMP, Cornell Program on Dairy Markets 5 and Policy, study for cheese, nonfat dry milk, and butter, 6 into a single weighted average is appropriate for updating 7 Make Allowances for those three products. The CPDMP study 8 weighted average manufacturing cost of dry whey without 9 California should be used for the dry whey 10 Make Allowance." 11 Q. And once again, the Cornell study upon which USDA 12 relied, was that an audited mandatory study? 13 A. It was not. 14 Q. Okay. And then finally, to bring us up to date, 15 so to speak, since we're now under the 2008 16 Make Allowances, tell us what happened in the June 2008 17 USDA decision. 18 A. That decision relies on the 2006 and '07 Cornell 19 cost studies led by Mark Stephenson and the CDFA study, 20 both separately and in combination. 21 Q. Is that -- is it the case that for some of the 22 commodities USDA combined the two, and some of the 23 commodities -- for some of the commodities USDA found one 24 of the two numbers preferable and went with that? 25 A. Yes, it was a mix. 26 Q. Okay. Okay. So let's now go to page 11, and 27 we're now up to this hearing. Tell us about the 2023 28 Stephenson study that, as we will see, forms part of the 4230 1 basis for IDFA's milk allowance proposal. 2 A. Well, we were very pleased with that study because 3 we got good participation. And if you read Mark's study, 4 it was a combination of cooperatives and privately held 5 companies, it was a mix. And what -- what pleased us is 6 that we were over 50% of the NASS annual survey for those 7 four products actually included in the cost survey. It's 8 the highest average by far ever. 9 And so when you look at the -- this is a quick 10 summary -- 55.6% of cheddar cheese production was included 11 in the survey; 50.8% of human whey; 91.2% of human nonfat 12 dry milk; and 80.1% of butter. 13 Q. Okay. And just so we're clear as to how you did 14 the calculations to go through the columns, you have a 15 column called USDA NASS 2002 annual production. Tell us 16 where you got that information. 17 A. I got it from the dairy products annual summary. 18 It's published every April, and I used the one published 19 this April which had '22 numbers from this past April. 20 Q. Okay. And with respect to the columns -- the 21 three columns that have the super heading, if you will, 22 "2023 Stephenson Cost Survey," you show the number of 23 participating plants. 24 Did that come from Dr. Stephenson's report? 25 A. Yes. 26 Q. And then the average annual production, did that 27 come from Dr. Stephenson's report? 28 A. Yes. 4231 1 Q. And how about the total survey annual production? 2 A. Simply the average production by the number of 3 plant gives you the total of survey production. 4 Q. So the first column, participating plants, times 5 the average annual production, gives you the total survey 6 annual production, correct? 7 A. Yes. 8 Q. And then finally, your column survey production 9 share of USDA NASS, just tell us how you calculated that. 10 A. I took the total annual survey production, divided 11 it by the NASS 2022 annual production, to come up with the 12 percentage. 13 Q. So that for cheddar cheese, for example, you took 14 the total survey annual production of 2,203,279,668 and 15 divided it by 3,963,741,000; is that correct? 16 A. That is correct. 17 Q. And that's where you get the 55.6% survey 18 production share, correct? 19 A. Yes. 20 Q. And in your footnote do you indicate where 21 specifically you got those USDA NASS 2022 annual 22 production numbers? 23 A. Yes, I did. They are online and downloadable from 24 the Cornell USDA website. 25 Q. Okay. So let's turn to the next page, which is 26 page 12. 27 Did you make a comparison between -- well, let me 28 start that question again. 4232 1 On page 12, did you also examine what percentage 2 of total production of these four commodities was included 3 in some of the prior surveys that have been conducted? 4 A. Yes. 5 Q. And did you do that -- and this is on the top half 6 of the page -- with respect to Dr. Stephenson's survey of 7 2019 costs which ultimately resulted in a report that's 8 sometimes been called the 2021 Stephenson report? 9 A. That is correct. 10 Q. And just tell us what the shares are of the survey 11 production, share of the NASS production in that survey. 12 A. A lot of variation on products. Cheddar cheese 13 was 16.3%; dry whey was 29.7%; nonfat dry milk was 69.6%; 14 and butter was 95.7%. 15 Q. Is it fair to say that for cheddar cheese, whey, 16 and nonfat dry milk, the 2023 survey was significantly 17 more robust than the 2021 survey? 18 A. Yes, with the exception of butter, but they were 19 both very high. 20 Q. Now, one issue, of course we don't want to 21 necessarily go into this in detail, but was in the 2019 22 survey, Dr. Stephenson engaged in some transformation 23 adjustments with respect to butter and nonfat dry milk 24 when he actually calculated cost of manufacture, correct? 25 A. Yes, that is correct. 26 Q. And tell me, did you personally have discussions 27 with -- with manufacturers when they saw those reports -- 28 with that report I should say, regarding that? 4233 1 A. I did not. The only -- only time I heard anything 2 was in the hearing record back during that hearing time. 3 But, no, no direct discussion -- 4 Q. No, I'm talking about in the 2000 -- when 5 Dr. Stephenson -- 6 A. Oh, in 2019? 7 Q. I'm still in the 2019, I'm sorry. Let me start 8 again. 9 A. Yes, I was. 10 Q. Let me start again, because we may have confused 11 things. 12 A. Yeah. 13 Q. When Dr. Stephenson published in 2021, his report 14 on 2019 cost of manufacture, that's the report in which he 15 used various transformation factors, correct? 16 A. Right. 17 Q. Which had not been the past practice, correct? 18 A. We -- 19 Q. Is that right, that had not been the past 20 practice? 21 A. It had not been the past practice. 22 Q. And so what was the reaction when industry saw -- 23 well, based upon your exposure to people in the industry, 24 what was the reaction? 25 A. Two things. First of all, just confusion trying 26 to understand how they worked. 27 But the other thing is, is that standard 28 accounting practice has always been to spread fixed costs 4234 1 over pounds of milk solids. That had been done in the 2 earlier Cornell studies, and it had always been done in 3 the California study. And they didn't understand why that 4 changed because it made it difficult to compare. 5 Q. And those California studies went all the way back 6 to, what, the year 2002, I think? 7 A. Actually earlier than that, but that's the 8 earliest that we could find. As you know, we had copies 9 from '02 through '16. 10 Q. Okay. And they had consistently used a 11 methodology which spread costs based upon pounds of 12 solids, correct? 13 A. That's generally accepted accounting practice in 14 plants from my experience. 15 Q. Okay. And did you have conversations with both 16 proprietary handlers and co-op handlers regarding the 2021 17 Stephenson survey and these issues relating to the 18 transformation factor? 19 A. Yes. Both, yes. 20 Q. Okay. And what was -- I mean, what was their -- 21 did they have a different -- was there a different point 22 of view between the proprietaries and the co-ops? 23 A. It was remarkably consistent. Every single 24 company I talked to had the same request: When this is 25 updated, if we update it, because it wasn't certain at 26 that point, we need to go back to allocation of fixed cost 27 based on pounds of solids. 28 Q. All right. Let's go down, then, to the second 4235 1 half of slide 12, where you discuss the 2006 data, which 2 ultimately went into the 2008 Make Allowance decision. 3 Tell us what the -- what the robustness is, if you will, 4 of that survey as compared to the 2023 survey. 5 A. 2023 is -- is more robust, particularly with 6 butter. Cheddar cheese was basically 42%; it's 56 in the 7 new study. Whey was 38.6; it's 50% in the new study. 8 Nonfat dry milk was 39.5%; it's roughly 80% in the new 9 survey. Butter was only 15.9%, and as we all know, it 10 also was in that -- it was much higher in the most recent 11 survey. 12 Q. Could you go back and look at the nonfat dry milk 13 number, I think, what percentage that was in 2023? 14 A. It was 91, excuse me. 15 Q. Okay. Is that -- that's the correct number? 16 A. Yes. Not 80, 91. Butter is the one that's a 17 little over 80. 18 Q. Okay. And so, once again, have you provided the 19 data sources you relied upon for both pieces, if you will, 20 of the analysis that appears on page 12? 21 A. Yes, I have. 22 Q. All right. And then let's go on to page 13. 23 And what have you set forth here? 24 A. Okay. Updating comparable data has been submitted 25 at this hearing. 26 Just a quick background, and that is that it was 27 very evident that we needed to get the best updated 28 research-based data as we possibly could to have an 4236 1 effective proposal for the hearing so we could be 2 comfortable with what we had. And so we did hire 3 Dr. Stephenson to do that again, and we were delighted 4 with the amount of participation, both again from co-ops 5 and non-co-ops. 6 But those establish the following manufacturing 7 costs: Cheese was .2643; dry whey was .3361; nonfat dry 8 milk was .275; butter was .3176. 9 Q. All right. And these numbers reflect 10 Dr. Stephenson's return to the traditional method of 11 allocating costs based upon pounds of solids; is that 12 correct? 13 A. That is correct. 14 Q. With respect to nonfat dry milk and butter, 15 correct? 16 A. Yes. 17 Q. And then second, these numbers are more current in 18 that they reflect 2022 costs, whereas Dr. Stephenson's 19 2021 report reflected 2019 costs; is that correct? 20 A. That is correct. And as we all know, there are 21 significant cost increases between '19 and '22. 22 Q. Just as the general inflation as well as specific? 23 A. Anything you looked at, bought, or borrowed or 24 rented was higher, a lot higher -- 25 Q. Higher in what year? 26 A. -- costs -- oh, '21, '22. Particularly '22 was 27 the worst. It was very high. 28 Q. Okay. All right. Let's turn to page 14 now, and 4237 1 just briefly summarize what Dr. Schiek did. He obviously 2 has testified, so we're not going to go into this in great 3 detail. 4 A. Well, Dr. Schiek, again, I think we -- we have all 5 heard, employed econometric techniques to the CDFA audited 6 dairy manufacturing cost data from '03 to '16 to estimate 7 2022 manufacturing costs for cheese, dry whey, nonfat dry 8 milk, and butter. His study establishes the following, 9 2022 costs: Cheese .3006; dry whey .2953; nonfat dry milk 10 .2653; and butter .2364. 11 Q. All right. Now, if we turn to the next page, have 12 you done on this, page 15, some comparisons between the 13 result of the Stephenson survey and the result of the 14 Schiek survey/econometric study? 15 A. Yes. Yes, I did. 16 Q. And for cheese, dry whey, and nonfat dry milk, how 17 similar are they? 18 A. Well, they are fairly similar when you consider 19 the breadth of the studies. Minus cheese was -- in 20 Stephenson, was 13.7% lower; dry whey was 12.1% higher, 21 nonfat dry milk was 3.5% higher, and if you understand the 22 California industry, those even make more sense. 23 Q. All right. Well, tell us what you mean by that. 24 A. What I mean is that in the case of cheese, in 25 particular, the average size of the survey plants was very 26 large, and so that would skew it versus perhaps what Mark 27 would find when he has a -- more of a range in plant 28 sizes, would be my speculation. 4238 1 Q. Okay. And -- and just to be clear, that with 2 respect to cheese, the Stephenson number is lower than 3 Schiek. With respect to the other two, dry whey and 4 nonfat dry milk, it's -- it's the other way around, right? 5 Stephenson is higher than Schiek, correct? 6 A. Yes. 7 Q. Okay. Now, we then come to butter, but I think 8 you discovered something sort of interesting, and I'll 9 have you explain why in a minute, but the difference 10 between the two numbers for 2000 -- with respect to the 11 information we're presenting today, namely the Stephenson 12 2023 report versus the Schiek 2022 report, there's about a 13 25.6% difference between the two, correct? 14 A. Yes. 15 Q. Then did you go back and check what the 16 relationship had been back in 2008 when the 17 Make Allowances were last set? 18 A. We did because we knew it was wide. We were very 19 surprised to find it was the exact same percent difference 20 25.6 in '08 as it was in 2023. 21 Q. So to the tenth of a percent, the percentage 22 difference between Stephenson and, if you will, CDFA, 23 which is what Schiek relied upon of course, the difference 24 between the two was that Stephenson was 25.6% higher, and 25 that actually turns out to be the exact same percentage to 26 the tenth of a percent as the difference had been back in 27 2008 between the Cornell study and the CDFA number; is 28 that correct? 4239 1 A. That is correct. 2 Q. And do you have a reason why makes sense that a -- 3 that a survey based solely upon California butter would -- 4 might well be different than a national survey? 5 A. Well, I think, again, if you know the California 6 industry, you have got probably ten or so butter makers, 7 but you have two extremely large ones, extremely 8 successful ones. And so when you weight average the cost, 9 they are the bulk of the pounds, so -- and they are that 10 large, we assume they are very efficient, and as a result 11 you would expect theirs costs to be lower. 12 Q. All right. Let's turn to the next page, 16. And 13 is this -- does this page set forth the ultimate 14 Make Allowances that IDFA and Wisconsin Cheese Makers 15 Association is seeking, although it's under a -- in a 16 stair-step method, which we'll get to in a minute? 17 A. Yes. These are the numbers that the -- at the end 18 step with the Make Allowances would be for cheese, dry 19 whey, nonfat dry milk, and butter. And they are equal 20 weighting, in other words, the simple average of the 21 Schiek and the Stephenson studies. 22 Q. Let me just press on that to make sure the record 23 is clear. 24 Within the Stephenson study and within the Schiek 25 study, are the numbers they produced weighted average cost 26 of production? 27 A. Yes. Schiek's is based on weighted average data, 28 so his projections are weighted average. And Stephenson, 4240 1 as well, used the weighted average, again, average cost on 2 total pounds. 3 Q. Okay. And let's just be clear what that means. 4 If it's -- if the Stephenson report is a weighted average 5 cost of production, and Schiek also, does that mean that 6 half of the commodity, for each commodity, is produced at 7 a cost equal to or less than the Make Allowance and half 8 is produced at a cost equal to or more than? 9 A. That's essentially, yes, that's correct. 10 Q. And that's what a weighted average means? 11 A. That's what a weighted average means, yes. 12 Q. Is there any sense that one could state the 13 Make Allowances proposed by IDFA is a guarantee of 14 profitability? 15 A. No, it's not. And if you use Mark's as an 16 example, he breaks out high-cost and low-cost operations, 17 and you can see with the weighted average there's 18 certainly going to be a fair number that will be below 19 average cost -- be above average cost. And below, both. 20 Q. Do either of the surveys take into account the 21 fact that there are -- at least some at the time, perhaps 22 a lot of the time -- over-order premiums paid by 23 manufacturers to dairy farmers? 24 A. No. In my understanding, Federal Order pricing is 25 minimum pricing, and -- and that is what's required for a 26 regulated plant. They can pay over that any way that they 27 wish. If they would like to pay over, they can. 28 Q. Okay. And if -- if the dairy farmers are able to 4241 1 insist on that as a condition of supplying the milk, then 2 the manufacturer -- you can't find somebody else to supply 3 the milk more cheaply? 4 A. There's -- there's good old competition, yes, in 5 that pricing. 6 Q. Okay. But that -- that would, if you will, drive 7 down the actual money available to the manufacturer to pay 8 its costs of manufacture, correct? 9 A. Yes, it would. I mean depending what that 10 Make Allowance is, the higher it is, the less opportunity 11 they are going to have to pay some kind of premium. 12 Q. Okay. And if they are paying a premium above the 13 minimum price, then that is, if you will, a deduction from 14 the assumed Make Allowance, leaving less money to actually 15 pay the actual cost; is that fair? 16 A. That is also correct. 17 Q. Okay. Now, why is it you decided to propose equal 18 weighting -- you -- I should say IDFA and Wisconsin Cheese 19 Makers Association -- equal weighting? 20 A. We elected on equal weighting for a couple 21 reasons. If you look at past history, both these studies 22 were used. The advantage of Bill Schiek's study is the 23 data is audited. So even though it ended in 2016, you 24 have a lot of confidence that the data was done at the 25 best way possible. I mean, they had accountants at CDFA 26 that collected the data. 27 Mark's data is broader, includes more plants 28 across more of the country. It is not audited. But we 4242 1 thought that because of the prices -- and there's some 2 difference between the two -- that a weighted average -- 3 or excuse me -- a simple average of the two weighted 4 averages was the best way to propose for a Make Allowance 5 to be. 6 Q. Okay. Now, if USDA determined that instead of a 7 simple average they wanted it to be a weighted average 8 between Stephenson and Schiek, is there information in the 9 record that would allow that to be done? 10 A. There's current information on Mark's. You can 11 take Bill's -- you can take the past weights in the CDFA 12 survey and use those if you wanted to do that. 13 Q. Okay. So we -- Dr. Schiek admitted -- had 14 admitted into the record during his testimony the actual 15 California Department of Food and Agriculture annual 16 studies from 2002 to 2016; is that correct? 17 A. Yes. 18 Q. And are there in those -- in many of those reports 19 actual production data, that is to say a recitation of how 20 many pounds of -- 21 A. Yes. 22 Q. -- each commodity is included in the -- in the 23 survey? 24 A. Yeah. Very similar to Mark's. 25 Q. Okay. And so one could look at that and figure 26 out what the poundage is covered by the California 27 surveys, correct? 28 A. Yes, they could. In fact, they give the percent 4243 1 in the studies. 2 Q. Okay. And you have already, on page 11, set forth 3 the poundage that's covered by -- by Dr. Stephenson's 4 study, correct? 5 A. Yes. 6 Q. So is that enough information to -- to do a 7 weighted average if you wanted to? 8 A. I think it's the most complete as far as volume 9 covered that we have ever had. 10 Q. Okay. Let's turn to page 17, then. 11 Now, you previously told us what the IDFA/ 12 Wisconsin Cheese Makers Association proposed 13 Make Allowances are in absolute dollars. That is what's 14 on page 16. 15 Now, on page 17, have you translated, if you will, 16 those increases so that they now are stated in terms of 17 percentage increase over current Make Allowances? 18 A. That is correct. 19 Q. And the current Make Allowances, once again, are 20 those that were put in place in 2008, mainly based on 2006 21 data? 22 A. '6 and '7, yes. 23 Q. Okay. Why don't you just read those numbers if 24 you would. 25 A. Okay. The cheese Make Allowance increases by 26 41.79%; the dry whey Make Allowance increases by 59.32%; 27 nonfat dry milk is 61.86%; and butter is 62.39%. 28 Q. All right. On the next page, 18, did you compare 4244 1 those percentage increases to certain testimony in the 2 record as to what the actual increases on a percentage 3 basis are that various cooperatives have indicated they 4 have themselves experienced during this timeframe? 5 A. Yes, we did. Where we had III and I cheese, 6 Land O'Lakes was butter/powder and Darigold was all four 7 products, Darigold and Land O'Lakes -- Darigold said they 8 had an 80% increase, so -- 9 Q. Sorry, 8-0? 10 A. 8-0%. 11 Land O'Lakes gave numbers. We took back and 12 looked at those numbers and assigned them to butter/powder 13 and then that fixed cost, which is again, fixed cost being 14 used as solids, and that works out to 81%. 15 AMPI quoted the number of 40% on their commercial 16 cheese -- 17 Q. Now, what's the number? You said 40. 18 A. 81. 19 Q. No, no, for AMPI? 20 A. 47. 21 Q. 47%? 22 A. Yes. 23 Q. Okay. And then -- so how do IDFA's proposed 24 Make Allowances increases, which you list here in the 25 second column on page 18, compare to the testimony from 26 these three cooperatives regarding the percentage 27 increases that they have experienced over the same 28 timeframe? 4245 1 A. Yes. We were -- we -- we learned that they were 2 actually higher in these three cases. 3 Q. Okay. The cost increases experienced by these 4 cooperatives were in all cases higher than the proposed 5 increase in IDFA's proposal as an -- on a percentage 6 basis, correct? 7 A. That is correct. 8 Q. Okay. And let's turn to page 19. 9 THE COURT: Wait. Just a quick break. 10 Off the record. 11 (Off-the-record.) 12 THE COURT: Back on the record. 13 BY MR. ROSENBAUM: 14 Q. Okay. On page 19 you mentioned a minute ago that 15 Land O'Lakes had provided some data in their testimony, 16 that you had determined reflected an 81% increase in the 17 cost of making nonfat dry milk and butter. 18 Can you tell us on page 19 how you actually came 19 up with that 81% figure? 20 A. Well, Land O'Lakes provided the 2007 cost survey 21 numbers, and they provided the percent increases. So we 22 simply multiplied the survey times the percent increase to 23 come up with a set increase per pound. And that was for 24 processing, labor, and utilities in both butter and nonfat 25 dry milk. 26 Land O'Lakes put all the fixed costs together in 27 one number for nonfat dry milk, and in butter, and that 28 was up 112%, so it was $0.113 increased. And, again, that 4246 1 method uses a solids based allocation on that fixed cost. 2 So when you take those costs, and you look at what 3 we call our standard yields in a hundred pounds of milk, 4 so you have basically, roughly, 8.5 pounds of nonfat dry 5 milk and about 4.2 pounds of butter, when you -- when you 6 run those numbers, what you find, if you take those pounds 7 of each of those by their costs, you add them all 8 together, you get an increase in price per pound of 9 14.24%, which is 80% of the current number, which is 17.5, 10 which was also supplied by Land O'Lakes. 11 Q. All right. So basically you calculated based upon 12 the information provided that Land O'Lakes costs had been 13 $0.175, correct? 14 A. Yes, that's what they -- that's what they showed 15 when you add up the costs it come to. 16 Q. And when you -- when you add up Land O'Lakes' own 17 information as to the percentage increases in those costs 18 over time, that indicates that the total increase in 19 costs, was $0.1424; is that correct? 20 A. Yes. 21 Q. And then you simply then divided 14.24 by 17.50, 22 to calculate that this reflected an 81% increase in the 23 cost? 24 A. Yes. 25 Q. Okay. Now, let's go to the next page. You have 26 testified -- to page 20. You have testified that under 27 your approach, you were using a Schiek report and a 28 Stephenson report, both of -- each of which calculated a 4247 1 weighted average cost of manufacture, correct? 2 A. Yes. 3 Q. And how does that methodology compare to what USDA 4 has done in the past? 5 And I think you can just summarize this. You 6 don't have to read the whole thing. 7 A. Good. Because I can hardly see it on my screen. 8 Apologize for that. We used to call these cooperative 9 extension slides, where they have so much stuff on the 10 slide you can't read them. Or I have had a few 11 consultants that were good at that, too. 12 Basically, they used the weighted average cost in 13 the 2008 decision. And basically -- so the precedent in 14 that decision in 2008, although they took some numbers 15 combined from both studies, what they used was those 16 weighted average costs in -- within those studies to 17 determine those Make Allowances. 18 Q. Okay. Let's turn to page 21, and tell us, you 19 know, what your view is about the need for prompt action. 20 A. Well, I -- I think it is very critical. I'll be 21 very honest, I took this job I have now, when I retired 22 from Kroger, because I thought this was so urgently 23 important to happen. 24 "Make Allowances below costs cause dairy 25 processors to face financial losses, risk financial ruin, 26 and/or lack appropriate financial incentive either to 27 reinvest, expand, or build new plants, to meet both market 28 demand and milk supply needs. 4248 1 "If manufacturers attempt to raise their commodity 2 product prices to cover higher costs, those higher prices 3 automatically lead to higher milk prices, leaving no 4 additional net income to apply to those higher costs." 5 Q. Okay. Let's now switch on page 22 to an issue I 6 alluded to, which is the proposed staggered phase in. 7 A. Well, because -- because the increases, we have 8 waited so long to make the changes, they are very 9 significant. And an accommodation to farmers and to make 10 the transition a little easier, IDFA's proposing that half 11 of that change in Make Allowances apply at the initiation 12 of the new Federal Order, and then for the next three 13 years, a sixth of that total is added until you get at the 14 beginning of the fourth year the full amount of the make. 15 And, again, 50% of that average the first year, 16 and we're using January '25 in our example. That seems to 17 be everybody's wish for an order. We'll see what really 18 happens. And then January 1st the next three years, that 19 difference, one-third of the difference or one-sixth of 20 the total is added until you get to the full amount. 21 Q. Okay. So if we go back to page 17 just for a 22 second, that's the percentage increase that would be 23 experienced at the end of year four, correct -- 24 A. Correct. 25 Q. -- when there's a full implementation of the 26 proposal? 27 A. Right. 28 Q. So if we were to begin in, as we would hope, but 4249 1 we'll see how things play out, that the first year 2 increase would be effective on or about January 1, 2025, 3 these percentage increases would not actually occur until 4 January 1, 2028; is that correct? 5 A. That is correct. 6 Q. And the -- if you want to figure out what the 7 percentage increase is in year one, IDFA is proposing that 8 half of the increase be incurred in year one, correct? 9 A. Yes, that's correct. 10 Q. You could cut all those percentages in half, and 11 that would tell you what -- on page 17, and that would 12 tell what you the percentage increase is in year one, 13 correct? 14 A. That is correct. 15 Q. Now, have you gone back and looked at how large a 16 percentage increase for a particular commodity USDA has 17 previously made? 18 A. I -- I can't recollect. 19 Q. Okay. Well, if -- all right. If one were to go 20 back to the 2008 decision, one would be able there to 21 find, readily, what the butter Make Allowance had been 22 before that decision -- 23 A. Yes. 24 Q. -- if it came as a result of that decision? 25 Okay. And assume with me -- 26 A. Yeah, I'm -- this is coming back now. I remember 27 that one in particular. So go ahead. 28 Q. Do you remember the number? 4250 1 A. I don't remember the number. I just know it was 2 very significant. 3 Q. Okay. So assume with me that the butter 4 Make Allowance went up by 42% in one fell swoop -- 5 A. Yeah. 6 Q. -- in 2008. 7 And do you recall that the Make Allowance 8 increases in 2008 were -- were imposed on an emergency 9 basis? 10 A. They were, and they were immediate. Full amount 11 was -- when the orders -- the change orders were voted in, 12 it was an immediate change. 13 Q. All right. And that's -- so the 42%, that was 14 imposed immediately for butter with -- on an emergency 15 basis is, you know, materially higher than the -- any of 16 the year one Make Allowance increases that you are 17 proposing; is that correct? 18 A. Yes. 19 Q. And of course, this is not -- and unlike then, 20 this is not an emergency hearing. I mean, there's going 21 to be a recommended decision and a final decision here, 22 correct -- 23 A. Yes, that is correct. 24 Q. -- what we're doing right now? 25 Okay. So let's go then to page 23. And does this 26 document set forth your -- the actual phase-in amounts 27 going from year one through year four? 28 A. Yes, it does. 4251 1 Q. All right. Let's switch to -- on page 24 to a 2 comparison of National Milk's Make Allowance proposal, 3 which is Proposal 7, and tell us what your view is about 4 that. 5 A. Well, what page 7 talks about is National Milk has 6 a one-time change in makes that they are recommending and 7 then no further adjustments, and they were negotiated by 8 National Milk's members, and the numbers are published 9 here. 10 Again, we used our two studies, averaged them, 11 used the weighted averages from both studies, averaged 12 them to come up with a full-year -- I mean, a full cost 13 change -- and keep in mind, these are 2022 costs. These 14 aren't 2028 costs. And then we are proposing that that 15 full amount be put in again, half in the first year and 16 then a third of that -- what's remaining the next three 17 years. So it is gradual. 18 And what that -- what that does is basically, 19 again, gives time for industry to adjust, when you are 20 basically requiring makes to people making commodity 21 cheese, which makes them lose money, they do need to be 22 corrected and -- but we are trying to do it in a way that 23 is reasoned. And I was very pleased our board strongly 24 supported the gradual implementation. I thought that was 25 a very good thing. 26 Q. I mean, the effect of that phase-in means that, on 27 a weighted average basis, the industry -- the 28 manufacturing industry is, essentially, going to be 4252 1 continuing to suffer insufficient Make Allowances -- 2 A. Yeah. 3 Q. -- for another four-plus years, right? 4 A. And it wouldn't be honest to say everybody thought 5 that was a great idea, but the strong consensus was it was 6 a more reasonable approach, so we adopted it. 7 Q. Okay. Now, there has -- and let me just -- the 8 survey here is as of 2022, correct? 9 A. Yes. 10 Q. That's the Stephenson survey -- 11 A. Yes. 12 Q. -- 2022 costs? 13 A. Yes. 14 Q. I mean, although inflation has come down somewhat 15 in 2023, we still are suffering from inflation, correct? 16 A. Oh, heavens, yeah. I mean, energy has certainly 17 come back a little bit, but a lot of the other costs are 18 still actually going up. 19 Q. Okay. So I mean, you would have to actually enter 20 into a deflationary period in order for there to be any 21 risk that the 2022-based Make Allowances are too high, 22 correct? 23 A. Yes. And historically that simply hasn't happened 24 in modern times with manufacturing costs. 25 Q. And, indeed, the fact you are phasing it in over 26 time and you won't hit your full proposed Make Allowances 27 until January 1, 2028, which is, as I say, more than four 28 years from now, I mean you would have to have real 4253 1 deflation? 2 A. Yeah, you would. And as we look at what's 3 happening, continuing with labor costs in particular, 4 which are a huge part of this growth in costs, if you look 5 at Mark's numbers, that would -- that's -- generally we 6 don't go backwards on labor costs. They just continue to 7 go up. It is just the rate of change moves around. 8 Q. Have you read that the automobile manufacturers 9 are now -- their workforce has gone on strike asking for a 10 30-plus percent increase in their labor rates over four 11 years? 12 A. You can't listen to the morning radio and not know 13 that. It is all over the place. 14 Q. Yeah. And -- and the manufacturers have countered 15 at 20%, I think is their number. 16 A. Yes. 17 Q. You are aware of that? 18 A. Yes. 19 Q. And no one's asking for a material decrease in 20 labor costs; is that fair? 21 A. No, they are not. 22 Q. All right. So page 25, please. Let's talk about 23 the notion that, well, we should wait for mandatory 24 audits. 25 A. Well, IDFA has put a clause in their proposal that 26 basically says if that mandated audit is approved and 27 completed ahead of the four years schedule, we would 28 recommend support that those numbers be implemented when 4254 1 they are ready so that we could move to that when it 2 became -- became -- when it became available. 3 That -- that's ambitious. I don't want to say 4 it's not possible. We'll talk about that in a minute, the 5 steps. 6 But National Milk isn't near as specific. In 7 fact, we have had testimony that basically says that, you 8 know, over a certain percent we're not going to support, 9 even if there are audited surveys, which is a little 10 troubling. 11 And so basically, we would stay at their 12 negotiated levels, if that was adopted by USDA, with no 13 change possible until there was that mandated survey 14 completed, which as we know with our current Congress, it 15 seems logical, it has very broad support, both farm 16 groups, co-ops, and IDFA are all supporting that, but that 17 doesn't mean it's going to happen. And so there's a -- 18 there's a -- I think there's a real concern that -- that 19 we won't get it done in time to -- to be effective. 20 Q. All right. And if we turn to page 26 and 27, do 21 you list some of the steps that would have to be completed 22 before one would actually be in a position -- USDA would 23 be in a position to impose Make Allowances based upon 24 mandatory audited surveys? 25 A. Yes. And thank you to USDA for a very good 26 brochure on the steps for Federal Order changes because I 27 think everybody's used those, and this takes care of some 28 that too. Although the first few steps aren't actually 4255 1 part of that. 2 First of all, you have Congress enacts 3 legislation. There's still ambition of having a Farm Bill 4 done by December, but there's always ambition for a Farm 5 Bill to be done by December of the Farm Bill year, and it 6 rarely happens. We'll just have to see. 7 And then once that -- the enabling legislation is 8 in there and the funding, USDA has to promulgate or 9 develop the regulations through which such a survey is 10 carried out and the authority how they would use it. They 11 have to devise the survey, conduct the survey, audit the 12 results, and publish the results. 13 Q. Now, let me just pause you there. I mean, this 14 survey would potentially cover companies that have never 15 participated in such a cost of production survey; is that 16 correct? 17 A. Yeah, I think that's likely. In fact, it's 18 absolutely -- well, if you look at the percentage of the 19 coverage particularly, some of the products, yeah, you 20 will have a lot that aren't currently in the survey. 21 Q. Okay. 22 A. And there may be limits on how small they have to 23 go, all those kind of things. They are part of the 24 rulemaking. But, yes, it will be broader than what we 25 have seen so far. It will be more similar to California 26 where most of the products was caught in their surveys in 27 the past. 28 Q. Keep going, please. 4256 1 A. And then -- so after we do all that and then, we 2 have the result, and then we start the rulemaking Federal 3 Order hearing process. 4 Once that's the result -- when those results are 5 out -- and, again, industry can petition USDA at any time 6 on anything, but if they were to petition -- wait until 7 that survey to be done, then you would start the more 8 classic hearing process where they would petition USDA, 9 hold hearings to raise Make Allowances to reflect the new 10 survey. 11 And this next page looks very familiar to 12 everybody in this room. It is that you -- when you -- 13 there's a process that USDA follows for a survey -- I 14 mean, for a Federal Order Reform at AMS, and these are 15 kind of the Cliff Notes of what those -- what those 16 summaries -- those decisions are. 17 And as we look at our timeclock for this hearing 18 today, albeit this is not as complicated as the one we 19 have on the many issues we're covering, it would be a 20 significant amount of time. 21 So, for example, if you were to get the survey 22 completed -- say -- say, they did complete the survey by 23 2028, which would be admirable because it's a complex job. 24 It would likely be a year and a half to years before 25 anything would be implemented based on the time it 26 normally takes, by the time people petition for a normal 27 hearing. So we could be five, six, seven years -- I would 28 say five out from where we are now. 4257 1 Q. And even if things move faster, even if it could 2 get done, let's say, by 2017, or some time in 2017, you 3 still would, under the National Milk proposal, be living 4 under, admittedly, lower than actual cost to manufacture 5 Make Allowances for all of 2025, all of 2026, into 2027, 6 correct? 7 A. Yeah. And if you think of the National Milk 8 levels, let's take cheese for a simple example, their 9 proposal is actually below the California number from the 10 actual survey from 2016. 11 Q. Okay. Let's just make clear about that. National 12 Milk's proposed -- 13 A. Is $0.24. 14 Q. Okay. 15 A. CDFA survey was $0.245 in '16. 16 Q. In 2016? 17 A. Yes. And so those levels are -- are teens levels, 18 someplace in the mid to late teens, that's our estimate 19 what they would be. So you, again, could be ten years out 20 before you got to contemporary numbers, if -- you know, 21 assuming how quick things can get done and the hearing 22 process can take place. 23 Q. Okay. If we turn to page 28, you have made 24 reference a couple of times to the concern whether even if 25 we had audited mandatory surveys that USDA would simply be 26 able to implement those without a major disputed hearing. 27 And what's your view about that? 28 A. Well, the view is under current rules, they 4258 1 probably can't, it would have to be enabled, probably 2 through statute or through some other process. I don't 3 pretend to be an expert on how you do rulemaking on 4 rulemaking but -- 5 Q. Right now the assumption is you have to go through 6 an order -- 7 A. Yeah, it would be -- it would be the classic 8 formal hearing is -- maybe emergency, but it would be 9 formal hearing. That would be our best estimate. 10 Q. Okay. 11 A. And what we -- what we heard, which is a little 12 troubling, was "even if credible and reliable information 13 regarding costs of manufacture existed, and it suggested a 14 Make Allowance change of more than a few cents per pound, 15 we would be restrained from advocating for the full 16 implementation of the change due to the impact on milk 17 prices and profitability of our farmer-owners." And that 18 was Ed Gallagher from DFA's testimony earlier this last 19 week actually. 20 Q. Okay. Now, if you turn to page 29. Is the notion 21 that Make Allowances have gotten out of kilter with 22 reality a brand new subject? 23 A. No, it's not. There's -- we all know -- 2020 24 changed everything as far as progress, but we have known 25 that. The CDFA surveys in general have shown increases in 26 costs on all commodities. Certainly Mark's study in 2019 27 did that as well, although the allocations and maybe some 28 sampling caused some strange numbers. In 2022, of course, 4259 1 he just did that one, showed it again. We also see it in 2 that -- and the most empirical evidence is basically the 3 gap between mailbox prices and announced prices, 4 particularly when you adjust for component levels of milk, 5 which we have through Federal Orders. We can estimate 6 what those are. 7 We saw positives in some markets go to significant 8 negatives, and even though we acknowledge hauling is part 9 of those costs, the share of hauling of that increase, 10 between 30% hauling, and you are seeing a dollar and some 11 change in some cases, doesn't begin to cover it. And 12 that' simply because there's less -- there's less dollars 13 able to pay premiums for milk than there was in the past 14 because the Make Allowances are out of line with real 15 costs. 16 Q. Okay. And turn to the last page, please. Just 17 read that one, if you would. 18 A. "The long-needed update to inadequate 19 Make Allowances cannot be delayed any longer." 20 MR. ROSENBAUM: Your Honor, Mr. Brown is available 21 for cross-examination. 22 THE COURT: Who has questions for this witness 23 other than AMS? 24 Mr. Miltner. 25 CROSS-EXAMINATION 26 BY MR. MILTNER: 27 Q. Good morning, Mr. Brown. 28 A. Good morning. 4260 1 Q. Ryan Miltner representing Select Milk Producers. 2 I wanted to start with your IDFA Exhibit 6, 3 Exhibit 214, your full statement. 4 A. Okay. 5 Q. And I'm looking at page 3. You give this example 6 of a cheddar cheese sale at $2 a pound, with manufacturing 7 costs of $0.28 per pound. And we have had these 8 discussions with other witnesses on the stand. Similar 9 examples were presented, right? 10 A. Yes. 11 Q. I don't know that you have been asked these 12 questions, so I just want to make sure we have the same 13 understanding. 14 If this manufacturing plant has actual 15 manufacturing costs that are at all different from those 16 that are incorporated in the Make Allowance formulas, your 17 further analysis about the profitability of this plant 18 would change, would it not? 19 A. Yes. 20 Q. Similarly, if this plant had different yields of 21 products than were assumed in the Federal Formulas, this 22 analysis would probably change as well, correct? 23 A. Yes. But not a lot, but it could change. You 24 know, an average is an average. A milk plant is going to 25 be the average. That's what we have to work with. 26 Q. Yeah. And really, there probably is no plant 27 that's exactly average, correct? 28 A. No. 4261 1 Q. So all of the statements that you make that say 2 that, you know, plants are guaranteed to lose money or 3 that they absolutely can't make a profit, we can't ascribe 4 that to any particular plant, can we? 5 A. No. But on the average we can because we have 6 average cost data, and we know what the NDPSR surveys 7 show. And so if you are making a commodity products, 8 that's -- that's what you are -- that's what your margin 9 will be. 10 We heard some testimony last week of people who 11 have done some value add to help counter that, 12 particularly from Nasonville up in Wisconsin did an 13 excellent job explaining how they try to work with that. 14 But on the average, it is true. And, again, that 15 gets down to what's our idea of our pricing. I mean, USDA 16 in 2008, took weighted average costs. We're recommending 17 the same thing again. And we're recommending that because 18 we recognize that we can't -- we don't expect that price 19 to keep everyone in business because there would 20 probably -- the make would have to be very high. And no 21 one -- no one that I know thinks that's the right 22 solution. 23 Q. Right. And so you said on the average, your 24 statements about profit and loss are -- are -- you stand 25 by those, correct? 26 A. Yes. 27 Q. But even if we're looking at the average, if a 28 plant has average manufacturing costs, that doesn't 4262 1 necessarily mean that same plant has average sales prices, 2 right? 3 A. No. But NDPSR, of course, collects commodity 4 cheddar. In my experience, buying commodity cheddar, 5 there's not much difference if you are buying a short-hold 6 fresh cheddar 40-pound block, or even a 640, from those 7 averages. I mean, they all -- most of them use CME. 8 There's some that use NDPSR to determine that price. But 9 they are remarkably close. If you are a volume buyer, 10 they are remarkably close. And I have some experience 11 with that, buying and selling honestly. 12 Q. Within a few pennies you would say? 13 A. Yes. Yes, definitely. 14 Q. You mentioned Nasonville. I think, if I'm 15 remembering correctly, they testified that they -- their 16 diversification of products isn't exactly a new thing for 17 them, correct? 18 A. Oh, no. And pretty typical for your Wisconsin 19 family-owned cheese makers. I think that they have 20 diversified their product. 21 Q. And I think for them, their diversification even 22 predated USDA's adoption of end-product pricing, correct? 23 A. Yes. They have been in that business for a long 24 time. 25 Q. So at least for them, their diversification of 26 products really couldn't tie that to any Make Allowance at 27 any point in time, could you? 28 A. You couldn't. But you also have to acknowledge 4263 1 that those products are made on demand. They're made by 2 order. You have that wall of milk, so you are going to 3 make cheddar, commodity cheddar even. I mean, they make 4 some retail cheddar as well. So that's always going to be 5 part of their business, and so that does affect their 6 profitability, because it's 42% of their cheese, I think 7 they said, was commodity cheddar. 8 Q. Okay. And a lot of that ended up being 9 cut-and-wrap, too, correct? 10 A. Part of it. But a lot of their cheddar -- like 11 cheddar for aging, if you go to their website, they put 12 every insertion you can think of in a pound of cheddar 13 cheese. Some of it does. But what's your opportunity 14 cost in that? That's the other question you have to ask, 15 too. You can go buy that cheese, and a lot of those 16 plants do -- will buy outside cheese to supplement if they 17 have strong orders for their specialty products. That 18 commodity cheddar market short hold for fresh cheddar is a 19 buy/sell market. And everybody knows who makes a product 20 like they like, and they will work -- and they will work 21 with that. 22 The other thing is, is his cost of production. If 23 you looked at what he put together on his cheddar relative 24 to his specialty cheeses and how the costs are allocated, 25 the cheddar takes a much lower share as a percentage of 26 cheese made than his other products. Those other products 27 are more expensive to make. 28 Q. And presumably -- well, not even presumably -- 4264 1 they actually have a very different cost structure and 2 sales structure? 3 A. Yeah. They do their best to reflect that, 4 obviously, out of the market. You are correct. 5 Q. On page 5 of your written statement there's a 6 statement about "if the formulas overestimate how much 7 finished product is being obtained from a quantity of raw 8 milk," that section there. 9 You or IDFA, you are not offering any other 10 statement in here about yields, right? 11 A. We don't have any data -- 12 Q. Okay. 13 A. -- to support a change in yields at this time. I 14 think we're hoping that USDA will get that job as well as 15 the Make Allowance when they move forward with the audited 16 hearing. 17 (Court Reporter clarification.) 18 BY MR. MILTNER: 19 Q. So, again, at the top of page 7 you have got a -- 20 in the first sentence, again, you refer to "forcing 21 manufacturers to lose money on every pound." 22 Just, again, a question that's been asked of 23 others, but you have repeated this statement. No 24 Class III or Class IV manufacturer is forced to 25 participate in the Federal Order system, correct? 26 A. That is correct. 27 Q. So I mean, there would be economic reasons why 28 they might or might not participate, correct? 4265 1 A. There is, but there's economic reasons why they 2 need to if they are in a market with significant Class I 3 to be competitive and buy milk. 4 Q. They are not forced to lose money on every pound 5 of dairy product produced, are they? 6 A. No. Some of them just leave. 7 Q. Some do. 8 A. And then we have more milk than we can fit in the 9 plants. 10 Q. It's similar to how farmers, some of them just 11 have to leave, don't they? 12 A. Yes, that's correct. 13 Q. Economics work on both sides of the buy/sell -- 14 A. They do. And there's lots of reasons for those 15 exits, we know that, too. 16 Q. Correct. 17 A. We have all experienced that. 18 Q. At the bottom of page 7, and this is when I need 19 some help understanding. The second sentence of the final 20 paragraph: "Cooperative associations will pass on to 21 their milk producer members, or put to other business 22 uses, all of the wholesale sales value of dairy products 23 in excess of that needed to cover the total cost of 24 manufacturing." 25 What do you mean to convey with that sentence? 26 A. When I mean is that the real costs of your total 27 product value, what you can seal, whatever it is, added 28 value or commodity, less what it costs to make it, is the 4266 1 pool of money you have left to pay producers, maintain 2 plants, invest into -- invest into further improvements or 3 changes, or to, you know, retire as -- as an equity 4 payment at the end of the year. That's the real dollar 5 amount. There isn't -- that's what they have got, except 6 for, of course, for any pool draw they may have, but that 7 would be what they have to pay producers. 8 Q. And so is the argument or the conclusion you would 9 like people to draw from this section, that if the -- if a 10 cooperative that manufactures products has a lower, say 11 Class III price, that the lower revenue from the sale of 12 milk will be made up with higher value in the product sold 13 from the plant? 14 A. No. What I'm saying is regardless of that 15 relationship, they have options. I mean, if you are a 16 proprietary plant and your plant is pooled, you have to 17 pay the regulated minimum price to your producers. Now, 18 we all know with depooling, that number can be a little 19 weird, but what's what you are required to pay. 20 If you're a cooperative, you have options. And 21 certainly, cooperatives strive to pay the producers as 22 much as they possibly can. But they do have flexibility 23 if they need it. And with any plant, whether you are a 24 co-op or not, those -- that revenue that you get back from 25 your sales and that costs, there is maintenance -- we know 26 all those things, growth, product development, whatever it 27 may be. That's -- that's your capital that you have to 28 pay producers, as well as all those other myriad of things 4267 1 that a growing business tries to do. 2 Q. Does that analysis work equally for a cooperative 3 like Prairie Farms that is predominantly Class I? 4 A. Not -- well, yes, actually it does. Because 5 you -- same thing, you have got receipts from sales or 6 whatever you make. You have a requirement both to the 7 pool and to your producers and what they will be paid, and 8 after you pay your pool, your pool requirement, what you 9 have left is to reinvest, market, repairs, maintenance, 10 and then also to -- to obviously pay your producers. So 11 it is really not that different except the Class I's 12 mandatory, you don't have an option not to be pooled. 13 Q. Does it also work for a cooperative that might be 14 relatively smaller, that is a true milk marketing 15 cooperative selling all of its producer milk to plants 16 that are not cooperative owned? 17 A. They have the same -- they have the same -- it's a 18 little different, because they don't have plants to 19 reinvest in. But from the standpoint, you know, what you 20 get, what it costs to deliver it, is what you have left is 21 what you are going to pay your producers, whether you are 22 a cooperative or not. That's the pool of money you have 23 to work with or to grow your business or whatever else you 24 feel that's the most important use of that money. And as 25 we know, co-ops have different strategies in how to best 26 allocate that and how to reinvest in their business. 27 Q. For that co-op that I just described, would you 28 expect them to recover from the marketplace the income 4268 1 that is lost if the formula prices are reduced? 2 A. Let's take the other side. How about the ones 3 that have invested tens and hundreds of millions dollars 4 in plants who can't cover their costs and they have that 5 investment in a fixed asset that they are struggling to 6 make a margin on? Some of those plants, as we know in the 7 co-op world, are very large commodity plants. 8 So my question is -- look at reblends. There's 9 all kinds of deals. Most manufacturing plants are not 10 pooled. The milk may be pooled, but the plant isn't. So 11 there's a lot of flexibility on how that milk is moved 12 into that plant. 13 The second thing is, is we seem to have extra 14 milk. We have supply management programs pretty much 15 across the country. So we're basically telling our 16 dairymen, well, you can't grow, and so hopefully you can 17 get a margin that's going to work for you. We're not 18 giving them an alternative right now because of lack of 19 plant capacity to do that growth, which we know most of 20 our dairymen want to do. 21 So it's not as simple as price. It simply is not 22 as simple as price. And price will take care of it over 23 time. If you look at farm exits, what you really see, if 24 margins get tight on the farm, farm exits don't change 25 near as much as growth slows down. That's been true for 26 four years, and I think that will continue to be the case. 27 And so talking about a make when a make is a very 28 small portion of the total value of that milk and the 4269 1 products, we're giving it a little too much -- a little 2 too much credit, I think. 3 Q. Usually someone doesn't preface the answer with 4 I'm going to answer a different question or state a 5 different question, they just divert it. So I appreciate 6 all you said. 7 But for the co-op that doesn't own any 8 manufacturing plants and is purely a milk marketing co-op, 9 is it your testimony that you expect them to receive from 10 the marketplace income to offset the reductions in the 11 minimum prices? 12 A. No. Because the minimum prices are too high. 13 Q. Okay. 14 A. That's why we have gone to our challenge with 15 negative -- negative prices relative to -- to blends in 16 many markets. 17 Q. Thanks. 18 A. I admire co-ops that invest in plants and grow for 19 their producers, and I know it's not easy, and we don't 20 need to make it harder for those. And that's the future. 21 Q. And it's extraordinarily expensive, correct? 22 A. Oh, goodness, yes. 23 Q. And I think I have -- I mean, per load of daily 24 milk coming into the plant, millions of dollars per load 25 of capacity, right? 26 A. Yes, absolutely. Yes, it's a -- it's a -- it's a 27 commitment for sure. Both of the cooperative's employees 28 as well as its member-owners. It's a big commitment. 4270 1 Q. Do you recall any witness who has testified as a 2 processor, who only produces those commodities surveyed in 3 the NDPSR? 4 A. No. It's completely that, no. 5 Q. And so to gauge the profitability of a plant, you 6 would have to truly look at its entire operations, 7 correct? 8 A. Yes. 9 Q. A plant that manufactures multiple products, you 10 might be able to allocate costs and revenues and estimate 11 the profitability of each individual product line, 12 wouldn't you? 13 A. If you have got good accountants, you should be 14 able to, yes. 15 Q. But the profitability of that enterprise is a 16 function of each of those individual products produced, 17 correct? 18 A. I'm going to give you a but. Yes. But those 19 products are all paid off -- are sold, if you are talking 20 American-style cheeses, off the same commodity market. 21 And so the opportunity to add value on large bulk 22 commodities of any type, whether it's cheddar or Monterey 23 Jack, or whatever that product may be, is difficult, 24 because everybody has that same -- all the suppliers are 25 looking at it the same way. 26 And I'll use Jack as an example. Monterey Jack is 27 a little higher moisture than cheddar, a little lower fat, 28 so its ingredients cost are a little bit lower. So you 4271 1 think of it as a specialty, it's not. Of course, there's 2 so much of it sold these days. In fact, at Kroger, the 3 Mexican blend, which is Jack, cheddar, and the Asiago -- 4 not Asiago -- 5 Q. Asadero. 6 A. Yeah, thank you. 7 (Court Reporter clarification.) 8 BY MR. MILTNER: 9 Q. Asadero. 10 A. Asadero. I'm too German-Irish for that word. 11 They -- those costs are -- they are all 12 calculated. And a good buyer knows that there's more 13 moisture and less fat, and they are going to negotiate 14 that price with the same commodity mentality as you do 15 with a cheddar because there's someone willing to make it 16 for you. 17 Q. And, again -- I mean, it sounds like I'm 18 belaboring the point, but since you brought up those 19 cheeses, those cheeses have different costs of 20 manufacturing, correct? 21 A. Yes. Although they are very similar. 22 Q. Similar but different, correct? 23 A. Yes, that is correct. 24 Q. And the sales price pegged to a commodity, perhaps 25 similar, but not identical, correct? 26 A. That is correct. 27 Q. And I don't know, but I presume Jack cheese has a 28 somewhat different yield profile than cheddar, similar but 4272 1 different? 2 A. Yes, because it's a little higher moisture. 3 Q. Thank you. 4 On page 10 now of your written statement, again, 5 there's a statement here that I think is a little more 6 absolute than maybe I would think it should be. 7 "No one thinks the current manufacturing 8 allowances remotely reflect current manufacturing costs." 9 Now, I don't recall perhaps exactly who said it, 10 but I think there has been some testimony from some 11 processors that they might even be producing some products 12 at costs lower than the current Make Allowances. 13 A. Proposed, yes. Current, I'm not so confident 14 that's true. 15 Q. Okay. In your direct examination with 16 Mr. Rosenbaum you stated that -- something along the lines 17 of there would have to be deflation for there to be any 18 risk of Make Allowances reaching the levels reported in 19 2022. 20 Does that sound correct, or am I misstating what 21 you were answering? 22 A. A little bit -- I meant a little different, so let 23 me give my clarification. 24 What I'm saying is that when you look at plant 25 input costs, the one cost that seems to vary the most is 26 no surprise to anyone, is energy. And there's several 27 reasons for that. One is some people use forward buys on 28 energy, and sometimes those look smart, sometimes they 4273 1 don't look so smart. 2 But if you look at core -- kind of like production 3 per cow. You know, it always seems to go up. Your core 4 costs outside of energy tend to be in a rising curve. 5 They can bounce around a little bit, but they tend to be 6 on a rising curve. And that's been my experience my 7 entire career, that they just continue to creep up. You 8 do what you can to avoid it. Sometimes you can counter 9 that. That's one of the reasons that Bill Schiek used the 10 productivity factor in his projections. But a lot of 11 time, there's only -- only so much blood to squeeze out of 12 that turnip, and you -- you accept your costs are going 13 up. And that's I think what we saw particularly the last 14 few years. 15 Q. So when you were referring to the 2022 costs, were 16 you referring to those specifically contained in any of 17 the economic reports here or just generally to 2022 costs? 18 A. You could almost make it general, but certainly 19 both the Schiek and Stephenson studies, so significant 20 cost increase. But if you look at trend, particularly 21 with Schiek's study, because it's easier to do because it 22 is a projection, energy is the one thing that bounces 23 around, and the energy was the one factor that had the 24 lowest correlation with -- with the trend. It's just 25 because it does bounce. 26 Other things -- it's amazing how things do follow 27 trends over time. Sometimes I wonder when I do a big 28 analysis why I wasted my time because trend gave me almost 4274 1 the same accuracy as the analysis did. Maybe I'm just a 2 bad economist that doesn't know how to use Excel. That 3 could be it, too. 4 Q. Let the record reflect he's just admitted he's a 5 bad economist. 6 A. I have a degree in cow milking, Ryan. 7 MR. MILTNER: Your Honor, I have gone through the 8 questions I have from his written statement. I have 9 questions from his presentation. I'm happy to proceed, 10 but it's 9:20, and if the court reporter would like a 11 break, this would be a good spot for me. 12 THE COURT: Yes. We have been going about an hour 13 and 25 minutes. Let's -- let's come back at 9:30 -- 14 actually, 9:35. 15 (Whereupon, a break was taken.) 16 THE COURT: Back on the record. 17 BY MR. MILTNER: 18 Q. Mr. Brown, I'm now looking at the printout of the 19 PowerPoint slides you presented, Exhibit 215. And I just 20 want to make sure this is clear. 21 On slide 5. 22 A. Okay. 23 Q. At the bottom of the quote you present, you note 24 this is from a brief. 25 A. Yes. 26 Q. Do you know if this -- if this brief was the brief 27 before the District Court or the Court of Appeals in that 28 case? 4275 1 A. Oh, boy. I don't. 2 Q. Do you know if this was -- I think it says here, 3 this is the 2008 Make Allowance announcement -- 4 A. Yes. 5 Q. -- not the 2007 Make Allowance announcement? 6 A. Yes, that is correct. From what I understand, 7 yes. 8 Q. You are aware there were lawsuits in both -- 9 following both changes? 10 A. There's always lawsuits. 11 Q. Always lawsuits. 12 A. Don't know the details, but I know there were, 13 yes. Thankfully, I wasn't involved with those. 14 Q. Is it fair to characterize this statement here as 15 the statements of counsel for USDA and not a statement of 16 AMS itself? 17 A. It's a brief from USDA DOJ, isn't it? 18 Q. I don't know. 19 A. If you read, the attribution is it's a brief from 20 USDA DOJ -- oh, excuse me. Yeah, I honestly -- I don't 21 know. I just know the second -- the next slide kind of 22 walks through what they did. 23 Q. Okay. So -- 24 A. Again, having me read legal stuff is like having 25 you read cheese recipes probably, so it's not my strength. 26 I won't pretend it is. 27 Q. That's fair. 28 So on the next slide, which you just referred to, 4276 1 this is -- is this the statement of the Court then on 2 this -- 3 A. This is from the decision, I believe. Yes. 4 Q. Okay. So it's the Court's decision -- 5 A. Yes. 6 Q. -- separate from USDA's regulatory decision? 7 A. Right. This is the response back, you might kind 8 of say, I guess. 9 Q. I'm now looking at page, slide 11. 10 A. Okay. 11 Q. In the final column, I understand the numbers 12 there represent a fraction where the numerator is the 13 total survey annual production number. 14 A. Correct. 15 Q. And the denominator is USDA NASS annual production 16 number. 17 A. Yes. 18 Q. We can look up the definition, so I don't want to 19 belabor this too much, but what is your understanding of 20 what is included in that category of cheddar cheese for 21 NASS's data? 22 A. All cheddar. Basically, if it's a cheddar, 23 barrel, block, cheddar for aging, it would all be part of 24 that number. 25 Q. And do you believe that all cheddar has a similar 26 manufacturing cost? 27 A. Except for if you're making like a cheddar for 28 aging, because it's low in moisture, higher fat, so it 4277 1 costs more, and it's usually a slower make process. But 2 the bulk of cheddar is made in a very, very similar 3 process. It may be different types of equipment, but the 4 process is very similar. 5 Q. Okay. Well, the process might be similar, but is 6 the manufacturing cost similar? 7 A. Depends on the plant. I mean, that's -- you know, 8 Mark talked about that. But, yeah, it depends on the 9 plant and their efficiency. And older plants generally 10 are less labor efficient, for example; newer ones tend to 11 have more debt. So I mean, it's just like with farming, 12 there's those trade-offs. So there is variation, yes. 13 Q. If a reasonably efficient plant is manufacturing a 14 500-pound barrel and a reasonably efficient plant is 15 manufacturing a 40-pound block, would you expect their 16 manufacturing costs to be similar? 17 A. The biggest difference would be packaging. 18 Q. What about between 640-pound blocks and 500-pound 19 barrels? 20 A. Same thing. It's mostly packaging. A lot of 21 plants can make either. You just run the curd to a 22 different packaging line. 23 Q. Now, NASS used to survey the prices used in the 24 formulas, correct? 25 A. That is correct. I remember that. 26 Q. And it's no longer NASS, correct? 27 A. That is also correct. 28 Q. So the percentage you have here is, to be clear, 4278 1 not the percentage of cheese surveyed or -- yeah, not the 2 percentage of cheese surveyed that's in the current NDPSR 3 report, correct? 4 A. That is -- that is correct, yes. This is just 5 total production of cheddar. 6 Q. Do you have an estimate as to what percentage of 7 NDPSR production volume was surveyed by Dr. Stephenson? 8 A. I don't. But based on his average plant size, 9 which is over double what it was last time, I expect he 10 has a lot of those larger, more efficient plants. But I 11 don't even know who sells -- who NDPSR -- I mean, I know 12 who they survey because I know at Glanbia we participated 13 in those surveys, and if the cheese met the spec, you 14 surveyed. 15 In fact, when NDPSR took it over, it got much 16 better because the -- the auditors knew what they were 17 looking for, and so it was easier, when you called to ask 18 do I report this or not, you actually got an answer. It 19 really helped. 20 But it's -- it's fairly small. And that's, again, 21 because of the spec, and a lot of it's the timing. It's 22 the days that causes issues with the cheese is reported or 23 not. 24 Q. Well, it's also the size of the particular 25 commodity obviously -- 26 A. Yeah. 640s and 40s are probably roughly the same 27 in total pounds. That's kind of the rule of thumb 28 everybody uses. We could all be lying to each other, but 4279 1 that's what we all think. 2 There's a couple of people that have formally 3 survey in the industry, so we know it's roughly a third, a 4 third of those two. 5 Q. Similarly, I think you answered specifically for 6 cheese, but do you have any information about the 7 percentage of NDPSR volume that's encompassed in 8 Dr. Stephenson's surveys for any other commodities? 9 A. I do not. And that information wasn't gathered, 10 so I doubt he does, either. 11 Q. I'm going to look at slide 15, please. 12 A. Okay. 13 Q. You -- you were discussing the slide with 14 Mr. Rosenbaum, and you made a reference to the data for 15 cheese plants being skewed. 16 Do you recall that? 17 A. Yes. 18 Q. Can you -- can you elaborate a little bit on what 19 you meant by that? 20 A. Well, I had it backwards, but the -- what you have 21 in California is, again, one large plant and a bunch of 22 smaller ones, so there's a lot of diversity in costs 23 according to -- I don't know that because CDFA has four 24 cheddar plants that they surveyed the last few years for 25 costs. I just have worked with all of them, so I know 26 kind of how big they are or they are not. And one is 27 very, very large; the others aren't tiny, but they aren't 28 large plants. 4280 1 So there were two other larger plants in 2 California, and they both closed, so they were no longer 3 part of that cost survey. 4 Q. So do you believe that there's anything skewed in 5 this -- 6 A. Not really. 7 Q. -- in this table? 8 A. That was an error on my part. 9 Q. May I characterize your previous testimony as 10 supportive of and confident in the numbers reported by 11 Dr. Stephenson and Dr. Schiek? 12 A. Of anything that's available, yes. That's the 13 best data we have. 14 Q. Yet, if I look at -- I'm, again, on slide 15, the 15 second data box -- which this is just butter, correct? 16 A. Yes. 17 Q. To what do you attribute the difference between 18 Dr. Schiek's numbers and Dr. Stephenson's numbers? 19 A. California has always had -- again, we had the 20 correction in the butter make in 2008. California's had 21 significantly lower butter costs because you probably 22 have -- I don't want to give anybody a big head -- two of 23 the very best butter makers in the country in California, 24 and they are both very large. I believe this is from 10 25 or 11 plants that are in that data, but they truly did -- 26 they did -- those two plants were the -- by far the bulk 27 of the butter. So they are less expensive. The 28 methodology is the same, and the questions are the same. 4281 1 So I -- I would expect that that is the reasoning 2 behind it. I just know that if you want efficiently 3 produced butter, California's got it, you just got to 4 figure out a way to get it transported back east so you 5 can still afford it, because the transportation is their 6 biggest challenge. 7 Q. On slide 16 you referred to in discussion the idea 8 of using the weighted average of Dr. Schiek's study and 9 Dr. Stephenson's study for -- 10 A. Within the study, they are weighted averages. 11 Q. So that was what I was kind of getting at. 12 A. I think I know where you are going. 13 Q. When IDFA melded those studies together, explain 14 for us what the intention was and what you believe that 15 that then represents. 16 A. We meld -- well, we didn't meld them together. 17 And the -- the point -- and, again, when we were doing 18 this, we looked back at what other decisions had been and 19 USDA evaluated the information and picked what they 20 thought was the best information. We expect that could 21 well happen again. That's what Proposal 22 is all about, 22 make it work. 23 We felt for simplicity sake it was the easiest way 24 to do it. We do have volumes on Schiek's historical data, 25 and Mark's, so it could be weighted if someone decided 26 they wanted to do that, and all of those numbers are in 27 the hearing record. They are not in my testimony, but 28 they are in the hearing record. 4282 1 Q. Throughout your testimony, and I think it was 2 probably more in your written statement than your 3 presentation, is it fair that to say that you have argued 4 that there's a consistency with IDFA's approach with the 5 previous approaches employed by USDA? 6 A. Yes. And in not just decision, but the way it was 7 presented, and then USDA, the way they made their decision 8 weighing all the different opportunities or different 9 methods that could be used. We think we are consistent. 10 What would be perfect, if we had California actual 11 cost data. We don't, so we did the best that we could do 12 to make use of that very robust set of information. 13 Q. And specifically with the California data, you're 14 drawing an analogue between CDFA's audited cost studies 15 and the work that Dr. Schiek has done to evaluate and 16 model that data. 17 A. It's the best information we had. We wanted to 18 have a check to Stephenson's survey. We thought it was 19 important. And that was done earlier. That actually was 20 started last fall, Schiek -- the Schiek study. 21 Q. And then with regard to Dr. Stephenson's study, 22 you are drawing an analogue between his prior 23 manufacturing cost reports and the reports he's since 24 prepared, correct? 25 A. Yes, we do have some comparisons in this document. 26 Q. So just to draw a couple contrasts perhaps. 27 With respect to Dr. Stephenson's, do you recall 28 him explaining the methodology for plant selection in his 4283 1 2006 or 2007 report? 2 A. I honestly don't. 3 Q. Do you at all recall any discussion? 4 A. I know -- I know there was no California in it. 5 But I don't -- I really -- I really don't. I read the 6 results, but I -- I don't remember, quite honestly. 7 Q. Do you have any recollection of him doing a -- a 8 random sample of plants to -- 9 A. Yes. Yes, he did say that. 10 Q. Okay. And -- and the study that IDFA commissioned 11 was not a random sample, correct? 12 A. No, but the average plant size is far above the 13 average size of plants in each of the categories. 14 Q. It was not stratified to guarantee or attempt to 15 get representation from plants across all sizes, was it? 16 A. No, it wasn't. It was voluntary. 17 Q. And so whereas USDA in prior decisions would have 18 been relying on a report from Dr. Stephenson that was a 19 random sample, this would be a difference if they were 20 going to rely on this one, it wouldn't be exactly the same 21 type of study, would it? 22 A. No, but it skews large. So if anything, it's 23 probably -- if you assume that larger plants have lower 24 costs, it would -- it would skew toward large plants. 25 The average cheddar plant is 3.2 million pounds of 26 milk a day in that -- in that survey. If you look at the 27 total number of plants and the total number of production, 28 that's multiples of what the average cheddar production 4284 1 is, so -- and that was -- that was intentional. We wanted 2 to make very sure and we encouraged our membership to 3 participate. We don't force them. And we don't even know 4 all who did unless they told us because it is private. 5 But we felt it was important that we get the large ones as 6 well because they are a big part of the industry, and they 7 need to be part of the survey. 8 Q. That's a great point you bring up. 9 There was a document introduced and given an 10 exhibit number. We haven't admitted it yet. It was an 11 e-mail from IDFA. 12 Did you happen to be in the room the day that was 13 introduced? 14 A. I was listening in. It was colorful. 15 Q. Okay. 16 A. Which date is that one? Because there was 17 actually three different letters that went out. 18 Q. You want me to get you one? You can look at it? 19 A. I can pull it up on my computer if I need to, but 20 is that the -- just -- is that the one that has the 21 April 14th deadline in it? 22 Q. It is. 23 A. That's the second one. 24 Q. Okay. So for the record, I'm looking at my copy 25 of Exhibit 179. And it -- it basically is an e-mail from 26 Michael Dykes to IDFA's membership, and it's asking them 27 to participate in the study. Correct? 28 A. Yes. 4285 1 Q. And did you receive a copy of this e-mail? 2 MR. ROSENBAUM: Your Honor, if I could, could I 3 just pull out a copy? 4 THE COURT: Yes, I think we should. 5 THE WITNESS: Yes, I was copied on that e-mail. 6 MR. MILTNER: Thanks. 7 BY MR. MILTNER: 8 Q. Did you help draft the e-mail? 9 A. Yes. I helped. I didn't write it, but I did 10 help, yes. I was -- I was the person that worked with 11 Dr. Stephenson. I was the direct liaison to IDFA. It was 12 me. 13 Q. Okay. Was this e-mail sent to all of IDFA's 14 membership? 15 A. It was sent to all membership at this point. All 16 three letters were sent in the time we had not had any 17 change in membership yet. So all co-ops and known co-ops 18 that had manufacturing plants got all three letters. 19 Q. Okay. And I'm not trying to get into -- 20 A. Oh, no, I'm -- 21 Q. -- members -- 22 A. I'm just trying to clarify for you. 23 Q. Yeah. But it went to -- IDFA sent this to all of 24 its members that were members at the time, right? 25 A. It was sent to boards, board members, and it was 26 sent to specific plant people that -- in IDFA's database, 27 we also have plants. And so if people made the four 28 commodities, we just made sure they were copied on the 4286 1 letter to their CEO or whatever their representative was. 2 So in some cases the letter may have -- may have went to 3 two people. Sometimes it went to three. Sometimes it 4 only went to one. 5 Q. Do you know if IDFA sent this e-mail to any other 6 manufacturers that weren't IDFA members? 7 A. We did not. It was pulled out of our own 8 database. 9 Q. And do you know what kind of response rate IDFA 10 had to this letter as far as -- 11 A. I have no idea other than a couple called me who 12 were having trouble getting ahold of Mark, so I -- Mark 13 said, call these people. Otherwise, I don't even know who 14 the final participants were unless they told me, or in 15 this hearing we have heard a couple of people say they 16 were participants. 17 We worked very hard to keep that wall. It was 18 important that we -- that IDFA let mark do his work 19 completely independent. All we did was ask our members to 20 participate. And I believe the cheese makers did the same 21 thing. 22 Q. Do you know how many different plants are 23 represented in IDFA's membership? 24 A. Total plants? 25 Q. Yes. 26 A. I can't share that. I can share you that there's 27 around 45 companies that got this letter. I don't know 28 how many plants that represents. That's -- give or take, 4287 1 that's roughly what it was. 2 Q. And you can't share because you don't know or 3 that's not something you are permitted to share? 4 A. I don't know. 5 Q. Okay. Now, you told your membership with this 6 e-mail that this data was going to be used to create or 7 form a report for the purpose of setting Make Allowances, 8 correct? 9 A. Because we were requested to provide that data. 10 And so we worked hard to get our members to make sure we 11 had a system. When you look at the 2021 results, 12 particularly cheese was very weak. We knew we needed to 13 get larger plants. We needed to get more of them just so 14 that it was more representative of the industry, so -- but 15 the letter went out to everyone. There was no personal 16 selling on calls. It was all by e-mails. People called 17 us and could ask questions, or a lot of them called Mark 18 directly because that's what we preferred that they do. 19 But it was not -- there was no intention to skew 20 anything. If we had, we would have had a lot more small 21 plants than we did. We didn't have a lot of small plants 22 in the survey, just based on the size of the average 23 respondent being 3.2 million pounds of milk a day roughly. 24 Q. I think you said, "we were asked to provide that 25 information." 26 "We" is IDFA? 27 A. IDFA. We were recommended to IDFA, if we are 28 going to hold -- if we are going to request a hearing, do 4288 1 whatever we can to get the very best possible data. And 2 so we -- that's why we worked with Dr. Schiek and why we 3 worked with Dr. Stephenson, because they are the two 4 people in the industry -- Schiek is familiar with 5 California for years, and Stephenson -- because of his 6 expertise in surveys, we went to those two people. Plus 7 USDA was familiar with Mark's survey process, and so we 8 thought it was most suitable to use something that they 9 already had some familiarity with. Plus I'm not sure who 10 else in the industry would do it honestly. 11 Q. Okay. I just want to know, like you said "we were 12 asked." 13 Was that the Department asking IDFA to do that? 14 A. The Department recommended that we do whatever we 15 can to get the best data we can get. And we told them we 16 would likely try to get -- we might try to get another 17 survey, and they didn't say yes or no, but they certainly 18 didn't say, don't waste your time. So we did it. 19 Q. Okay. So you made the decision at IDFA, we need 20 to get some data to support the request we're asking for, 21 but you didn't have to say in this e-mail, this is what 22 we're going to use this data for? You could have simply 23 asked plants to -- we're doing a report with 24 Dr. Stephenson, can you participate? 25 A. If you went to a board meeting, you would kind of 26 know what it was all about. I mean, that topic was -- I 27 mean, and IDFA's structure, you have an economic policy 28 committee where all policy starts, and then it moves to 4289 1 the different boards. And so there was lots of 2 discussion. 3 In fact, the economic policy committee is the one 4 that approved the original Schiek study. And then they 5 also approved an elasticity of milk study. You will hear 6 more about that later. And then the study came out of 7 meetings with USDA wondering if we could get a more robust 8 sample of data. We figure the more information we have to 9 present in the hearing, the more opportunities there are 10 for people to find something they think would be workable. 11 Q. Once it is very clear to a plant what this data is 12 going to be used for, if they believe they have lower 13 costs than the average, what incentive would they have to 14 participate in your study? 15 A. Because they are honest. Because they 16 understand -- a lot of the plants with the lowest costs 17 aren't even regulated. It's not in their best interest to 18 even support this, but they are, because they think it is 19 good for the overall health of the industry. 20 We have very large plants in that study, and the 21 doubling of the average plant size from the last study 22 kind of indicates that. And we explained to them the 23 importance. And we also explained to them that sooner or 24 later this is probably going to be an audited survey, so 25 there's no sense pretending that you can put your head in 26 the sand. Sooner or later you're going to be doing a 27 survey we think when the Farm Bill -- I mean, that 28 discussion was already taking place early in the year. I 4290 1 know last year we had it on audited surveys. 2 So I don't think -- I'm not going to -- I'm 3 offended that you would think our members would cheat. I 4 don't believe that. They all hand it to the accountants 5 to do it, and then they would turn it in. 6 Q. And I -- if you interpreted my question, as 7 accusing anyone of cheating, I think you badly misheard 8 it. 9 A. Well, I think -- I think that you are trying to 10 make that connection. Keep in mind there's seven co-ops 11 in that survey, and it's a huge amount of value. Just 12 because of the products that were surveyed, we know who 13 make them. And they admit -- and they admitted -- they 14 acknowledged that they participated in the survey. So we 15 had a lot of participation, both with current members and 16 quite honestly with some former members that participated 17 in the survey. 18 Q. So changing gears. You mentioned in response to 19 one of my previous questions that you don't believe 20 Dr. Stephenson's 2007 report included California plants, 21 correct? 22 A. I believe it did not. 23 Q. Okay. Did his survey this time around include 24 California plants? 25 A. I believe it does. 26 Q. Do you believe -- 27 A. Yes, I know because Hilmar says they participated. 28 So, yes, it does. 4291 1 Q. Do you believe that there's any risk of 2 overweighting California production if you simply average 3 those two surveys together? 4 A. You could. You could. You would probably also 5 have lower costs, although I have no way to know that. 6 That's speculative. 7 Q. Can I ask some questions about slide 18, please. 8 Now, do you know what AMPI's cost to produce 9 cheese was at the time the Make Allowances were last 10 changed? 11 A. No. 12 Q. Do you know if it was higher or lower than the 13 Make Allowance in the current formulas? 14 A. I do not know that -- all I know is the percent 15 change from that period of time to current. 16 Q. And the same is true for Land O'Lakes and 17 Darigold? 18 A. That is also true. I don't know their numbers. I 19 just know what they -- what they talked about. In the 20 Land O'Lakes, we calculated it based on the data that they 21 provided in their testimony. 22 Q. So within Dr. Stephenson's 2006 report, the 23 average for a low cost cheddar plant was $0.1459. That -- 24 if you increased that by 47%, you would still be only 25 slightly higher than the current Make Allowance, correct? 26 A. Yes. But this is not based on Stephenson's 27 survey. This is based on the Make Allowances that were 28 put in place in 2008. And if it is not labeled that way, 4292 1 that is my mistake. No, I'm saying, because I apologize 2 because it isn't quite clear. 3 Q. Okay. 4 A. Yeah. And we use -- on most of our comparisons we 5 use the adopted Make Allowances because we thought that 6 was most appropriate because that's what they have been 7 using for regulation since 2008. 8 Q. I guess the point is that you don't know if you 9 take whatever the base cost of manufacturing for these 10 three entities was in 2008 and increase them by the 11 percentage of their overall increase, you don't know what 12 their cost is today, yet, do you? 13 A. No. You just know it went up. It is all 14 percents. As you know, people were very careful of not 15 sharing actual cost data for the most port. 16 Q. And you don't know whether that increased number 17 more closely aligns with Proposal 7 or Proposal 8, 18 correct? 19 A. Proposal 7 and 8 are the same. 20 Q. I'm sorry, am I getting -- 21 A. 8 and 9 -- yeah, I guess you are right, 7 and 8. 22 We -- we don't. But where's the data behind the 23 National Milk proposal other than they got in a room and 24 discussed it? That's about right. We haven't seen any 25 documentation. We have tried to do that. So I'm -- I -- 26 I don't know that. 27 On the other hand, both -- both -- both -- all 28 three of the plants listed on that form have publicly 4293 1 acknowledged they participated in the surveys, all three 2 of those cooperatives, so we know that they're in it. I 3 don't know who they are or where they are, but I know that 4 they're all in the survey. 5 Q. And you don't know where they fall within the 6 stratification -- 7 A. No, I don't. 8 Q. -- of Dr. Stephenson's results? 9 A. No. No. I'm not supposed to know that, so I 10 don't know it. 11 Q. On slide 19, are these actually Land O'Lakes' 12 costs you represent here? 13 A. They listed the Stephenson costs. They listed the 14 percent over Stephenson. And with those two pieces of 15 information, you -- since we have the Stephenson cost, you 16 can calculate what that actual amount was. So that's what 17 we did. And they put all other costs together in that -- 18 what is called all other costs. And they assigned that 19 equally across all milk solids, both fat, protein, and 20 other solids. 21 Q. And the -- but there are still some holes in 22 getting to the precise figure because of that blending of 23 both the products and all other costs, right? 24 A. Well, if you assume those all other costs -- keep 25 in mind what Mark said about his survey, is he didn't have 26 detail on certain costs. What he did is he would -- he 27 would -- he would -- he would blend average them. 28 So on a hundredweight basis or on an average cost 4294 1 for butter and powder, we're confident these numbers 2 are -- are actually quite accurate. Because you take the 3 two costs they have defined, and then you add the $0.10 or 4 I guess it was $0.11 addition on all other costs. And on 5 powder, you take those processing, labor, and utility 6 costs, you add that same other cost, which they spread 7 equally across all product, to come up with a number. 8 And the price at the bottom is an aggregate 9 because we don't know -- I didn't want to assume either, 10 you know -- I had to assume that the $0.1009 was across 11 all. So I really wanted to look at it on a hundredweight 12 average cost basis change, and to do that I used Federal 13 Order yields on butter and on powder and came up with a -- 14 came up with an aggregate change. That's how that was 15 calculated. 16 And I'll be honest with you, it was bigger than I 17 thought it was going to be, too, and I worked on it for 18 about 45 minutes to make sure it was right because that 19 seems high. But it is not inconsistent with, for example, 20 what Darigold had offered, so we just -- we -- were pretty 21 confident that it is in the range of being right. 22 And Land O'Lakes had two plants in the survey. 23 They had Carlisle, Pennsylvania, and Tulare, California, 24 which he -- which Christian acknowledged. So I just -- I 25 just kept that in math. It's more about the overall cost 26 change than it is the actual number of cost, and that's 27 the whole idea of this exercise, that they are -- and if 28 you are efficient, which I assume they are, it's still a 4295 1 big change. 2 Q. Is it your testimony that there is currently a 3 lack of an appropriate financial incentive to reinvest, 4 expand or build new plants? 5 A. Overall, yes. 6 Q. And that's your testimony despite the evidence 7 that Glanbia has recently entered into -- or opened a 8 joint venture plant at a cost of $450 million plus? 9 That's still your conclusion? 10 A. Yes. 11 Q. And despite -- 12 A. You don't -- you can't assume that plants are 13 buying milk on Class III. James made that very clear in 14 his testimony. 15 Q. And -- 16 A. Because those plants aren't pooled, so there's 17 lots of flexibility. 18 Q. And he also said we're not going to talk about 19 specific business agreements -- 20 A. Right. 21 Q. -- and I will honor that. 22 A. Yep. I just quoted him, by the way, on the plants 23 aren't pooled, he said that. 24 Q. But as far as that you can't say that they are 25 buying above or below Class III? 26 A. I don't know that. I just know that there's a lot 27 of flexibility. He did say that, those contracts are 28 flexible. They have to be, because you got to make a 4296 1 plant pay for itself. 2 Q. You have not seen those contracts, have you? 3 A. Oh, no. Of course not. 4 Q. The -- 5 A. I didn't see them when I worked there. They keep 6 those pretty private. 7 Q. And that's still your testimony even though 8 Hilmar's doing a $600 million plant? 9 A. Yep. And what did they talk about pooling? What 10 did they say? They said they had no plans at this time to 11 pool, that they worked out contracts with producers in 12 order to make the plant work, and if they'd had any idea 13 what was going to happen with inflation in the last two 14 years, they wouldn't have built it. That all came out of 15 Wes's testimony. 16 Q. And you don't know their milk contract either, do 17 you? 18 A. No. No. Of course not. 19 Q. And despite Saputo's testimony about installing 20 two and a half million dollar water polishers across its 21 facility, that is still your conclusion? 22 A. That's a sustainability, environmental, and maybe 23 even a regulatory issue if they are dealing with a lot of 24 BOD in water that made them have to do that. I mean, a 25 lot of times water cleansing is more -- I had that 26 experience with Kroger. Michigan -- Detroit has very high 27 BOD costs in their waste treatment system, so you could do 28 things that seem crazy, and in the end, it still saves you 4297 1 money. And I can't speculate that's why they did that, 2 but I know that's often the case when you put in 3 clarifiers. 4 Q. And the testimony from Leprino about a $1 billion 5 new plant, you still conclude that there's not enough 6 incentive, economic incentive, to expand or build new 7 plants? 8 A. Again, I don't know the -- I don't know the 9 details of that -- of that arrangement, so I can't -- I 10 can't speak to that. But contracts have got very -- 11 again, when a plant is not pooled, and none of those 12 plants are pooled, there's a lot more flexibility in how 13 you negotiate the price of milk. 14 Q. Because, again, no Class III plant is required to 15 pool, correct? 16 A. That is correct. So we give them a competitive 17 advantage over those who need to for competitive reasons 18 or there are supply contracts for fluid milk who have to, 19 to some degree, pool plants. 20 You brought up what I think is a really important 21 point, is that do we want to give manufacturing to 22 unregulated areas, just let them have all of it because 23 it's so difficult to compete when you're regulated? 24 Because we're reaching that point. 25 Q. Are any of the plants I just asked you about in an 26 unregulated area? 27 A. No, but are they regulated? Are they regulated? 28 It is not just where they are located, it's whether or not 4298 1 they participate in the regulations. 2 Q. That ability to participate or not participate in 3 the regulations hasn't changed in how -- ever? 4 A. Right. We're seeing these massive plants built 5 where they don't have to participate in regulation. You 6 still see some growth in other markets. I won't argue 7 with that. But the big growth is in these unregulated 8 markets. And to me, as a buyer of a lot of cheese at 9 Kroger, it disturbs me -- I -- I -- I like to buy from a 10 broad -- we like to buy from a broad group of suppliers, 11 and it is becoming more and more difficult for 12 profitability, particularly in the Midwest and Northeast, 13 with current regulations. 14 I mean to say that we have gone 15 years without a 15 change in make, that there isn't a need for it, is just 16 hard to believe. And it is evident. I mean, we have -- 17 almost every cooperative of any size has limits on milk 18 production. And that is long-term very, very damaging. 19 Some -- some are doing better than others; some have -- 20 some farmers can sell base to others, and that seems to 21 work a little better. But in a lot of cases you are kind 22 of trapped. If you want to compete with where there 23 aren't those limitations, with larger herds that can grow 24 and spread those fixed costs further, it's difficult to 25 do. Very, very hard to do. 26 So this whole thing about economic harm to farmers 27 isn't just price. And, again, most of the price of milk 28 has nothing to do with the Make Allowance. It's got to do 4299 1 with the price of the commodities. It's got to do with 2 the access to market and the ability to grow. Terry 3 Brockman from Saputo said that. The biggest question he 4 gets isn't price, it's, "Can I sell you more milk?" 5 And so what do we do to make sure that that can 6 happen for dairymen that want to sell more milk, that they 7 have a place to send milk? 8 And there's dumping, but dumping is a small part 9 of it. The supply, the quotas or whatever you want to 10 call them, is -- base/excess programs are restricting 11 ability to grow. And we all know in our incredibly world, 12 at some point, you have to specialize or grow, because if 13 you are -- if you are good at what you do, but you can't 14 capitalize on that talent and grow your business, you'll 15 have a hard time. I mean, you certainly work for a co-op 16 that's probably the best at that of any. And you can't 17 ignore that. That's a big part of the -- of the whole 18 equation is availability of market, not just what's the 19 Make Allowance. 20 Q. That was my last question. And when we get the 21 transcript, I'm very interested to look and see how long 22 the answer was to a yes/no question. 23 A. Well, if you ask a yes/no that can't be answered 24 with a yes/no, you're not going to get a yes/no. You know 25 me better than that. 26 Q. That is not a criticism. I'm just interested in 27 seeing it. 28 MR. MILTNER: Thank you, Mr. Brown. 4300 1 THE WITNESS: Thank you. 2 THE COURT: Further questions of this witness, 3 other than AMS? 4 Ms. Hancock. 5 THE WITNESS: Good morning. 6 CROSS-EXAMINATION 7 BY MS. HANCOCK: 8 Q. Good morning. 9 Okay. I want to -- I'm just going to first touch 10 on your written testimony in Exhibit 214. You start off 11 by providing some calculations, I think a basic product 12 price formula calculation and how Make Allowance works. 13 That's just for the historical perspective; is that -- 14 A. Yeah, it's just -- it's more demonstrative than 15 anything. It's not -- 16 (Court Reporter clarification.) 17 BY MS. HANCOCK: 18 Q. I think the last part of my question was, you were 19 just providing that for the historical perspective, an 20 explanation of how it worked? 21 A. Yes. That's all that was. 22 Q. Okay. And then similarly, in the presentation 23 that you put together to summarize your testimony, the 24 presentation as Exhibit 215, the first third or so of 25 that, you were just providing some historical context of 26 regulatory rulings, and what we heard with Mr. Miltner was 27 some district court briefing and some other historical 28 anecdotes? 4301 1 A. That is correct. 2 Q. And you would agree with me that to the extent 3 that there is a historical precedent that's been set, that 4 that's what the attorneys will cover in the briefing that 5 will be submitted after the hearing to USDA; is that fair? 6 A. What we want to make sure is our -- our views were 7 covered. So we include them in the testimony, yes. 8 Q. Yes. 9 A. Yes, they certainly have that -- I don't know that 10 they have that opportunity. I'm not a lawyer. But if 11 they do, then I expect that they will. 12 Q. Okay. And you would agree, though, that to the 13 extent that any of that prior briefing in district court 14 challenges that were made to prior hearings or recommended 15 decisions or any of the recommended decisions or final 16 decisions, that those should be taken into context based 17 on the time period that those issues were being addressed? 18 A. Not always, because there have been long set 19 precedents. I mean, I think the best example we saw that 20 was with the California new order, because there was a lot 21 of proposals that were outside of precedence, for example, 22 on pooling is probably the best example. And USDA stayed 23 consistent with their current rules on pooling in markets 24 that are similar. 25 So I do think that they do look at that, and so I 26 do think it -- we think that should be part of their 27 decision-making. Again, they -- they have the right to do 28 what the Secretary thinks is best. We do think that those 4302 1 precedents are an important reminder of what they -- how 2 they have looked at things in the past. Yes, I know they 3 know that, but I also know that we need to make sure 4 everyone knows that. And you'll have a chance to comment 5 on that, of course, when you brief. 6 Q. Right. And I was just -- I was just trying to say 7 that those were opinions or decisions or arguments that 8 were made based on the information that everybody had in 9 the moment that they were made; is that fair? 10 A. That is true. Yes. 11 Q. And, for example, in the federal reform hearing 12 and then recommended decision and final decision, that -- 13 you understand that the point of that was to update the 14 system to best reflect the market conditions at the time? 15 A. I was very, very much involved with that. Yes, 16 you are correct. 17 Q. Okay. And then similarly, where we are today, 18 which is essentially a modernization hearing, what we're 19 here to do is make sure that -- that any pricing formulas 20 that are set are modernized to reflect the current market 21 conditions; is that fair? 22 A. No. I will not use the word modernize. We can 23 use the word update, adapt. I think there's a lot of 24 argument that some of the proposals actually are the 25 opposite of modernization, so I will not use that term. 26 Q. Okay. 27 A. Certainly we have lots of opportunities to make 28 changes, and we're going to -- we're all getting a good 4303 1 chance to discuss them for six weeks in Indiana. 2 Q. Okay. So you would rather use a word like update 3 rather than modernize to accurately reflect -- 4 A. Right. 5 Q. -- what we're doing today? 6 A. And I have been saying that from the beginning 7 because modernization is very -- it's very -- that's an 8 opinion. 9 Q. Okay. More -- more subjective? 10 A. Yes, it's more subjective. Updates, which can 11 mean modernization, it can mean other things, I think is 12 probably a better term for my personal comfort level. 13 Q. Okay. Do you think that we should be modernizing 14 the proposal? 15 A. I think we are offering to modernize the proposal. 16 I don't think all proposals actually modernize it. 17 Q. Okay. So you agree that, in your opinion, that -- 18 that this -- the outcome of this hearing would be best 19 reflected to modernize what currently exists? 20 A. Within the realm of the proposals, yes. 21 Q. Okay. And then your presentation after you have 22 gone through the historical information goes into your 23 summarizing Dr. Stephenson and Dr. Schiek's analysis and 24 why you believe that of all the data points that are in 25 the record, that these are the best ones to use for 26 setting Make Allowances? 27 A. Yes. We -- we, early on, made a commitment to use 28 research-based information. We thought that it was 4304 1 important that we use stuff that there's a research record 2 or an explanation or, you know, an understanding of the 3 process how it was done. And so we made that commitment. 4 We made the commitment no matter what studies showed that 5 we were going to do that. We just felt that that was -- 6 you lose credibility. We were concerned we would lose 7 credibility if we didn't use data that was -- you know, we 8 thought was well reasoned and every effort was made to 9 make accurate. 10 Q. And you have been working on this for years, 11 haven't you? 12 A. On? 13 Q. On updating or -- 14 A. Oh, gosh -- 15 Q. -- modernizing Make Allowances? 16 A. -- yes. Yes, since the '90s. 17 Q. Okay. But most recently, for this hearing in 18 particular, you have been working on it for more than two 19 years; is that accurate? 20 A. Yeah. But in different roles because I was with 21 Kroger until January. 22 Q. Okay. And so what hat, what role were you wearing 23 when you were with Kroger? 24 A. Director of dairy supply chain. 25 Q. And how did that differ than the hat or role that 26 you are performing today? 27 A. I didn't have to spend 110% of my time on policy. 28 I kind of like negotiating and working on risk management. 4305 1 And I've got lost of friends I worked with in this room 2 actually right now on different projects. 3 So this is a policy role. I was very, very 4 involved with Federal Order Reform back in 2000, 5 particularly some of the formulas, so I have a lot of 6 familiarity with it. And I've worked with most -- every 7 proponent or opponent on every proposal here in some way, 8 shape, or form in my career. It was -- I was not planning 9 to take this job when I left Kroger. I was planning to do 10 a little consulting and not work quite so hard. That 11 hasn't happened yet. But I thought it was a -- it was an 12 opportunity to try to work to make the system more 13 sustainable. In the long run that worked better. That 14 was my view. 15 Q. And remind me again when you joined IDFA on a 16 policy -- 17 A. Last week of January. 18 Q. I'm sorry? 19 A. Last week of January. 20 Q. Of which year? 21 A. This year. 22 Q. Okay. 23 A. I took -- I took six hours off between jobs. 24 Q. Okay. 25 A. Not -- not smart. I don't recommend it, but 26 that's what I did. 27 Q. The last week of January of 2022 or 2023? 28 A. 2023. I've been with Kroger for -- this makes 4306 1 nine months. End of this month will be nine months. But 2 I have worked with them for years as a member. 3 Q. So prior to you taking the new role and then 4 throughout your current role, you had been working on the 5 Make Allowance for the last two years? 6 A. Yeah, we -- I led the economic policy committee at 7 IDFA, so we were basically in discovery mode. But, yes. 8 We did -- no decisions were made, but we tried to -- 9 again, trying to assemble information so we could make 10 what we thought would be the best decision based on the 11 best available information. You know, nothing new was out 12 there, so we decided we needed to try to figure out ways 13 to find updated information. Particularly, with Mark's 14 survey in 2021, cheese was very weak as far as -- and we 15 needed to have more cheese plants participate, because it 16 was only 16% of production, and we didn't feel that was 17 enough to be a good sample. 18 Q. Okay. And so you said that you were committed 19 to -- to making an adjustment no matter what the results 20 revealed; is that -- 21 A. No. We needed to -- if the results had said that 22 what we have now is fine, we would have done nothing. 23 Q. Right. But you weren't -- 24 A. But it didn't. 25 Q. You weren't selecting an end and trying to work 26 backwards from there. You were saying whatever the 27 results reveal is what we will -- what we will proceed 28 with? 4307 1 A. Yes. And we felt that that was the only honest 2 way to approach it. 3 Q. And -- and along the way, you had Dr. Stephenson's 4 2021 survey results that came out? 5 A. Right. 6 Q. And at that time, you were working, even 7 collectively or collaboratively, with National Milk as 8 well on looking at what -- what updates could be made to 9 the Make Allowance -- 10 A. Yeah. 11 Q. -- is that fair? 12 A. That was true. Yes, at that point it certainly 13 was true. 14 Q. And in fact, you were -- did you serve on the 15 National Milk task force as well or participate with the 16 task force in the work that they were doing? 17 A. Which one? 18 Q. National Milk's task force? 19 A. No, not -- we had a -- you know, National Milk, it 20 still does, more then, has a lot of members of IDFA, and 21 so they were -- both co-ops were involved in those 22 discussions. And there was an attempt made to work closer 23 with National Milk in the spring of '22. Unfortunately 24 that never really happened. It is unfortunate, but it 25 didn't. And I understand, people have to do what they 26 think is best. But we didn't do that. 27 Q. It did happen, right? You just didn't reach an 28 agreement on a number; is that fair? 4308 1 A. No, we didn't really work trying to come up with 2 what proposal should be. There was no direct work. 3 National Milk did share with me personally some of the 4 work they were doing, and were very generous with that, 5 and, again -- but as far as knowing where they were going 6 to go policy direction, we found that out in October like 7 everybody else did. 8 Q. Okay. When you said they were generous with 9 sharing the work that they were doing, what kind of 10 information did they share with you? 11 A. Just some of the economic background and some of 12 the different proposals before they were proposals. 13 Q. Okay. Some of the economic analysis that National 14 Milk was performing to -- to evaluate Make Allowances? 15 A. Yes, before they made any decisions, that is 16 correct. 17 Q. And including the fact that they had -- 18 A. Well, not so much make. No, they didn't -- I 19 didn't see any research on make. I saw it more on 20 differentials, skim calculations. Not on make. I never 21 saw any information from National Milk on makes. 22 Q. Did you talk with them about their economic 23 analysis on Make Allowances? 24 A. No. Because we -- we thought we were all still 25 working together when they came out with a proposal. 26 Quite honestly, we were surprised. 27 Q. When they came out with a proposal in October? 28 A. October of last year, yes. 4309 1 Q. Okay. And at the point had IDFA already submitted 2 its request for a hearing? 3 A. Oh, heavens, no. 4 Q. Or submitted its position on its proposal with the 5 Dr. Stephenson survey? 6 A. No, we hadn't even decided to do the Stephenson 7 survey yet. We had some conversations with regulators, 8 came to the conclusion we needed to have an updated, 9 broader survey, so we decided to work to get that 10 accomplished. 11 Q. And one of the reasons that IDFA decided that it 12 wanted to have an updated Stephenson survey was because it 13 had some concerns with the numbers that it saw out of the 14 2021 Stephenson survey; is that right? 15 A. Yeah. We didn't think -- participation just 16 simply wasn't even, and we needed to have a better 17 representation, of particularly cheese and whey. 18 Q. Okay. And then did you have some concerns with 19 the numbers that came in on butter? 20 A. On Mark's new survey? 21 Q. From 2021. 22 A. 2021, yes. And that's where a lot of our members, 23 co-op and non-co-op, said we need to go back to allocating 24 across on a solids basis for fixed costs. 25 Q. Because -- 26 A. Which is why that was the request for the new 27 survey. 28 Q. Because Dr. Stephenson's 2021 survey revealed that 4310 1 the Make Allowance would actually go down for butter? 2 A. But it would take powder almost to $0.30. 3 Q. You have to answer the first question that I 4 asked, though. 5 A. It did lower it, yes. 6 Q. Okay. 7 A. To the surprise of everyone, I think. 8 Q. Okay. 9 A. Including butter/powder operators based on my 10 conversations. 11 Q. So in that example, IDFA did not want to take 12 Dr. Stephenson's number at face value but wanted to redo 13 the survey to make sure that the survey results were 14 updated in 2023? 15 A. Two reasons -- well, several. One is we needed to 16 have stronger participation on the whey side, particularly 17 on the cheese side. We were very pleased to see the 18 average cheese plant survey size double, which we thought 19 was an indication we got a broad spectrum of plants. 20 On the butter/powder, both co-ops and non-co-ops 21 expressed concerns over the non-traditional way of 22 allocating figured costs. So at their -- I won't say 23 insistence, but their recommendation, if you're going to 24 update it, let's go back to the old method so that we 25 can -- it's a little more apples and apples than what we 26 had with Mark's new allocations. And that's why we 27 specifically asked he go back to that. And he had done it 28 before, so it wasn't particularly difficult for him to do 4311 1 that. 2 Q. And you were more comfortable with the second 3 survey results than you were with the first; is that 4 right? 5 A. That is true. 6 Q. And do you believe -- and those survey results 7 were taken based on costs that were incurred in calendar 8 year 2022? 9 A. Yeah. There's a couple plants that were fiscal 10 2022, but most of them were calendar. They're all -- 11 whatever the business year was for the participants, 12 that's what Mark said. 13 Q. Okay. So either calendar year 2022 or fiscal 14 year -- 15 A. Yes -- 16 Q. -- 2022? 17 A. -- which is the plus or minus off of '22 average. 18 Q. And that was at the discretion of the plant? 19 A. Or the companies, yes, whatever they wanted to 20 use. We asked them to be consistent across all plants 21 within the organization. So, again, the allocation of 22 costs, you can do it right. But as you can imagine, most 23 companies have annual records on -- on that kind of 24 information. It's much easier to access than to comprise 25 a year that's part of the two fiscal years, so we gave 26 people that option. 27 Q. And -- 28 A. And that was true in his other studies too, by the 4312 1 way. That's not just this last one. 2 Q. Okay. So that methodology didn't change? 3 A. No. No. Annual years -- if you are going to make 4 your accountants dig up a lot of data, for heavens sakes, 5 don't make it harder than it has to be for them, because 6 they already had it -- most of them had it already 7 compiled. 8 Q. And you understand that in Dr. Stephenson's cost 9 allocation, that he's included a return on the investment 10 for those processing products -- 11 A. Yes. 12 Q. -- that's built into each one of his cost 13 allocations? 14 A. Yes. 15 Q. So if -- if a processor were to sell their product 16 of cheese, for example, at the cost -- or at the price 17 that the USDA sets, and its costs came in exactly as 18 Mr. Stephenson -- or whatever the final number was 19 forecasted, and then they pay their dairy processors based 20 on that, that would necessarily have embedded within that 21 a profit margin? 22 A. Is there a problem with that? 23 Q. I'm just asking -- 24 A. If you have -- 25 Q. -- if that's your understanding of -- 26 A. That is my understanding. Yes, that's pretty 27 classic allocation. You have to basically put an 28 alternate value or an opportunity cost on that investment 4313 1 and that asset. That's my experience. Very common. 2 Q. And I'm just asking this based on your historical 3 perspective and overview because you provided some 4 calculations in here. So I just want to make sure that 5 when you do your calculations in your testimony, that I'm 6 understanding what that includes. 7 A. Very fair. 8 Q. Okay. And so if a processor, for example, were 9 able to sell their cheese, in this example, at a price 10 higher than what USDA had set, that would be an additional 11 opportunity for an additional profit? 12 A. Assuming that the manufacturing costs were 13 consummate to allow for a greater margin, yes. 14 Q. Everything else is still the same as my first 15 example. 16 A. Then they would be as long as it isn't surveyed, 17 because if it's surveyed, it will end up in that NDPSR 18 price. 19 Q. Well, I mean, but that -- how long does it take 20 for the survey to end up in the price? 21 A. Two weeks. 22 Q. So -- 23 A. Most cheeses -- I'll use cheese since I'm most 24 familiar with. Most cheese is sold on previous week CME. 25 Some isn't. Some is priced off of Class III. Some is 26 priced -- cream cheese is a really weird formula. But 27 basically it is generally if you -- it's generally a two, 28 two-and-a-half week lag. And if you look -- if you look 4314 1 at, for example, you look at NDPSR prices compared to CME 2 prices, particularly for butter and block and barrel 3 cheese, that lag is very, very predictable because it's 4 reporting. USDA bases its price on sale date, and sale 5 date is generally based on a previous week average. And 6 it can -- I think it's even delivery with USDA, so it 7 probably adds another week. So there's usually a two- to 8 three-week -- they follow each other very well, but 9 there's definitely a lag with those products. And it's 10 becoming more that way. We have nonfat dry milk too. But 11 that is a newer market. It hasn't been as robust as 12 butter and cheese because they have been around, I think 13 longer than me. They have been around a long time, so -- 14 Q. So at the strike price, at least, that lag hasn't 15 yet caught up; is that right? 16 A. No, it's two to three weeks. 17 Q. Okay. So if they sell at higher than the cheese 18 price, that's another opportunity for a profit? 19 A. Unless the market's going down, and then the other 20 thing happens. It averages out over time, but it is 21 painful. You say it is great when -- it's great when the 22 market's going up; it is painful when the market is 23 dropping, because of that lag, and you are paying off the 24 lag price. 25 Q. And if a plant is able to process more 26 efficiently, or deadly efficiently as I have really come 27 to enjoy -- 28 A. You know -- 4315 1 Q. -- that's another opportunity for a processor to 2 build in a profit opportunity? 3 A. No different than a dairyman. Some dairymen have 4 lower production costs than others. It's -- I see no 5 difference. No -- no two plants are the same, no two 6 farms are the same. Those who are the best at making 7 quality products at the lowest cost, regardless of 8 regulation, will be around over the long-term because they 9 have the most ability to generate a margin that allows 10 them to grow. 11 Q. Okay. So is the answer yes, that the -- if they 12 can -- if a processor can beat the Make Allowance, then 13 that's another opportunity to find or build profit into -- 14 into their calculations? 15 A. If they are the half that's lower, yes. 16 Q. Okay. And then you said that's no different than 17 a producer, if they can build efficiencies into their 18 process, they might be able to find some profit margins in 19 there as well; is that fair? 20 A. As we all know, they work very, very hard to do 21 that. 22 Q. Yeah. And we have heard some other testimony in 23 this hearing that the larger the herd, the more 24 efficiencies that a dairy producer can build in -- into 25 their profit margin calculations. Would you agree that's 26 your experience as well? In your observations of the 27 industry? 28 A. I didn't quite get the question. 4316 1 Q. Yeah. Just that the larger -- the larger the herd 2 or the larger the dairy farm, the more opportunities they 3 have to be efficient and have a higher profit margin? 4 A. Generally that is true, yes. 5 Q. So the smaller dairy farmers tend to be the ones 6 that have the thinnest margins or the most difficult time 7 building those efficiencies into their process? 8 A. It really varies. From my personal experience, it 9 really does vary. One of the challenges you have with 10 small dairies, even if your margin per unit of milk is 11 high, based on your size and just the cost of living, do 12 you generate enough margin to support that family, even 13 though the herd itself may be fairly profitable. So it 14 really varies. 15 But if you just look at herd size over time and 16 how it has grown, that's telling us that the -- obviously 17 the big herds seem to be the ones that are -- are doing 18 better because they -- herd size continues to grow. Which 19 makes perfect sense, just hopefully get better 20 efficiencies out of the equipment and labor and everything 21 else. 22 Q. And so you would agree with me, then, that those 23 that are most susceptible to the pressures of 24 Make Allowances being increased are those smaller dairy 25 farmers who might have the thinner margins and not as big 26 of efficiencies? 27 A. Well, if they are on a base/excess program like 28 most of the country, they don't have a chance to grow if 4317 1 they want to. So I don't think that's -- you can't look 2 at half that question. You simply can't. 3 Q. Yeah. Is it -- I'm just asking you about that 4 example. 5 A. I know you are, but you are trying to get me to 6 say a certain answer, aren't you? I mean, the way I look 7 at it is the -- a farmer or producer -- Federal Order 8 term -- a producer has, I mean, they're -- if they are 9 selling milk more proprietary, they are guaranteed a 10 minimum price based on their component levels in the 11 market they are in, and all those other things. And it is 12 the same price whether you have 10,000 cows or you have a 13 hundred cows. There's no discrimination on size or 14 advantage to size as far as regulated minimum price. 15 And so they will have those struggles regardless. 16 And as far as whether that Make Allowance hurts their 17 price, it depends if they own their cooperative, if they 18 are a cooperative member, owns their manufacturing assets. 19 They only have so much money to pay. That's where we see 20 these mailbox prices. It's very discouraging. They get 21 harder. And if you are not a co-op -- I mean, if they are 22 a co-op and they are selling to someone who sells on a 23 regulated price, those plants sometimes grow, but not as 24 consistently. 25 So it's -- it's unfortunately more complex than I 26 wish it was. And, you know, I was raised on one of those 27 little farms, and I wish they were all still there. But 28 it's getting tougher and tougher. 4318 1 I think -- and I'll go back to Idaho. There was a 2 lot of small farms in Idaho at one time, and the order 3 didn't matter then. It was just a function of efficiency. 4 And you got bright kids, and they decide to be lawyers or 5 I guess cheese makers or whatever they decide to be. It 6 is just more difficult. And with or without regulations, 7 unfortunately our small dairymen, unless they've got some 8 kind of specialty market or they worked out some kind of 9 arrangement, it is very hard. And it is unfortunate, but 10 it is very hard. 11 Q. It's been a long time since we have had small 12 dairy farms in Idaho. 13 A. Yeah, I know. When I went to Glanbia, there was a 14 few. They are pretty much all gone now. 15 Q. Did you hear the testimony from some of the 16 processors like Glanbia and Leprino that said that it -- 17 it's been the last four -- four -- four-ish years or at 18 least since the pandemic since they haven't been able to 19 beat those Make Allowances? 20 A. Yeah. And they are -- they are -- I would assume 21 they are all probably low cost operators. The way they 22 have grown, you would assume that they are. And so they 23 are low cost operators and can't meet the make in the last 24 three or four years. It doesn't surprise me. The smaller 25 ones, it's probably been a little longer. The very 26 biggest, that would be the time. But we've had, as we all 27 know, remarkable inflation in the last two and a half 28 years. So it had a big effect. 4319 1 Q. Does that indicate that Make Allowances that were 2 last updated -- what, was it 15 years ago? 3 A. Yes. 2008. 4 Q. Does that indicate then that if they were able to 5 beat them for 11 of those 15 years, that 15 years ago 6 Make Allowances were set too high? 7 A. No. Because you are talking about four of the 8 most efficient dairy companies probably in the world. 9 That's not your weighted average cost. It's the smaller 10 ones that have really struggled. And a lot of them aren't 11 tiny. They may be 3 or 4 million pounds of milk a day, 12 but they have really struggled. And they kind of hobbled 13 along. 14 And, again, I think the data that James DeJong 15 did -- and I'm glad he did it so I didn't have to -- on 16 the -- when you look at the -- the mailbox versus 17 regulated minimum -- or announced price, and 18 unfortunately, the negative, you can't explain those kind 19 of differences away on hauling. They are much bigger than 20 that. And that just means there's less money to go 21 around. 22 And the system doesn't function if -- if it 23 basically doesn't let competition have some room -- just 24 like the farms -- some room and who -- who is in business 25 in ten years and who is not. 26 So it isn't, sadly, that simple. And very 27 large -- I would expect very large companies to have lower 28 manufacturing costs. I would hope when I was at Kroger I 4320 1 was a better negotiator because of the volume we had, and 2 they never fired me, so we must have done okay. 3 But the point is, is that you are always going to 4 have differences in business with or without regulation, 5 and you have to expect that. And we have some extremely 6 efficient private cheese companies. We have some 7 extremely efficient block producers as well. 8 Q. You were talking with Mr. Miltner about the change 9 from NASS to NDPSR. And I think you said that when NDPSR, 10 they took -- took over, we got better data because the 11 auditors knew what they were doing? 12 A. They got consistent direction. Under NASS -- 13 because I was at Glanbia when NDPSR started. Under NASS, 14 it was run by the states, and every state kind of 15 interpreted things a little differently, and so it 16 resulted in not consistent reporting. 17 When USDA took that over, I mean, they have had -- 18 they know audits. They have been doing them for decades 19 and decades and decades. And so it wasn't malicious 20 perhaps -- I'll give you a real simple example. One 21 cheese plant was reporting white block cheddar because 22 they make yellow and while block. You are not supposed to 23 report whites. So they said, oops, we're sorry, and they 24 quit reporting the whites, just as -- a very simple 25 example of a thing that USDA caught that they had been 26 doing incorrectly for at least ten years. 27 So it's -- it -- maybe not -- yeah, close to ten, 28 maybe eight. 4321 1 Anyway, the -- they just made it far more 2 consistent, which is something USDA's Dairy Division is 3 very good at, trying to be consistent across their 4 procedures, and it just made the data better. 5 I don't know how many audits there is as far as 6 people not reporting, or it was more, a little fine things 7 on the edge where, that no one had ever told them not to 8 report that, and so they reported it, or they weren't 9 reporting something they should. 10 Another thing I saw was on fresh cheese, very 11 fresh cheese, some -- particularly barrels, some 12 processors bought barrels that are two or three days old, 13 and they were being reported rule five. So that was 14 cheese that was no longer -- 15 Q. They were being reported -- I missed the last 16 of -- 17 A. They were reporting cheese that was just two -- it 18 was delivered very fresh. Barrels, fresh, have a 19 different functionality than barrels that are two months 20 old. And they both are important, but you kind of blend 21 them. And they weren't -- they were less than the five 22 days I believe it is on barrels. So it shouldn't have 23 been reported, although it was, you know, being sold to 24 the same customer that was buying stuff that was reported. 25 So, again, just trying to make sure everything is 26 consistent because that's the only way you get comparable 27 data is to have consistent rules on what you report. 28 Q. And I think you started off by saying one of the 4322 1 differences in the way that NASS collected and reported 2 the data compared to NDPSR, that it wasn't maliciously 3 motivated, but that it was just better methodology for 4 collection. 5 A. Yes. I believe that is the case. And just you 6 had -- the auditor staff had -- they had consistent 7 training, because it's a federal program rather than a 8 local program. So people were given the same -- basically 9 the same tool kit to do their job, which I think made it 10 work a whole lot better. 11 In my experience, the industry confidence went up 12 a lot in NDPSR when it -- with AMS because they knew the 13 rules were -- everybody was following the same rules. 14 Even plants would say, well, they are not reporting. 15 Well, you know, if they weren't or they were doing it 16 wrong, it got corrected. So it just made the system work 17 better. Put a lot more confidence in those numbers. 18 Q. Why did it matter if the industry had confidence 19 in the numbers? 20 A. Well, why wouldn't it? If you feel that -- if you 21 are going to be regulated, don't you want to make sure it 22 is based on fair data? I mean -- and that was it. You 23 want to make sure it was fair. 24 And, again, I don't think -- there were some 25 issues, I think, with reporting, the states, that may have 26 been more onerous than others. But a lot of them were 27 just really simple like I just described, and they were 28 generally not large volumes of product. But if you are 4323 1 going to record it, do it right because, you know, there's 2 a lots of dollars depending on those numbers being 3 accurate. 4 Q. And do you agree that for Make Allowances, if you 5 are going to record it and audit it -- or if you are going 6 to record it and survey it, that we should do it right? 7 A. We need to use our best available data. I think 8 Farm Bureau, National Milk, and IDFA are all working on 9 legislative language to give USDA the opportunity to do 10 that. But if we're going to be 2008 to 2010 before we 11 have something we can use, that's way too long. 12 Q. How long did take Dr. Stephenson to do the survey 13 the IDFA commissioned? 14 A. He started it in February; he finished it the end 15 of May. 16 Q. Okay. And I think when you were talking with 17 Mr. Miltner, it was Exhibit 179 about the e-mail that was 18 sent out to the members. 19 Do you recall that? 20 A. Oh, yes. 21 Q. And you said at the time that it was sent out you 22 didn't know if it was the membership that existed at the 23 time or the membership -- 24 A. No, I did know. It went to everyone that was a 25 member, and we hadn't had any change yet, so everyone. 26 Q. Let me finish my question because it might clarify 27 where -- 28 A. All right. 4324 1 Q. -- I'm going with it. 2 In Exhibit -- 3 A. I apologize. 4 Q. That's okay. 5 In Exhibit -- this is just an awkward conversation 6 when it's so compartmentalized. 7 But in Exhibit 179, when you were talking with 8 Mr. Miltner about that, you were saying you don't know if 9 it was the membership that existed at the time was what -- 10 is the same membership that you have now because there had 11 been a change in membership. 12 A. No. It was whoever was a member, and so if people 13 had joined since those letters were written or they have 14 left since those letters were written, they -- they -- the 15 ones that joined later didn't get a letter; those who left 16 after the letters did get a letter. So -- so, basically, 17 we did have some members leave in May. All of those 18 people got the letters because they were sent in April. 19 The final letter was actually sent in April. 20 Q. Was that -- 21 A. The one that you saw was sent in March, the one 22 that Ryan had. 23 Q. Okay. 24 A. Yeah. 25 Q. So when you talk about the members that had left 26 in May, was that May of 2023? 27 A. Yes. 28 Q. Okay. What do you understand was the reason that 4325 1 those members departed? 2 A. That's -- they can tell you. 3 Q. I'm just asking you what your understanding was. 4 A. I think that's private between members who have 5 got different reasons and different letters. I don't 6 think it is my ability -- I can't share that. I don't 7 feel it appropriate. 8 Q. Do you know what percentage of IDFA's membership 9 left in May of 2023? 10 A. I'm not going to tell you. 11 Q. Was it more than 50%? 12 A. No. But I'm not going to -- that's enough. 13 Enough prying on that. That's private. I shouldn't even 14 have told you that. No, it's not that. The whole staff 15 is still there, so they are making it work. 16 Q. Is it your understanding that you had a membership 17 departure because of the concerns with the methodology and 18 the approach that IDFA is taking with respect to its 19 Make Allowance at this hearing? 20 A. I think the -- from what I understand the concern 21 was that they were looking only at Make Allowance at IDFA. 22 That's the only thing we had consensus on at that time, so 23 we moved ahead with that. 24 Q. It was the approach that IDFA was taking, with the 25 lack of consensus from its membership? 26 A. Well, you never have 100%. They weren't happy, 27 otherwise they wouldn't have left. Some of them I think 28 it was budget, but most of them I think it was probably 4326 1 the policy, Federal Order policy was the reason. And 2 we've also had a couple of join us since then because of 3 Federal Order policy. I mean, it's just -- you know, we 4 live in a very diverse industry, and there's lots of 5 opinions, and getting them all to align is a challenge. 6 Q. When you say Federal Order policy, you understand 7 that that's Federal Order policy that is being presented 8 at this hearing -- 9 A. Yes. 10 Q. -- that we are here for? 11 A. Yes. 12 MS. HANCOCK: That's all I have. Thank you so 13 much for your time. 14 THE WITNESS: Thank you very much. 15 THE COURT: Further questions for this witness, 16 other than AMS? 17 We have been going about an hour and 20 minutes 18 again. We can take a break. Come back at 11:00. 19 (Whereupon, a break was taken.) 20 THE COURT: Back on the record. 21 Okay. Mr. English. 22 CROSS-EXAMINATION 23 BY MR. ENGLISH: 24 Q. Chip English, Milk Innovation Group. 25 Mr. Brown, you had a couple of questions or 26 several questions from National Milk counsel about the 27 issue of return on investment. 28 What is your recollection of USDA's treatment of 4327 1 return on investment dating back to 1999 and the Federal 2 Order Reform? 3 A. They have always included it when they are doing 4 their analysis on what's an adequate cost because 5 that's -- you have an opportunity cost for that asset. 6 You have to put a value on it if you are going to have a 7 true cost. 8 MR. ENGLISH: That's all I had, your Honor. 9 THE COURT: Anything further from anyone besides 10 AMS? 11 AMS. 12 CROSS-EXAMINATION 13 BY MS. TAYLOR: 14 Q. Good morning. 15 A. Good morning again. 16 Q. You guys got very organized at the break and 17 caught me off guard. 18 Okay. The IDFA proposal seeks to implement your 19 Make Allowances over a four-year time period. 20 A. That is correct. 21 Q. But throughout the testimony of -- your testimony 22 and other IDFA members that have testified previously, you 23 know, obviously the emphasis is on how you all feel the 24 current makes are very inadequate and plants are losing 25 money, etcetera. 26 So I guess, how come given that reality that you 27 all testified to, you still are okay with a four-year kind 28 of staggered implementation? Why is that acceptable? 4328 1 A. Because of the large increase that is being asked 2 for. And we think that it would -- it may be too much at 3 once to basically raise makes $0.08 on cheese, whatever 4 the other numbers are, and to do it in a more gradual 5 basis as long as we have a schedule to get there or as, 6 you know, until we have a USDA audited study, gives some 7 time. 8 It's -- it's been so long, and inflation the last 9 two years has been so rough on everyone, that we just feel 10 that it would make more sense to give it -- give it some 11 room. We have members that would like it all at once. It 12 was a consensus view that it just makes it a little easier 13 on the farm side if we do it over four years. It's never 14 fun for anyone, but that's -- that's the view. 15 Q. Okay. And we have heard a lot about -- throughout 16 the past few weeks, about plant investment, whether it's 17 new plants being built or not being built or investments 18 in current plants to help increase efficiencies. And a 19 lot of that discussion was, well, we had to be innovative 20 if Make Allowances aren't reflective of our costs to 21 figure out how to combat that. 22 So given the current -- the Stephenson study and 23 the Schiek study that you all are proposing be used, how 24 are those efficiencies captured? Or maybe another way to 25 put that is, capturing efficiencies can also mean 26 increasing yields, and we're not -- you all aren't seeking 27 an increase in yields. So how is that somehow being 28 factored into the equation? 4329 1 A. You can only create so much yield. I mean, if you 2 have a product that's 3% water and 97% solids, for 3 example, there's only so much you can do to increase the 4 yield. I'm -- one of the reasons I personally am very 5 confident about a yield study with USDA as part of the 6 make study is you are going to find that the yields are 7 pretty much right. It is whether you fortify or you 8 condense milk in front of the vat, which of course you 9 would take account for. 10 In my experience, the only -- only -- if you are a 11 modern efficient plant, you are already doing what you can 12 because the last thing you can afford is to lose the 13 solids down the drain, quite frankly. 14 And I think one of the reasons we really 15 encouraged broad participation in the last survey is we 16 wanted to make sure there was large plants in it. 17 One of the -- one of the opportunities I saw with 18 Mark's 2021 study is he didn't have enough cheese in it, 19 and his average plant size was like 1.6 million pounds. 20 Which isn't tiny, but for an average it is kind of low. 21 That was doubled. So I'm more confident that it reflects 22 those -- those big efficient plants, whether they are 23 powder dryers or cheese makers are now in the information. 24 And, again, we can't make anybody do anything, but 25 we strongly encourage them to go in because we think it 26 helps credibility. And it is a more honest picture of the 27 industry, quite honestly. 28 Q. Okay. Can you turn to page 12 of your exhibit, 4330 1 the PowerPoint slide, Exhibit 215? 2 A. Sure. 3 Q. So under the 2019 study, that first box, under 4 participating plants. We found that the nonfat dry milk 5 and butter plant numbers are different than what you have 6 in this table. So I'm just wondering if they are -- if 7 you were referring to a different study perhaps? 8 A. Let me -- 9 Q. Or that might just be an oversight? 10 A. If I can, I'll check, and if it needs to be 11 resubmitted, we will correct the table. 12 Q. Okay. So there was some talk about -- in one of 13 your examples in your testimony, dumping milk, 14 specifically in the Upper Midwest, because of lack of 15 plant capacity. I'm just wondering if there might be 16 additional reasons that could be why that milk was dumped 17 or you attribute it all to willing -- I'll term it, 18 willing plant capacity? 19 A. Yeah. And I think it is important that the dumped 20 milk compared to what the supply management programs are 21 doing on milk volume is small, but we're so tight. For 22 example, when Hastings Creamery just closed down, and that 23 caused some stress. We had some stress earlier in the 24 year when we had a change in suppliers into a plant in 25 South Dakota. And you can't live in Kenosha, Wisconsin, 26 and not hear about the milk being dumped in the Milwaukee 27 sewer, which amazes me because the BOD charge you are 28 going to pay on that is going to kill them. Couldn't they 4331 1 find someone else to do that. 2 But generally when milk is dumped, either it's -- 3 it's -- has -- it's positive for antibiotics, and most of 4 that is handled with lagoons. I think most companies have 5 farmers that they work with to manage that. 6 The -- the other thing is -- you see, is sometimes 7 if you, depending on where markets are, whether you have 8 an outlet, because really the only Grade B milk anymore is 9 when a BTU fails, and so you will have some milk that for 10 a day or two will be B. Some plants will take that, not 11 very many anymore because of their customers' 12 requirements, so that can cause some. 13 But what you see in the Midwest isn't necessarily 14 every day. There's 20 loads going to the Milwaukee sewer 15 system. It's we're so tight on space, it just takes a 16 very little thing to create some disruption. Hastings is 17 a good example. 18 And it will generally resolve itself, but right 19 now we're -- the spring in particular we were so tight in 20 capacity, there was really no place for it to move. So 21 it's -- it's -- it's more due to lack of space than 22 normally. Normally I view dumped milk as being either 23 antibiotics or someone failed a bulk tank unit with FDA. 24 Q. Okay. And lack of space would be lack of willing 25 plant capacity to take on milk? 26 A. Yeah. What you find -- with that milk, if you 27 look at the spot milk prices this year, I mean, if you 28 wanted milk, you could buy it inexpensive. There's a 4332 1 couple of things with that. One is labor is still tight. 2 It's not as bad as it was a year ago, but labor is still 3 tight in plants. Second is they literally don't have the 4 room. They are running that full. Particularly the 5 spring, I think we all know it got particularly crazy. 6 And what you will find when you dump milk, you are 7 going to look, where can I send that to get rid of it, 8 where can I sell it? If I get six bucks to sell it into 9 some little dryer down in Kentucky, and it costs me four 10 to get there, it's better than nothing. And so plants 11 will do that. And there's some people that will pick up 12 that milk. Same with cream, if you have cream that's got 13 a high acidity, there's someone that can probably figure 14 out a way to make something out of it, and they will buy 15 it, and it will be at a heavy discount. 16 And so that's what they look for, any option they 17 have that's better than dumping it. But unfortunately, 18 this year there has been some of that. 19 My experience historically, particularly in Idaho, 20 because you are so far from places, that processors, if 21 they do get long, or you don't have anyone that can take B 22 milk, then it does travel a long way, and so it is really 23 math. 24 And this year, you know, sales started to get 25 weaker. Cheese got weaker in June. No one is excited 26 about building inventory, although thankfully we recovered 27 nicely, and so there wasn't a place to send it. That's 28 really what it amounts to. It's just -- this is just 4333 1 math. It is not only how much can I make, it's how 2 much -- how much will I lose versus dumping it. It just 3 makes sense to haul it, so that's what they will do. 4 That's been my experience. 5 Q. Could that -- that scenario which you just 6 discussed and -- could that be leading to some of the 7 decrease in the mailbox prices we see, because there's not 8 other outlets for producers to sell their milk, and so 9 they are being forced to take a lower price? 10 A. It certainly could. Well, if you -- I think we 11 had one testimony from a cooperative talking about how 12 premiums have lowered because of margins. It certainly -- 13 it certainly could. 14 One thing -- the other thing is when you have 15 inventories building. So, for example, cheddar got long 16 in June. We all know that. And -- and do you really want 17 to make -- even if the milk's cheap, do you want to 18 devalue the inventory you already can't sell by putting 19 more product on the market? And that's another 20 consideration. 21 They're -- like everybody else in business, what's 22 the best for my business, and it isn't always buying cheap 23 milk. But generally, I mean, in -- I think the biggest 24 indicator, Erin, is all the supply management programs we 25 have with cooperatives, all over the country. They just 26 simply -- they have -- they would have even more milk than 27 they could manage if they didn't have those programs in 28 place. 4334 1 Q. Uh-huh. Okay. 2 On page -- well, page 22 of your PDF exhibit, you 3 talk about you would like the effective implementation 4 date to be January 1st, 2025, of the first increase. 5 And what's IDFA's position if, let's say, 6 January 1st, 2025, in the calendar of events doesn't work, 7 just for who knows what reason. What's your suggestion 8 for how your proposal should be implemented? 9 A. Well, we believe strongly there's enough urgency 10 that it doesn't need to wait. We don't think risk 11 management on Make Allowances is -- is something we need 12 to be careful with too much delay with that. We 13 understand just the process alone and getting through all 14 the steps, it looks like January 1st, 2025 was popular, 15 Erin. I think we all recognize, again, that's -- that's 16 Proposal 22. You make it work however it best fits to 17 work. We would be open to a different timeline, but we 18 would like annual adjustments like we proposed. 19 Q. Okay. So -- but starting at the first of the 20 calendar year isn't -- 21 A. It isn't crucial. 22 Q. -- isn't crucial? Okay. 23 A. Not if it doesn't make sense regulatory-wise to do 24 that. 25 Q. Okay. And then on the -- give me a second. I 26 thought I marked my page, but I apparently did not. 27 Page -- now I'm going to flip to your other 28 exhibit, 214. 4335 1 A. Okay. 2 Q. On page 26, so it's 25 going into 26, more in the 3 implementation piece, you wrote, "If USDA were nonetheless 4 to adopt such a delay in implementing, IDFA would no 5 longer support staggered implementation of the proposed 6 Make Allowance." And you would propose that we just jump 7 to year four. 8 I'm just wondering if you could expand on that. I 9 don't think anyone's asked you a question on that. 10 A. No. And that's an excellent question. 11 What -- what we're saying is if there's a 12 significant delay due to, for example, risk management 13 concerns. Let's just use an example. Say we're going to 14 wait 18 months over when it could possibly be implemented 15 because of that. We think at that point that that's too 16 long to wait for just a partial, so we would ask that you 17 move to the full thing. That would also give the risk 18 management folks plenty of time to adapt to the change. 19 That's what that's about. And that would be if there's 20 a -- a plan significant delaying implementation. And, 21 again, I know there hasn't been broad support for that, 22 but we just -- our folks think it is pretty important that 23 we don't stretch it out more than the four years we 24 already have. So that's where that comes from. 25 Q. Okay. So I think as I have understood the 26 testimony so far, that I -- I don't believe anyone's asked 27 for a delay in the Make Allowance piece, for implementing 28 that. 4336 1 A. No. But there's -- there's been some conversation 2 by one Upper Midwest bargaining cooperative that spent a 3 lot of time talking about risk management and the need for 4 delay that I don't think was specifically on Proposal 1. 5 Q. Okay. 6 A. Proposal 1, I can see some logic because you are 7 changing those skim formulas. 8 Q. Okay. And then below that, you have, "A majority 9 of cheese manufacturers have fewer than the 1250 10 employees, and then therefore qualifies as Small 11 Businesses." 12 I know we have collected information on the plants 13 that have been here or the -- represented here at this 14 hearing. But how did you come up with "a majority"? 15 Where does that -- 16 A. The survey. IDFA, when you -- we do annual 17 surveys, and they give us employee numbers. 18 Q. So these are IDFA members? 19 A. Yes. These are IDFA members. That is correct. I 20 can't speak for cheese makers, but for IDFA members, the 21 majority of them are smaller. The big ones are really 22 big, but the majority are less than that. 23 Q. Okay. 24 MS. TAYLOR: I think that's all AMS has. Thank 25 you. 26 THE WITNESS: Thank you. 27 THE COURT: Redirect? 28 MR. ROSENBAUM: Your Honor, at this point I would 4337 1 simply move Hearing Exhibits 214 and 215 into evidence. 2 THE COURT: Any objections? 3 Hearing none, 214 and 215 are admitted into the 4 record of this proceeding. 5 (Thereafter, Exhibit Numbers 214 and 215 were 6 received into evidence.) 7 THE COURT: Mr. Miltner, do you want to move in 8 Exhibit 179 at this point? 9 MR. MILTNER: I think we'll move it after 10 Mr. Allen says what he has to say about it, if that's 11 okay. 12 THE COURT: Very well. 13 You are dismissed. Thank you, sir. 14 THE WITNESS: Thank you. 15 MR. MILTNER: Your Honor, this is Ryan Miltner 16 representing Select Milk Producers, and we would like to 17 the stand Mr. Chris Allen. 18 THE COURT: Mr. Allen, welcome. Please raise your 19 right hand. 20 CHRIS ALLEN, 21 Being first duly sworn, was examined and 22 testified as follows: 23 MR. MILTNER: Thank you, your Honor. 24 DIRECT EXAMINATION 25 BY MR. MILTNER: 26 Q. Mr. Allen, if you could state and spell your name 27 for the record, please? 28 A. Chris Allen, C-H-R-I-S, A-L-L-E-N. 4338 1 Q. And if you could also provide your business 2 address for the record, please? 3 A. 5151 Belt Line Road, Suite 455, Dallas, Texas, 4 75254. 5 Q. And in front of you do you have a document that's 6 labeled in the upper right as Exhibit Select-1? 7 A. Yes. 8 Q. And is that your testimony on what is known as 9 Proposal 11 in this proceeding? 10 A. Yes. 11 Q. Okay. And I understand that you -- you intend to 12 read an abbreviated version of that statement for your 13 testimony today, correct? 14 A. That is correct. 15 Q. Okay. Now, as you were preparing to deliver your 16 testimony, I believe there were three small edits to that 17 exhibit from that which was submitted USDA in advance; is 18 that correct? 19 A. That's correct. 20 Q. Okay. So I want to go through those. And they 21 are reflected in the versions that have been handed out, 22 and we will submit to AMS a PDF copy of the revised 23 version. 24 On page 1, the third line from the bottom, where 25 it reads, "0.68% of butterfat." 26 That did read 0.68% of milk solids, correct? 27 A. Yes. 28 Q. And then on page 2, under the section beginning 4339 1 "Philosophy and Rationale," in the fourth line, the word 2 "processing" appeared twice, correct? 3 A. Correct. 4 Q. And the first one of those should have read 5 "production"; is that correct? 6 A. Right. 7 Q. And then on page 16, in your conclusion, in what 8 is the fourth line from the bottom, there was no change to 9 the wording, but the change to the punctuation in that 10 sentence there, correct, where it read, 0.2% of all 11 solids, period, butterfat losses, comma, there was a 12 punctuation change there, correct? 13 A. Yes. 14 Q. But no change to the wording as I recall; is that 15 right? 16 A. Yes. 17 Q. All right. So if you would give a little bit of 18 your revised statement on your background. If you would 19 then pause, I would like to ask you a few more questions, 20 and we'll proceed from there. 21 THE COURT: Did we mark this? 22 MR. MILTNER: Oh, you know what, we did not. 23 Could we mark that, your Honor, as the next sequential 24 exhibit? 25 THE COURT: Select-1 is marked 216 for 26 identification. 27 (Thereafter, Exhibit Number 216 was marked 28 for identification.) 4340 1 MR. MILTNER: Thank you very much. 2 THE WITNESS: I am the senior director for 3 industry relations and analytics at Select Milk Producers, 4 Inc. I hold a bachelor's and master's degree in economics 5 from the University of Texas at Arlington. I have worked 6 in the dairy industry since 2008. Among my 7 responsibilities are market analysis and economic policy. 8 In conjunction with Select staff, I have analyzed and 9 developed the three proposals submitted by Select and 10 noticed for consideration at this hearing. 11 BY MR. MILTNER: 12 Q. Thank you very much. 13 Mr. Allen, if you could give us a little more 14 background on the work you currently perform for Select 15 Milk Producers and what that involves on a day-to-day 16 basis. 17 A. Sure. Currently, and really throughout the 18 15 years I have been in the industry, I have had various 19 roles, but I have consistently and primarily focused on 20 the economic analysis of the production, the supply/demand 21 for milk, dairy products. Also focused on analysis of 22 co-op businesses and businesses they run. And I have 23 focused on the analysis of how changes in dairy policy 24 impacts producer milk checks. 25 Q. When you are analyzing different scenarios for 26 your employers, and currently for Select Milk, would you 27 be looking at the producer side of that equation, at least 28 in part? 4341 1 A. Yes. 2 Q. Would you also be looking at the sale side of the 3 equation where the cooperative is now selling producer 4 milk to a customer? 5 A. Correct. Yes. 6 Q. On the policy, you mentioned you work in -- on 7 policy analysis. 8 Does that include analysis of Federal Order 9 regulations? 10 A. Yes. 11 Q. Would that include issues like this proposal or 12 these proposals? 13 A. Exactly. 14 Q. Have you participated either as an attendee or a 15 witness in any other Federal Order proceedings? 16 A. Yes. 17 Q. How long have you been working with Select Milk? 18 A. Just over one year. 19 Q. And prior to working with Select, did you work for 20 another dairy cooperative? 21 A. Yes. Dairy Farmers of America. 22 Q. And how long did you work with DFA? 23 A. A little over 14 years. 24 Q. And the work you performed at DFA, was that 25 similar in nature to that which you now do for Select? 26 A. Yes. 27 MR. MILTNER: Your Honor, we would like to qualify 28 Mr. Allen as an expert in dairy economics and cooperative 4342 1 economics. 2 THE COURT: No objections that I see. Yes, I so 3 find. 4 MR. MILTNER: Thank you very much. 5 BY MR. MILTNER: 6 Q. Mr. Allen, if you want to read your abbreviated 7 statement, keeping in mind the court reporter needs to 8 take everything down. And -- and then when you are 9 finished, we may have a few more questions. Thank you. 10 A. Yes, sir. 11 My testimony today addresses Proposal 11 related 12 to product yields and farm-to-plant shrink. The current 13 yield factors incorporate farm-to-plant loss of 0.25% of 14 all milk solids and an additional 0.015 pounds of 15 butterfat per hundredweight on all milk. These losses are 16 incorporated through reductions in the yield factors for 17 each surveyed commodity. In combination, the two 18 assumptions presumed that 0.68% of butterfat solids are 19 lost between the farm and the plant. Select’s data from 20 its milk shipments and milk receipts at its processing 21 plants establish that these factors are incorrect. 22 Select’s Proposal 11 removes the adjustment for 23 farm-to-plant milk losses, resulting in changes to the 24 yield factors for butter, the protein value in cheese, and 25 the butterfat value in cheese. Adoption of Proposal 11 26 would not change the yields for nonfat dry milk or whey. 27 If adopted, Proposal 11 would change the yield for butter 28 to 1.22, the yield reflecting the protein value in cheese 4343 1 to 1.386, and the yield reflecting the butterfat value in 2 cheese to 1.582. 3 Select’s Proposal 11, and, in fact, all of 4 Select's proposals and its evaluation of the other 5 proposals under consideration at this hearing are governed 6 by one overriding principle: The formulas establishing 7 the minimum prices paid to producers should reflect the 8 current economic realities of producing, transporting, 9 processing, and marketing milk and dairy products. All 10 aspects of the formulas should be reviewed rather than 11 limiting consideration to a small subset of factors. 12 Achievable efficiencies should be promoted rather than 13 discouraged. 14 We expect that the adoption of Proposal 11 will 15 increase the Class III and Class IV prices, thereby 16 increasing Class I and Class II prices. I want to point 17 out that increased minimum prices are the result of, and 18 not the impetus for, offering Proposal 11. 19 Proposal 11 aims to ensure that the formulas 20 reflect market conditions and achievable efficiencies. As 21 representatives of Dairy Programs have occasionally said, 22 the role of Federal Orders is not to enhance producer 23 income. Rather, the end product pricing system is 24 intended to construct a series of formulas that allow USDA 25 to ascertain the value of producer milk used to 26 manufacture defined commodities, taking into account the 27 costs to convert milk into finished products and the 28 yields of the products produced. 4344 1 I would add that while Select's proposals would 2 increase producer income, the same proposals would 3 increase the cost of milk to Select's processing 4 facilities. Every proposed change to the product formulas 5 will have an impact. Make Allowance increases will 6 decrease minimum prices. But if make costs have 7 increased, those factors should be adjusted. 8 USDA’s decision to hold a hearing on 9 Make Allowances is prudent. Utilizing manufacturing cost 10 factors set in 2008 based on even older data calls into 11 question the validity and accuracy of those formula 12 elements. In the same vein, the yield factors in the 13 formulas incorporate assumptions regarding farm-to-plant 14 shrink that are at least as stale as the underpinnings for 15 manufacturing costs. It is time for them to be made 16 current. 17 Precision and accuracy are paramount. Producers 18 and handlers deserve to know that the calculation of the 19 minimum class and component prices utilized the best 20 available data and inherent assumptions for each of the 21 three principal formula elements: Commodity prices, 22 manufacturing allowances, and yields. 23 To accomplish that goal, it is incumbent on USDA 24 to adopt those changes that most closely tie the price 25 discovery mechanisms to the actual conditions of the 26 market for commodities and the processes used to convert 27 raw milk into those commodities. 28 USDA's 2002 decision to reduce yields came after 4345 1 its recommended decision on the Class III and IV formulas, 2 which reasoned that, "Inflating costs of production or 3 reducing yield factors to reflect shrinkage would not 4 properly reflect the value of producers' milk used in 5 manufactured products." 6 The 2002 Final Decision reversed course, reducing 7 the product yields and reasoning that, "The loss 8 allowances in the Class III and IV formulas are intended 9 to reflect actual losses that are beyond the processing 10 handler's ability to control." 11 The 2002 Final Decision further stated that, 12 "Comments received on the recommended decision indicated 13 that milk solid losses between the farm and the receiving 14 plant are real, unavoidable, and common." 15 In further explanation, USDA then wrote, and I 16 quote: "It is necessary to include such an adjustment in 17 using end-product pricing formulas for determining 18 component prices. Since the handlers receiving milk from 19 producers pay the producers on the basis of farm weights 20 and tests, handlers do not receive all of the milk 21 components due to farm-to-plant losses. An adjustment to 22 the price formulas to account for the difference in milk 23 components paid for versus components actually received is 24 appropriate." 25 When USDA considered a proposal to eliminate 26 farm-to-plant shrink in 2007, it found that, "Record 27 evidence supports concluding that farm-to-plant shrinkage 28 remains a reality for manufacturers. …While DPNM argued 4346 1 that its members' farm-to-plant shrinkage is well below 2 the 0.25% contained in the Class III and Class IV 3 product-price formulas, no evidence was offered for 4 examination as an alternative other than its elimination." 5 Our testimony at this hearing will provide 6 evidence sufficient for USDA to establish that plant 7 losses are within the ability of producers, cooperatives, 8 and handlers to control and that the majority of milk 9 shipments realize little to no losses. Accordingly, 10 USDA's previous conclusions that farm-to-plant losses are 11 unavoidable and common should be reconsidered and that an 12 adjustment to yields for farm-to-plant losses is not 13 "necessary." 14 My written testimony presents the USDA calculation 15 of the product yield factors and the revisions to the 16 formulas outlined in this proposal. In lieu of reading 17 that portion of my testimony, I am willing to answer any 18 questions on these calculations. 19 In the 2007 hearing on formula components, Select, 20 in conjunction with Dairy Producers of New Mexico and 21 others, proposed eliminating farm-to-plant shrink. That 22 proposal was part of a suite of formula modifications that 23 were "considered jointly as coordinated adjustments to the 24 various yield factors." 25 To be clear, in the hearing today, Select proposes 26 the adoption of each of Proposals 10, 11, and 12. But 27 each proposal stands alone. Based on the record evidence, 28 USDA could adopt one, two, or all three of Select's 4347 1 proposals. 2 Also In the 2007 hearing, USDA concluded that the 3 weight of evidence was insufficient to support the 4 elimination of farm-to-plant shrink. In today's 5 proceeding, Select will provide data and evidence from 6 both its cooperative operations (which include shipments 7 from member farms to milk buyers) and from its processing 8 operations (which include shipments received by Select's 9 plants from both Select's farms and other producers). 10 This data and evidence will support the removal of the 11 shrink yield adjustments. We also provide data from USDA 12 sources and additional rationale to supplement the data 13 submitted. Collectively, this body of evidence should 14 amply support Proposal 11. 15 Select's membership consists of 115 dairy farms in 16 Indiana, Michigan, Ohio, New Mexico, Oklahoma, and Texas. 17 Collectively, our members produce approximately 18 9.6 billion pounds of milk each year. This translates to 19 192,000 loads of milk per year. That's based upon a 20 standard 50,000 load. Because many loads of milk are 21 shipped using supertankers which carry greater volumes, 22 the actual number of loads of milk marketed by Select each 23 year is closer to 170,000. 24 Select will present testimony from its Senior 25 Accounting Manager, Harmoni Campbell, to provide greater 26 detail on Select's management and accounting of milk 27 shipments, including the use of farm weights and 28 reconciliations against plant weights. Her testimony, 4348 1 which analyzed hundreds of thousands of data points for 2 milk shipped by Select over the last year, will 3 demonstrate that, in the aggregate, farm weights and plant 4 weights align nearly perfectly (a difference of less than 5 0.1%), and her testimony will demonstrate when 6 discrepancies occur between farm weights and plant 7 weights, the variance is not necessarily shrink, but a 8 different issue that is able to be addressed between the 9 cooperative and the handler. 10 In the 2007 hearing on price formulas, Select 11 found itself in a position all too common to cooperatives 12 and producers. It lacked data on plant operations to 13 place in the evidentiary record. At the time, Select 14 owned a small plant in Dexter, New Mexico, used for the 15 filtration of milk. It owned no significant processing 16 plants of its own. As a result, Select possessed limited 17 data that it could provide to USDA regarding plant 18 receipts. 19 In 2012, Continental Dairy Products, Inc., a 20 cooperative that merged with Select in 2014, opened a 21 state-of-the-art powder plant in Coopersville, Michigan. 22 That plant, Continental Dairy Facilities, LLC ("CDF"), 23 produces a full complement of dairy powders, as well as 24 butter and cream. 25 In 2019, Select commissioned a sister plant in 26 Littlefield, Texas, to serve our producers in the 27 Southwest. That plant, Continental Dairy Facilities 28 Southwest, LLC ("CDF Southwest"), produces a similar suite 4349 1 of products as CDF. 2 Select will present testimony from the Director of 3 Sales and Marketing for CDF and CDF Southwest, Cheslie 4 Stehouwer, to provide detail and data on plant receipts. 5 Her testimony will offer insight into the other side of 6 the farm-to-plant shrink equation. 7 Because CDF and CDF Southwest receive milk from 8 both Select members and other producers and cooperatives, 9 this testimony will be important for demonstrating that 10 controlling farm-to-plant shrink is not uniquely 11 achievable by Select's members, large farms, or dairies in 12 the Southwest. Her data will show that the shrink between 13 farm and plant at Select's plants ranges from 0.10% to 14 0.15%. 15 A cornerstone of Select's philosophy with respect 16 to Federal Milk Marketing Orders is that they should 17 discourage inefficiency and encourage efficiency in the 18 production, collection, transportation, and marketing of 19 milk. This guiding principle informs our views on the use 20 of end product pricing and the policy decisions that USDA 21 must make when it considers changes to the price formulas. 22 The issue of farm-to-plant shrink is no different. 23 The more farms included on a milk route, the 24 greater the chance for discrepancies between farm weights 25 and plant weights to differ. Each time a milk truck stops 26 to pick up milk, there is potential for spillage, loss 27 within piping, and even errors in measurement. All of 28 Select's members are of sufficient size to ship a full 4350 1 tanker load of milk at each pickup. As a result, Select 2 is not subject to the risk of additional losses that can 3 occur on routes with multiple stops. 4 I want to explain for the record the difference in 5 operations for a full-load milk pickup and a multiple-stop 6 pickup to highlight both efficiencies and areas where 7 losses might occur. 8 Every milk pickup involves using a hose to 9 transfer milk into the truck tank. Some milk is regularly 10 left in the hose once the transfer is completed. With a 11 multi-stop pickup, a hose is used at each farm, and the 12 loss accumulates with each separate pickup. With a 13 full-load pickup, only a single hose is used, and the 14 residual milk is limited to what is left in this hose. 15 Additionally, full-load pickups can range from about 16 40,000 pounds to over 100,000 pounds in total milk 17 transported to a plant. 18 In the case of a 100,000-pound load of milk, this 19 is the equivalent of shipping two 50,000-pound tankers 20 with the hose transfer occurring only once, not twice. 21 However, the vast majority of multi-stop pickups occur 22 with 50,000-pound or less of total collected and delivered 23 to a plant. 24 The vast majority of milk produced in the United 25 States is produced on farms with sufficient cows to 26 produce a full tanker load at each pickup. USDA's Milk 27 Production Report suggests that the national average per 28 cow production is approximately 67 pounds per day. Milk 4351 1 must be picked up on-farm not less frequently than every 2 48 hours. Assuming every-other-day pickups, a farm 3 milking 375 or more cows will fill a full 50,000-pound 4 tanker. 5 The USDA Publication, Consolidation in U.S. Dairy 6 Farming, analyzed U.S. dairy farms across multiple 7 measures. It concluded that in 2016, seven years ago, 8 dairy farms with more than 200 cows accounted for 80.3% of 9 all U.S. milk production. Farms with more than 500 cows 10 accounted for 68.4% of all milk production. It is 11 reasonable to assume that half of the volume produced by 12 farms milking between 200 and 499 cows comes from farms 13 with more than 375 cows. 14 So in, 2016 three-quarters of all U.S. milk 15 production was produced from farms that could fill a 16 tanker. By comparison, in 2000, farms that could fill a 17 full tanker accounted for less than half of U.S. 18 production. While ERS has not yet released its findings 19 from the most recent Census of Agriculture, given the 20 continued consolidation of dairy farms, the percentage of 21 farms able to fill a full tanker is undoubtedly higher in 22 2023. 23 Since 2016, the consolidation of dairy farms has 24 only continued, if not accelerated. In 2016, the number 25 of licensed U.S. dairy farms was 41,819. For 2022, that 26 number was 27,932. It is, therefore, reasonable to assume 27 that the volume of milk from these farms is now well above 28 80%. 4352 1 And so, recognizing that shrinkage is most 2 prevalent on shipments containing multiple farms but that 3 such loads are a small and declining minority of milk 4 shipments, USDA must ask itself whether its policy 5 decision on yields will recognize the changes in the 6 production and transportation of milk that have occurred 7 since it concluded in 2002 that farm-to-plant losses were 8 common, unavoidable, and uncontrollable. 9 Although farm-to-plant shrinkage is most easily 10 controllable when producers ship full loads, that does not 11 mean that farms with fewer than 375 cows necessarily have 12 losses as high as assumed by the current yield factors. 13 The data to be presented from CDF includes milk shipments 14 from farms in multiple pickup routes. As that testimony 15 will show, differences between the farm and plant weights 16 from full-load shipments and multiple farm shipments are 17 not significant. In addition, good practices and the use 18 of available technologies can mitigate actual shrink. 19 It is consistent with Select's philosophy of 20 promoting efficiencies within the entire milk marketing 21 system, increases in minimum prices resulting from the 22 elimination of farm-to-plant shrink should be used by 23 producers and cooperatives, in part to improve their 24 on-farm technologies and practices to achieve the lowest 25 practicable shrink. Handlers, producers, and cooperatives 26 should be working collaboratively to identify and mitigate 27 areas of excessive shrink with the goal of achieving 28 actual shrink that is negligible. 4353 1 Even those farms without the ability to fill a 2 full tanker can adopt the use of farm scales, flow 3 measurement, and other technologies to eliminate much of 4 the imprecision and inaccuracies that can result from the 5 utilization of outmoded dipsticks and similar tools. 6 Could some of these improvements come with a cost 7 to the producer? Certainly, but based on the anticipated 8 price impacts of adopting Proposal 11, the incremental 9 income to a farm with 170 cows (approximately half the 10 size of an average licensed dairy herd) would exceed 11 $3,000 per year, which based on the useful life of such 12 improvements, still is a net improvement to the producers' 13 bottom line. 14 The adoption of Proposal 11 would result in 15 increases to the announced component prices for butterfat 16 and protein. Based on my analysis of the changes, using 17 five and ten-year averages of commodity prices through 18 April 2023, I computed the component and Class price 19 impacts presented in my written testimony. 20 The precise impacts on the statistical uniform or 21 blend price will vary by order and could be further 22 impacted by any adjustments USDA elects to make to the 23 Class I mover. But because the Class III and Class IV 24 impacts under the five-year and ten-year analyses are 25 about $0.07, it is reasonable to project that the overall 26 impact of the full adoption of Proposal 11 would be $0.07. 27 My written testimony includes the required 28 amendments for the adoption of Proposal 11. Select 4354 1 believes that the data and evidence it has and will 2 present provide USDA with ample justification to eliminate 3 shrink from the yield factors. 4 If however, USDA finds that it is appropriate to 5 reduce the impact of shrink rather than fully adopt 6 Proposal 11 as drafted, Select would defer to USDA's 7 reasoned discretion based on the record evidence. 8 The current yield factors in Class III and 9 Class IV formulas are lower than they would be otherwise 10 due to USDA's policy decision to incorporate a reduction 11 factor for farm-to-plant shrink. That policy decision was 12 premised on the belief that such losses were beyond the 13 handler's ability to control, unavoidable, and common. 14 Select believes otherwise. Producers, 15 cooperatives, and handlers do have the ability to address 16 and stem losses in the transportation of milk from the 17 farm to the plant. 18 In addition to the measures I have discussed, 19 actual data on farm shipments and plant receipts to be 20 presented by Select's other witnesses will establish that 21 the net differences in farm weights and plant weights are 22 far less than assumed by the current formulas. In fact, 23 Select's data will demonstrate that those differences are 24 less than 0.2% of all solids and that butterfat losses, to 25 the extent they occur, do not occur at a rate greater than 26 overall solids losses assumed in the current formulas. It 27 is time to remove this factor from the yield formulas and 28 compensate producers for the full value of the milk they 4355 1 ship to handlers. 2 Q. Thank you, Mr. Allen. 3 A couple of questions to provide a little more 4 context to your testimony. And I'm looking at page 2 of 5 what has been marked as Exhibit 216. 6 And you have testified that the role of Federal 7 Orders is not to enhance producer income. Can you expand 8 on that concept a little more for us? 9 A. Yeah. I think USDA has been asked to define the 10 role of the Federal Orders over the years, and I think you 11 can point to differences in what they have stated. But 12 there are some core -- some core statements that I think 13 still hold true today. 14 And the enhancement of producer income, or what's 15 otherwise been interpreted as improving producer prices, I 16 would say that just by the very creation of co-ops 17 allowing to work on behalf of farms and negotiate on 18 behalf of farms, that has resulted in increased prices to 19 producers. 20 So USDA has already met some of that obligation, 21 but I don't think the intent was for USDA to use the 22 Federal Orders to continually increase producer prices. 23 Select believes that the market should still dictate the 24 price that goes to the producer. 25 Q. So you actually in preparing for this, you found I 26 think it was a Congressional report, where USDA testified 27 to the opposite of that, that the purpose of the orders 28 was to increase producer income. 4356 1 A. Right. 2 Q. And so do you have any thoughts on what you 3 interpreted that concept as then versus what you're 4 testifying to now? 5 A. Again, I think the concept of increasing producer 6 income was in the absence of the co-op's ability to 7 collective bargain on behalf of producers. And so I do 8 think there has been -- there was an expectation of what 9 the Federal Orders would do, and that has been achieved. 10 Producer income has been increased. But I don't think it 11 was expected to continue to increase. 12 Q. When you talk about cooperatives bargaining, would 13 that include the changes in relative bargaining position 14 that the Federal Orders create for producers and handlers? 15 A. Yes. I -- I believe that at the inception of 16 Federal Orders it was believed that the processors, the 17 plants had unequal bargaining power, that they had the 18 upper hand when it came to negotiating milk prices. And 19 the implementation of the Federal Orders allowed some 20 equalization of that -- that negotiation power, bargaining 21 power. 22 Q. And as an economist, if you -- if you stabilize 23 the relative bargaining power of a product seller, what 24 would you expect that to do to the income they receive? 25 A. To increase. 26 Q. So in that sense, the Federal Orders do increase 27 producer income, right? 28 A. Absolutely. 4357 1 Q. And even today, in the absence of Federal Orders, 2 would you expect that the bargaining power -- relative 3 bargaining power of producers to weaken if the orders were 4 eliminated? 5 A. Absolutely. Yes. Without a doubt. 6 Q. So that function of stabilizing producers' 7 bargaining power and bargaining position remains an 8 important consideration? 9 A. Yes. 10 Q. But you also clarify that the purpose for 11 Proposal 11 is not just to raise the price, is it? 12 A. Correct. 13 Q. Further on in your statement you talk a little bit 14 about some of the milk losses that occurred with hoses, 15 and you talk about multiple farm stops. 16 And I would ask you, perhaps, other than hose 17 losses, can you think of an area where there is inherent, 18 unavoidable, farm-to-plant loss that occurs? 19 A. I guess I'm drawing a blank on where in the 20 process for picking up at the farm to the plant that that 21 could occur. There's a known loss when you measure what's 22 in the bulk tank at the farm and then you transfer that 23 product to a truck and you know that not all of that 24 product makes it to the truck. But once the product is on 25 the truck, if you capture the weight at that point, then 26 you know what's going to be delivered to the plant. 27 Q. And then, on page 16, of Exhibit 216, the first 28 paragraph there that isn't a CFR citation, it says, 4358 1 "Select believes that the data," do you see that paragraph 2 there? 3 A. Yes. 4 Q. At the end of that paragraph, just to I guess 5 cap -- encapsulate what you are saying is that Proposal 11 6 is not an all-or-nothing proposition for Select, is it? 7 A. Correct. It is not all or nothing. 8 Q. Okay. One last thing. We introduced an exhibit, 9 Exhibit 179, into the hearing record. 10 And you were not here when that was introduced, 11 correct? 12 A. I was not present. I was viewing online, but I 13 was not here. 14 Q. So you are familiar with the Exhibit 179? 15 A. Yes. 16 Q. Have you seen it before? 17 A. Yes. 18 Q. Has your name on it, doesn't it? 19 A. Correct. 20 Q. Did you receive this e-mail from International 21 Dairy Foods Association? 22 A. I did. 23 Q. And the version that is Exhibit 179, is that an 24 accurate copy of the e-mail you received as the -- in the 25 form that you received it? 26 A. Yes. 27 Q. Is Select Milk Producers a member of IDFA? 28 A. Yes. 4359 1 Q. To this day, correct? 2 A. Correct. 3 MR. MILTNER: Your Honor, we would offer Mr. Allen 4 for any additional questions. 5 THE COURT: Anyone have any questions for this 6 witness, other than AMS? 7 CROSS-EXAMINATION 8 BY MR. ENGLISH: 9 Q. Good morning, Mr. Allen. 10 A. How are you doing? 11 Q. My name is Chip English, and I represent the Milk 12 Innovation Group. Thank you for your testimony. 13 I have -- I'd like to start with some, like -- I 14 think maybe some philosophical questions, as I read or 15 perhaps misread your testimony, so I -- I'm really trying 16 to understand. 17 So at some points in your testimony, you talk 18 about the USDA should use actual conditions in the 19 industry, correct? 20 A. Yes. 21 Q. And then at other times you talk about achievable 22 efficiencies, correct? 23 A. Yes. 24 Q. In your mind are those things the same? 25 A. Not necessarily. 26 Q. Would it be fair to say that even in its 27 terminology, achievable efficiencies doesn't necessarily 28 mean achieved efficiencies? 4360 1 A. Correct. 2 Q. So when you say, "Achievable efficiencies should 3 be promoted rather than discouraged," is it your view that 4 Federal Orders in some way do not en- -- presently, do not 5 encourage achievable efficiencies? 6 A. Yes. 7 Q. And how -- how are Federal Orders doing that in 8 your mind? 9 A. I think the underlying assumptions assume an 10 allowable amount of shrink to just occur, that it just 11 occurs, it is out there, and so the formulas just build 12 that into the assumptions on the yield factors. And I 13 think if the formulas were reflective of more of what 14 actually occurs in the industry, again, as I described, I 15 forgot what page it is on, but producers would benefit 16 from the change in the formulas and be able to use that 17 benefit to rationalize why they would make changes on 18 their farm to better reflect the weights delivered to the 19 plants. 20 Q. So -- but until they actually do that, they may be 21 get more income, but the plants who bought the milk from 22 them, assuming that those smaller farms have not yet 23 adjusted, wouldn't fully realize the benefit at the plant, 24 correct? 25 A. That's correct. 26 Q. Okay. And you talked about the income, I think 27 you said $3,000 for the 175-cow farm, correct? 28 A. That was the example given. 4361 1 Q. As an example. 2 Do you know how much it would cost that farm to 3 achieve that? 4 A. There's many options that could be deployed, so I 5 don't know exactly. 6 Q. But there is a cost to achieve that? 7 A. Yes. 8 Q. So what -- what should the Department -- I'm not 9 here to ask the questions for the Department, but 10 assuming -- you know, for a policy maker, I'm thinking 11 about other issues that have been before the hearing or 12 may come before this hearing. You understand that, for 13 instance, with Make Allowances, USDA has used weighted 14 averages of cost, correct? 15 A. Yes. 16 Q. Okay. And to the extent they used a weighted 17 average of costs, that would arguably encourage 18 efficiencies for those plants who are more costly than the 19 average, correct? 20 A. Ask that again, please? 21 Q. So -- so to the extent Make Allowances are based 22 on weighted average costs for plants -- 23 A. Yes. 24 Q. -- those plants that are -- have higher costs than 25 that weighted average, assuming they are currently up to 26 date or something, those plants will obviously face a need 27 to become more efficient and have less cost in order to 28 meet those goals, correct? 4362 1 A. Well, I think it depends on if the plant's being 2 priced under the Federal Order and is being held to the 3 Federal Order price. That's the assumption that you're -- 4 Q. Yeah. Yeah. Thank you for that. The assumption 5 here is that a plant is being held to the Federal Order 6 price. 7 A. If they were buying milk at the Federal Order 8 announced price, then they would be incentivized to reduce 9 their costs, I would agree. 10 Q. Does Select have a position, thinking about 11 achievable efficiencies, on whether the use of weighted 12 averages, whether for Make Allowances or yields, is the 13 right approach? 14 A. I don't believe we have gotten that far yet. 15 Q. Okay. And so when you testify about Select's 16 experiences, for instance, I'm looking at page 9, you are 17 not actually saying that everybody achieves that kind of 18 results, correct? 19 A. On page 9, where did you want to direct me to 20 look? 21 Q. Well, I'm sorry, actually's page 10. 22 A. Okay. 23 Q. In aggregate, farm weights and plant weights align 24 nearly perfectly with a difference of less than 0.1%, and 25 that, you know, the losses are, you know, very, very 26 small. 27 You would agree that not everybody is presently 28 achieving that, correct? 4363 1 A. Don't know. That's the challenge. That's what we 2 are -- that's what this section is about is we don't have 3 data other than our own, so we are willing to submit our 4 data for the record. 5 Q. And your data reflects -- you know, you have a 6 hundred -- this is where I was on page 9, so I got ahead 7 of myself. 8 A. Okay. 9 Q. Your data reflects that you have 115 dairy farms, 10 you know, translated for standard loads at 192,000 loads. 11 My quick math suggested that's somewhere in the 12 neighborhood on average of four and a half loads per day 13 for those farms? 14 A. That's very fair. 15 Q. Okay. Are you aware of the size of farms, say, in 16 the Northeast? 17 A. Yes. 18 Q. Is it fair to say that a lot of farms in the 19 Northeast are very small? 20 A. Yes, they are. 21 Q. Have you ever been to Maine? 22 A. I have. 23 Q. You have? Have you ever seen tankers in Maine? 24 A. They are not the same as the ones that are in 25 Texas or in Michigan. How about that? 26 Q. Okay. Do you know that they don't even hold 27 40,000, they are smaller than that, because the Maine 28 roads won't take tankers that large? 4364 1 A. I can't say personally I have experienced that, 2 but I have heard that before. 3 Q. Okay. And that might very well be true in Vermont 4 and New Hampshire, correct? 5 A. I think I have seen larger tankers in Vermont 6 without a doubt. 7 Q. So you've focused some of your attention on 8 page 12 on discussion about volumes of milk and how that 9 has changed since 2000. 10 Volumes -- you focused on volumes rather than the 11 actual number of farms, correct? 12 A. Yes. 13 Q. Okay. And it's axiomatic that it would take a 14 larger number of small farms to achieve a volume than the 15 large farms, correct? 16 A. Yes. 17 Q. Okay. So when you say that in your estimation, 18 now, 75 or 80% of the volume is from farms that have a 19 full tanker load, that necessarily means that more than 20 20% -- if 20% volume is smaller than that, that's got to 21 be more than 20% of the farms, correct, by math? 22 A. You've got me in front of a crowd asking questions 23 on math, so you are going to have to give me a second. 24 Could you ask that again, please? 25 Q. You want me to start over? 26 A. Yeah. I don't know if you got -- 27 Q. I had a question, but then the -- so given my 28 question about axioms in terms of math, in terms of volume 4365 1 versus numbers, if -- if -- if 80% of the volume in your 2 view, including every-other-day tank pickups, would be 3 full tankers, that additional -- that left-over 20% volume 4 by necessity has to be more than 20% of the farms? 5 A. Yes. And that's where I got lost was the 6 difference between volume and farms. That's why I was 7 asking you to repeat it. 8 Q. Well, and I appreciate that because I got lost in 9 your testimony between volume and farms, so -- 10 A. Understood. Understood. 11 Q. So I understand what you are trying to get at. 12 And I understand the idea that for -- you know, for farms 13 there would be a financial incentive to make the 14 changeover. 15 But part of what you are telling us is, hey, we 16 have our evidence, but we don't know what's happening in 17 the rest of the industry, correct? 18 A. That is correct. 19 Q. Okay. And so that is one reason why you, you 20 know, would like at some point at least for there to be a 21 study on yields, correct? 22 A. Yes. 23 Q. Has Select sought out to have a yield study done 24 by industry sort of like what Dr. Stephenson did on 25 Make Allowances? 26 A. I don't believe so. 27 Q. And you acknowledge that each time a milk truck 28 stops to pick up milk, there's potential for spillage, 4366 1 correct? 2 A. Yes. 3 Q. Is there some risk that if your proposal is 4 adopted without having done a yield study, that plants 5 purchasing milk from farms in the Upper Midwest or, say, 6 the Northeast where there are smaller farms will stop 7 buying milk from smaller farms? 8 A. I don't think so. 9 Q. Is there some risk that until that money actually 10 gets through to the smaller farms and they can adjust, 11 that they as small businesses may be more affected by the 12 change in regulations than larger farms? 13 A. Small businesses may be more affected than larger 14 farms? Did you mean both farms in that scenario? 15 Q. Yes. 16 A. Smaller farms would be more impacted than larger 17 farms? 18 Q. Yes. 19 A. As a percentage of -- everything we're talking 20 about is a percentage of milk, so I don't think so. 21 Q. Do you know for a fact that -- your statement on 22 page 12 refers to assuming every-other-day pickups? 23 A. Correct. 24 Q. Do you know for a fact that that's actually how it 25 occurs in the Northeast, that in order to avoid more 26 pickups, that they actually do that, or that maybe because 27 the routes the way they work, people actually pick up the 28 milk from less than full loads every day? 4367 1 A. Yes. There are plenty of instances where 2 less-than-full loads are picked up. 3 Q. So is it fair to say that we are -- you know, 4 obviously Select has its experience, which is terrific and 5 it is well known for innovation and for its success. 6 But nonetheless, in an industry where not everyone 7 has farms the size of Select, that your achievable 8 efficiencies are theory and not necessarily reality? 9 A. There's -- there's a certain amount you can show 10 as data. And there's a certain amount that's experience 11 and a certain amount that's anecdotal. We felt like we 12 did the best we could to bring data forward. 13 I can speak to experience where there's challenges 14 with labor, and driver wages are becoming more and more of 15 an issue in the industry, and where there's more of a push 16 to cut back on how much driver time is spent at farms. 17 And so there's technology being invested and implemented 18 on tankers to better reflect or -- and the goal is to 19 reduce driver time on the farms, but what actually ends up 20 happening is you now measure weights at the tank -- the 21 pickup truck instead of the bulk tank. So there's other 22 things that are going on in the industry that aren't just 23 specific to the dynamics and the economics of just the 24 milk price. 25 And so I think there's a lot that's changed in 26 20 years in the industry that hasn't been captured, that 27 better reflects that what is being delivered to plants is 28 closer to what's -- what the farms say they are shipping. 4368 1 So I know that was a long way to answer your 2 question. But, again all I can say is we have the data we 3 have, and that's the best we can do. 4 MR. ENGLISH: Thank you. That's all I have. 5 Appreciate your time. 6 THE COURT: Other questions for this witness, 7 other than AMS? 8 MS. HANCOCK: Your Honor, I have a few, but I 9 don't know what we want to do for lunch time. 10 THE COURT: Either way. 11 (Off-the-record.) 12 THE COURT: Let's break for lunch and come back at 13 1:15. 14 (Whereupon, a luncheon break was taken.) 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 4369 1 MONDAY, SEPTEMBER 18, 2023 - - AFTERNOON SESSION 2 THE COURT: Welcome back. You are still under 3 oath. 4 CROSS-EXAMINATION 5 BY MS. HANCOCK: 6 Q. Okay. Good afternoon, Mr. Allen. We have met off 7 the record, but I'm Nicole Hancock. I represent National 8 Milk. Thanks for being here today. 9 I just want to cover a few things in your 10 testimony. If you could turn to page 5. This is the 11 section you kind of fast forwarded over just because it 12 looks like it is just the calculation of factors and 13 saving us some time in reading testimony. Appreciate 14 that. 15 Did you do -- this is -- these are your 16 calculations that start on page 5? 17 A. This is the USDA calculation. 18 Q. Well, that you have included -- well, I guess you 19 take USDA's numbers and then you have applied your own 20 calculations to it as well? 21 A. Yes. 22 Q. Okay. So on page 5, for example, we're under the 23 butterfat yield factor, the last sentence of the first -- 24 or the last sentence of the last full paragraph on that 25 page, you have done a calculation dividing 1.0 by the .82 26 divisor in the butterfat formula results in a yield of 27 1.2195, which rounded to two decimal places is 1.22. 28 I'm just curious why you chose the rounding that 4370 1 you did to two decimal places as opposed to continuing 2 with the four decimal places? 3 A. I thought that was consistent with how it had 4 previously been calculated by USDA. 5 Q. Okay. And in this example it just results in a 6 rounding up to 1.22; is that fair? 7 A. Yes. 8 Q. Okay. And then if we go to the next page, under 9 the cheese protein yield factor, in that example, you have 10 stayed with -- well, you went from 1.3864, and then you 11 rounded that one to three decimal places. 12 Any reason why that one you took out to three? 13 A. Again, I thought we were being -- our approach 14 here was being consistent with how USDA had presented in 15 their testimony -- or in their final decision. 16 Q. Okay. Do you have a preference which way you 17 think it should be done? 18 A. I guess for consistency sake, just do it the same 19 way USDA had done it. Like the approach that I took, yes. 20 Q. Okay. And then just so that we're clear, the same 21 would be true on -- if we look 7 going onto page 8, for 22 nonfat dry milk, it looks like that one we took to just 23 two decimal places, and you rounded up there again? 24 A. Yes. Same method. 25 Q. Okay. And then on dry whey yield factor, which 26 goes over to page 9, that one you took out to two decimal 27 places. And that one actually ended up rounding down. 28 A. Looks like. 4371 1 Q. Same thing? 2 A. Yes, slightly. Yep. 3 Q. Okay. You had mentioned in your testimony that 4 Select has recently constructed a state-of-the-art 5 facility? 6 A. Yes. 7 Q. Where is that located? 8 A. The most recent one is in Littlefield, Texas. 9 Q. Okay. How -- how many plants have been 10 constructed in the last ten years by Select? 11 A. I believe two if my math is right. Well, close to 12 ten years on the one in Coopersville. 13 Q. Okay. So the two would be Littlefield, Texas, and 14 Coopersville? 15 A. Yes. 16 Q. Okay. And what do you produce in Littlefield? 17 A. It is -- it's not listed here. Yeah, it just says 18 dairy powder. So we would do -- and I can get better -- 19 or you will have other witnesses from Select that will be 20 able to better answer that question if I'm not correct, 21 but it would be nonfat dry milk and I think skim milk 22 powder, along with condensed and cream. And butter. 23 Q. Okay. Who would be the witness that you said is 24 coming up that would be potentially better informed about 25 it? 26 A. Definitely Steve Cooper and then Cheslie 27 Stehouwer, either one could answer that question 28 specifically. I think I got it mostly correct though. 4372 1 Q. Okay. And then -- and when was that -- when did 2 that plant open up? 3 A. The Littlefield, Texas, plant was 2014. No. 4 Sorry. It's -- even I lose track of these time lines. 5 2019 was Littlefield. 6 Q. Okay. And then Coopersville, is that the one that 7 was 2014? 8 A. 2000 -- 2012 is when that plant was built. That's 9 why I was saying it was around ten years. I knew it 10 wasn't exactly ten years or within that ten-year window. 11 Q. Okay. And what do you produce there? 12 A. Same thing, the nonfat dry milk, skim milk powder, 13 condensed cream, and butter. 14 Q. Do you know what you spent in constructing those 15 facilities? 16 A. I do not. 17 Q. Safe to say hundreds of millions of dollars as we 18 have seen with other plants? 19 A. Feel safe, yes. 20 Q. And when we -- you have had some testimony, I 21 don't want to rehash it, but you have already had some 22 questions and provided some responses, which I think are 23 very candid about, you know, you recognize that you're 24 providing somewhat of a limited dataset when you provide 25 Select's yield data; is that fair? 26 A. Yes. 27 Q. And in a perfect world, or even in a much more 28 improved world, you would have a much larger sampling size 4373 1 of actual data from others as well? 2 A. Yes. 3 Q. And so do you agree that having a mandatory 4 audited cost survey that would also include yield data 5 would be a better methodology for collecting and analyzing 6 the numbers that are -- that you are proposing today? 7 A. It would be a good methodology. When you say 8 better -- is that the word you used was better? 9 Q. Well, better than one sample size. 10 A. Yes. I agree with that. 11 Q. Okay. But do you believe that it would be a good 12 methodology as well? 13 A. Yes. 14 Q. Okay. And so do you support the concept of having 15 a mandatory audited cost survey that would also include 16 yield data as well as the cost data that we have been 17 talking about for Make Allowances? 18 A. Yes. 19 Q. And you have already covered some of this with 20 Mr. English. But it's fair to say that the farms that 21 produce milk or from whom Select purchases its milk tend 22 to be on the larger size; is that fair? 23 A. Our member farms are larger, but I wouldn't say 24 that all the farms we purchase from are larger size. 25 Q. Okay. Member farms that are larger tend to build 26 in some additional efficiencies? 27 A. Again, what are we comparing against? 28 Q. Against smaller farms? 4374 1 A. I would believe that. 2 Q. Okay. And that would include also the capability 3 of implementing some of the -- of the measuring tools or 4 technologies or the efficiencies that you think would be 5 potentially encouraged by -- by your proposal? 6 A. I don't think those technologies are limited to 7 just certain type -- certain size farms, no. 8 Q. But do you agree that the larger farms have a 9 greater capacity because of those efficiencies, a greater 10 financial capacity to be able to implement those -- those 11 tools already? 12 A. Again, it depends on the tool that's being 13 implemented. A scale is one thing. That's a large fixed 14 cost. So that's a different approach than I -- I 15 butchered it, but I was trying to elaborate on the 16 scenario in the Northeast where because of hauling cost 17 challenges, there's actually work by the co-ops to 18 implement technology on the tankers that reduce the 19 hauling costs associated with picking up milk, but it also 20 creates a benefit to the farms that they have better 21 measure of the weight of the milk collected on the tanker. 22 So, again, that's not necessarily a cost borne 23 directly by those farms for that technology. It may be 24 shared across the members of that co-op. But it is not 25 the same as putting a scale at a single farm. There's 26 different approaches or different solutions, different 27 costs. 28 Q. Okay. And in that example, it would be a 4375 1 measuring tool that was put on the tanker, and it would 2 save the farm from having to put that into the -- become a 3 farm expense? 4 A. You assume that they have already had some sort of 5 measuring device on their tanker -- I mean, on their farm 6 tank, and so this just adds another tool that now captures 7 the milk on the tank instead of the farm, bulk pickup -- 8 or farm bulk tank. 9 Q. Okay. Did Select participate in Dr. Stephenson's 10 survey for 2021? 11 A. I don't believe so, but I don't know specifically. 12 I was not a part of Select in 2021. 13 Q. And I think it -- did -- did Select participate in 14 Dr. Stephenson's study for 2023? 15 A. I don't believe so. 16 Q. Okay. And I think you had already talked about 17 with Mr. Miltner that you had been a recipient of IDFA's 18 letter that was encouraging all of its members to 19 participate in that survey; is that right? 20 A. Yes. 21 Q. Why did Select choose not to participate? 22 A. I couldn't answer that question. Just timing of 23 when that survey came out, I was new to Select. I don't 24 think I was fully involved to really appreciate what was 25 going on. 26 Q. And since you have been there and since you have 27 been preparing for this hearing, have you heard any 28 information that would help you have a better 4376 1 understanding about why Select did not participate? 2 A. I have been engaged with the board on these topics 3 and some of the other proposals, but I haven't gotten to 4 that level of detail, no. 5 Q. And then the same is true, you are not sure 6 whether Select participated in the 2021 survey? 7 A. I believe I answered that, no, I don't know why 8 Select did not participate. 9 Q. Okay. 10 MS. HANCOCK: That's all I have. Thank you. 11 THE WITNESS: Sure. 12 THE COURT: Are we ready for AMS? 13 Seeing no hands raised or other volunteers, this 14 witness is in your hands, Ms. Taylor. 15 CROSS-EXAMINATION 16 BY MS. TAYLOR: 17 Q. Good afternoon. 18 A. Hey there. 19 Q. Thanks for coming to testify this week. 20 A. Absolutely. 21 Q. Just a few questions that might not have been 22 covered by others. 23 I think on -- late in your testimony you say 24 there's 115 members of Select? 25 A. Correct. 26 Q. Okay. And that you also buy milk from other 27 non-members? 28 A. Yes. 4377 1 Q. About how many non-members do you all buy milk 2 from? 3 A. Currently about a dozen. 4 Q. And when it comes to Select's members, I'm not 5 sure if you have listened in, I think you have been here 6 earlier in the hearing, on the Small Business definition 7 of $3.75 million? 8 A. Yes. 9 Q. Do you know how many of Select members would meet 10 that definition? 11 A. In the Southeast Federal Order hearing, we had to 12 answer that question, and I should have looked it up 13 before I got up here. I believe it was only a handful of 14 that dozen, but I don't recall specifically what that 15 number was. It was not all 12 to be clear. 16 Q. That's of the non-members? 17 A. Of the non-members, yes. 18 Q. And would any of the Select members meet the 19 definition -- 20 A. Oh, no, no. Sorry. 21 Q. Okay. And I'm not sure it's covered in your 22 testimony, but where does Select market milk? 23 A. The same places our farms are located: Texas, New 24 Mexico, Indiana, Ohio, Michigan are the primary locations, 25 and then we do have supplies into the Southeast on a 26 year-round basis as well. 27 Q. I'm going to turn to your testimony first. 28 On the first page, when you are doing the overview 4378 1 of your proposal, and you say, "In combination, these two 2 assumptions presume that .68% of butterfat is lost between 3 the farm and the plant." 4 Can you just tell me the math to get to this .68? 5 A. Yeah. It's on -- just assume 3.5 pounds of 6 butterfat, you have lost .25% of that, you do the 7 assumption in the formula, and then another 0.015 pounds. 8 So then you take your new result, divide it over the 9 original 3.25, and that should be the .68% difference. 10 Q. Okay. He got that. 11 A. Good. 12 Q. You can go back and read later to make sure we got 13 that. 14 Turning to page 10, and you list -- you are 15 talking about a little bit summarizing the upcoming 16 testimony of Ms. Campbell. And then you say the testimony 17 will demonstrate in the aggregate farm weights and plant 18 weights align nearly perfectly with a difference of less 19 than .1%. 20 And then I turn to the next page, in the last 21 sentence of that first paragraph, says, Her data will show 22 the shrink between farm to plant in Select's plans -- I 23 think that should be plants -- ranges from .1 to .15%. 24 When I read those two sentences, they seem different, but 25 trying to tell me the same thing, if that makes sense. 26 Is one like just on Select farms specifically and 27 one's on all the milk Select receives? 28 A. And that typo was plants, to be clear. So thank 4379 1 you for catching that. 2 So Harmoni will speak to Select sales of milk, so 3 that would include our member milk and then other milk we 4 market. So that will be sales primarily to customers. 5 And then Cheslie will speak to the milk purchased at our 6 plants, again, mostly from Select farms but also from 7 other parties. 8 Q. Okay. So sales and purchases are different? 9 A. Yes. 10 Q. And just to be clear, the purchases are just for 11 your two plants? 12 A. Yes. Yes. Milk processed at those -- received 13 and processed at those two plants, yes. 14 Q. Okay. On page 12, this is where you are talking 15 about, "The vast majority of milk produced in the U.S. is 16 produced on farms with sufficient cows to produce a full 17 tanker load at each pickup." And you cite some statistics 18 that kind of leads you to that conclusion on milk 19 production. 20 But have you looked up the numbers and how that 21 stacks up against farm numbers? 22 A. I guess I'm not tracking your question. 23 Q. Sure. So I mean you are talking about how a 24 majority of the milk produced, there's a difference of 25 looking about where most of the milk is produced, and 26 that's different than looking at the numbers of farms 27 impacted. So I'm going to use not real numbers. 28 A. Okay. 4380 1 Q. But let's say, 75 -- 70% of the milk is produced 2 on 15% of the U.S. farms. That is different locations 3 than looking at the fact that 85 -- now I'm going to 4 confuse myself -- but -- well, now these numbers aren't 5 going to add up. But, you know, 20% of the milk is 6 produced on, I don't know, 80% of the farms. I know my 7 numbers don't add up. But you get the point I'm trying to 8 make? 9 A. I get your concept, yes. 10 Q. Yeah. So I guess what I'm asking is here you are 11 talking about where the -- the milk production numbers, 12 now I'm asking about the farm numbers, the impact of how 13 this would impact farms. 14 A. I think it would impact all farms, not just 15 specific farms. I think -- 16 Q. Can you talk into the mic? 17 A. Yeah. It would impact all farms, not just 18 specific farms. And when you are saying the impact, I 19 don't -- you are talking about the proposal and the 20 changes that would occur within the pricing formulas? 21 Q. Yeah. Well, I think your testimony talks about 22 how there's a capability for -- at farms that produce a 23 lot of milk, they can ship full tanker loads, and 24 therefore they are not experiencing these farm-to-plant 25 losses. 26 A. Right. 27 Q. So my question is, on the farms that don't produce 28 full tanker loads of milk, so it takes three farms to fill 4381 1 up a tanker or whatever -- 2 A. Right. 3 Q. -- you know, they don't have -- do they have the 4 abilities to reduce those farm-to-plant losses, or put a 5 different way, is you talk later on the technologies 6 available to those farms that invest in to -- to eliminate 7 or lessen those losses. And how frequently is that done, 8 how prevalent is that amongst those farms, not amongst the 9 big farms that can ship a full tanker, but amongst the 10 smaller farms who don't have that capability? 11 A. I don't know. And I guess I would say I'm not 12 sure if this goes along with the concept, but I think it 13 does. It's just as important as not just where the milk 14 is produced but where it's purchased. And, again, 75% of 15 the milk in your example was purchased from farms that 16 were larger than a certain size. So, again, it goes back 17 to the impacts are felt at the plant and at the farm and 18 the milk purchased is still 75% of the milk. So there are 19 a lot of small farms, but that is a much smaller share of 20 the total milk supply that's being purchased. 21 Q. Okay. On the next page, in that first full 22 paragraph, you are talking about consolidation in the farm 23 side, and in 2022 we had 27,932 farms. 24 The next sentence reads, "It is therefore 25 reasonable to assume that the volume of milk produced from 26 these farms is now well above 80%." 27 Who is "these farms" in this sentence? 28 A. Well, we had detailed statistics for the 2016 set 4382 1 of farms, which was 41,819. So we had a breakdown of that 2 41,819. We don't have a breakdown of the 27,932. But if 3 you apply some of the same assumptions of percentage of 4 farms in the different size categories, "these farms" 5 would be that 27,932. 6 Q. But if I assume the same breakdown of -- of 7 2016 -- 8 A. Of that same dataset in 2016 -- 9 Q. Okay. 10 A. -- you apply that to -- yeah, sorry. 11 Q. Okay. I got you now. 12 A. I lost you there, but thank you for keeping up 13 with me somehow. 14 Q. Yeah. Okay. 15 On page 14 -- okay, I'm using part of this hearing 16 to learn new things. 17 So on page 14, I think you added a word on that 18 second -- the first full paragraph, talking about they can 19 "adopt, you know, farm scales, flow measurement, and other 20 technologies to eliminate much of the imprecision and 21 inaccuracies that can result from the utilization of" -- I 22 think you added the word outmoded dipsticks when you read 23 your sentence. 24 A. Uh-huh. 25 Q. And similar tools. 26 And I guess, I'm not sure if you added that word, 27 but if you did, could you explain what that means? 28 A. Yeah, I probably misspoke on that one. I was 4383 1 reading from a bad version of my draft. 2 Q. Okay. 3 A. Yep. 4 Q. Okay. Thank you. 5 On the analysis of impacts, you use a five- and a 6 ten-year average. 7 What time period is that for? 8 A. So it was the period ending April of 2023. So if 9 you just go back 60 months and 120 months before that, you 10 would -- you would get your time period. 11 Q. Okay. And then what prices did you look at when 12 you did this analysis, if we wanted to go back and do it 13 ourselves? 14 A. It was the -- 15 Q. Announced? 16 A. Yeah. The monthly announced commodity prices in 17 the pricing formulas. 18 Q. Okay. And on page 16 in your conclusion, at the 19 very bottom, you write, "Butterfat losses to the extent 20 they occur do not occur at a rate greater than overall 21 solids losses." 22 And I was wondering if you could just expand on 23 that because I don't think much of your testimony covered 24 that particular piece. 25 A. Yeah. My testimony just outlined what will be 26 discussed in more detail by the other witnesses. So I can 27 try to elaborate, or maybe they could -- just when they 28 give their testimony, they could address that. 4384 1 Q. Okay. That's fine. 2 MS. TAYLOR: I think that's it from AMS. Thank 3 you. 4 REDIRECT EXAMINATION 5 BY MR. MILTNER: 6 Q. Ryan Miltner representing Select Milk Producers. 7 Good afternoon, Mr. Allen. I have a couple of 8 follow-ups based on the questions you have already gotten. 9 So do you have a calculating device near you? 10 A. I do. 11 Q. Okay. You had a question from Ms. Hancock about 12 the butterfat yield factor, and I want to just clarify for 13 the record what I think we have here. 14 Can you just divide 1 divided by .82 and tell me 15 what you get out to about, I don't know, four or five 16 decimal places? 17 A. 1.2195. 18 Q. Okay. So if you wanted to round that to the three 19 decimal places that are in the current regulation, what 20 would you round to? 21 A. 1.22. 22 Q. So it would have rounded to 1.220 if you went to 23 three spots, right? 24 A. Yes. 25 Q. Okay. Thanks. 26 AMS asked you some questions about the breakdown 27 of the volume of milk shipped on full tankers and the 28 number of farms and how those broke down across size 4385 1 categories. Now, you answered a little bit about the -- 2 on the plant receipts side, and I wanted to just ask a few 3 more questions about that. 4 So, for a receiving plant, would it be correct 5 if -- if they were -- if they were -- if that plant were 6 receiving milk from a milk shed whose composition kind of 7 matched the national average, you would expect that about 8 80% of those truckloads would come from a full single farm 9 pickup, right? 10 A. Based on the assumption we've applied using the 11 2016 data, yes. 12 Q. And that the remaining 20% of loads or so would 13 come from routes with multiple stops, correct? 14 A. Yes. 15 Q. And so it would -- to the farm -- or to the plant 16 that's making those purchases, in terms of the loss, if 17 there's a -- if there's a difference in -- in the amount 18 of loss on a single pickup tanker and a multi pickup 19 tanker, would they really care how many farms are impacted 20 or would they be more focused on what the tanker profile 21 looks like? 22 A. How are you defining the tanker profile? 23 Q. Whether it is a single farm pickup or a multi-farm 24 pickup. 25 A. The tanker profile would have more weight. 26 Q. Okay. 27 A. And when I say "weight," I mean weight in that 28 decision, not weight of milk. I just realized we're 4386 1 talking about shrink and I'm throwing out the word 2 weight -- the term weight. I meant more weight toward the 3 decision that was being made. 4 Q. I understood it that way, but thank you for 5 clarifying. 6 MR. MILTNER: Your Honor, I don't have any 7 additional questions for Mr. Allen on this piece of 8 testimony. We would move the admission of Exhibit 216. 9 THE COURT: Seeing no objections, Exhibit 216 is 10 admitted into the record. 11 (Thereafter, Exhibit Number 216 was received 12 into evidence.) 13 THE COURT: You may step down from the stand. 14 Thank you. 15 MR. MILTNER: We did admit Exhibit 179 previously, 16 did we? 17 THE COURT: Yeah, I had a -- I was going to ask 18 the same question. 19 MR. MILTNER: I thought we did, but if we did not, 20 I would like to move the admission of Exhibit 179. 21 THE COURT: Any objections. 22 Exhibit 179 is admitted into the record. 23 (Thereafter, Exhibit Number 179 was received 24 into evidence.) 25 MR. MILTNER: Thank you. 26 Your Honor, we would call Ms. Harmoni Campbell to 27 testify. 28 THE COURT: Welcome to the stand, Ms. Campbell. 4387 1 Please raise your right hand. 2 HARMONI CAMPBELL, 3 Being first duly sworn, was examined and 4 testified as follows: 5 THE COURT: Your witness. 6 MR. MILTNER: Thank you, your Honor. We're 7 distributing her testimony here. 8 THE COURT: Let's go off the record while we do 9 that. 10 (Off-the-record.) 11 DIRECT EXAMINATION 12 BY MR. MILTNER: 13 Q. Good afternoon, Ms. Campbell. 14 A. Hello. 15 Q. You are going to need to speak close to that mic 16 just to make sure it picks up everything. 17 A. Yes, sir. 18 Q. Would you be kind enough to state and spell your 19 name for the record? 20 A. Yes. I am Harmoni Campbell, H-A-R-M-O-N-I, 21 C-A-M-P-B-E-L-L. 22 Q. And, Ms. Campbell, could you give your business 23 address for the record as well, please? 24 A. 320 West Hermosa Drive, Artesia, New Mexico. 25 Q. 88 -- 26 A. 88210. 27 Q. 210. Almost said 201. That's Roswell. 28 A. It is. 4388 1 Q. In front of you, you have a document that's 2 labeled Exhibit Select-2; is that correct? 3 A. Yes, sir. 4 Q. And are you familiar with that document? 5 A. Yes, sir. 6 Q. And that's the testimony that you have prepared in 7 support of Select's Proposal 11, correct? 8 A. That is correct. 9 Q. Okay. Now, Mr. Allen gave a kind of an 10 abbreviated statement different from what was printed. 11 Are you going to provide -- are you going to read 12 the entire statement that you have got there? 13 A. Yes, I am. 14 Q. Okay. Then if you want to go ahead and do that, 15 and when you are done, we may have a few additional 16 questions of you. Okay? 17 A. Okay. 18 Q. Thank you. 19 THE COURT: Should we mark it? 20 MR. MILTNER: Yes. Let's mark the exhibit. 21 THE COURT: This exhibit, Select-2, is marked 217, 22 for identification. 23 (Thereafter, Exhibit Number 217 was marked 24 for identification.) 25 MR. MILTNER: Thank you. I hope to not be 26 reminded again. 27 THE COURT: No worries. 28 THE WITNESS: Hi. Thank you all for having me 4389 1 here. My name is Harmoni Campbell. I am the senior 2 accounting manager for Select Milk Producers. I hold a 3 Bachelor's degree in accounting from Eastern New Mexico 4 University, and I have been employed as the accounting 5 manager at Select Milk for ten years. Before joining 6 Select, I worked as an accounting manager for an 7 exploration and production oil and gas company. 8 I oversee a seven-person department responsible 9 for balancing the milk receipts across plants, farms, and 10 haulers. Our department is responsible for accounting for 11 every single load of milk produced by our members or sold 12 by Select to any customer. 13 For every milk shipment, our accounting department 14 will invoice the receiving plant, pay the hauler, and 15 ultimately pay our producers. Within two to four days of 16 milk leaving the farm, Select's accounting department will 17 have received all necessary records from the supply chain, 18 processed that data, analyzed it, and cleared any errors 19 or discrepancies. 20 Receipt balances are confirmed with every plant 21 for the first 15 days of the month, referred to as the 22 advance, and, again, at month end, the settlement, to 23 confirm all shipments received at the plant for the entire 24 month. Plants are also invoiced on these balance totals 25 for both the advanced and settlement periods. 26 I was asked by Chris Allen, Select's director of 27 industry relations and analytics, to analyze Select's 28 available data on milk shipments, including farm weights 4390 1 and plant weights. I was asked to analyze this data to 2 provide relevant information about the differences between 3 farm and plant weights. This data and analysis was 4 performed by me in conjunction with Chris Allen and 5 additional Select staff. These analysis were prepared to 6 support Select's proposal to change the yield factors used 7 in minimum price formulas. All of the underlying data is 8 regularly collected and maintained by Select's logistics 9 department and accounting department as part of our 10 regular operations. 11 I am aware of the purpose of Select's proposal, 12 and that if adopted, it will impact the minimum prices 13 paid to our members, but I am not an expert on Federal 14 Order language and price formulas. The scope of my 15 testimony is limited to describing the data and analysis 16 performed by me or under my supervision to support 17 Proposal 11. 18 I want to describe the data that Select collects 19 and maintains. Select markets the milk of our member 20 producers to multiple customers, primarily in the 21 Southwest Marketing Area Order 126 and the Mideast 22 Marketing Area Order 33. 23 In addition, some of our members' milk is marketed 24 to customers in adjacent Federal Milk Marketing areas. 25 Select's customers include manufacturers of all classes of 26 milk. 27 In a typical month, Select member milk is 28 delivered to approximately 20 customer plants, with spot 4391 1 milk being sold to several other plants. In a typical 2 month, significant deliveries are made to plants 3 manufacturing products in all four classes. 4 For a typical load of milk produced by a Select 5 member, a farm pickup is scheduled by Select through the 6 contracted hauler. Select's logistic team is responsible 7 for coordinating the pickup with the hauler and the farm. 8 At pickup, the milk hauler scales in at the member farm, 9 loads milk directly from the bulk tank, draws the required 10 milk samples for analysis, tags the load, and then scales 11 out. This farm scale weight provides the basis for 12 Select's farm weights. 13 Amongst Select's customers, the procedures vary 14 upon delivery. About half of Select's customers do not 15 report any plant weights, except when a significant 16 discrepancy is observed. In a typical year, our 17 accounting staff fields less than a dozen such inquiries. 18 For the remainder of Select's customers, the receiving 19 plant reports back to Select plant weights which are input 20 and confirmed and any errors cleared. 21 Select uses -- Select utilizes software and 22 procedures to collect, process, and analyze producer milk 23 production and shipments, milk composition, logistics 24 data, quality information, and other related data points. 25 This integrated data management tool, Mobile Manifest, 26 allows Select to track individual milk shipments from farm 27 to plant. It also allows Select to analyze all the 28 shipments from a particular farm, all of the shipments to 4392 1 a particular customer, all shipments through a specific 2 hauler, all shipments within a given date range or range 3 of dates, and additional data points. 4 I utilized the Mobile Manifest data to perform 5 several analysis related to the issue of farm-to-plant 6 losses. These analysis are discussed further below, and 7 two tables at the end of my statement summarize this 8 information. 9 I pulled from Mobile Manifest a report of all 10 Select Milk shipments for a one-year period of August 1st, 11 2022, through July 31st, 2023. This report encompassed 12 171,240 distinction milk shipments, with an aggregate 13 manifest weight of approximately 9.8 billion pounds. Over 14 that period, Select shipped to -- I'm sorry, let me try 15 that again -- over that period, Select shipped milk to 88 16 distinct plants and utilized 27 different haulers. 17 From that report, I was able to determine the 18 percentage of shipments that had a corresponding plant 19 weight. I found that a plant weight was reported back to 20 Select on 89,899 loads. That's 52.5%. And 81,341 loads, 21 47.5%, had no reported plant weight. Of all the loads 22 with a reported plant weight, 39,337, or 23%, reported no 23 variance. 24 Realistically, it is unlikely that the scale would 25 report the exact weight as the farm, but this demonstrates 26 that for most loads, the plant either accepts Select's 27 farm weights outright without reporting back or that the 28 weights are so close to farm weights as to not merit a 4393 1 more precise measurement. 2 I then identified those loads of milk where the 3 hauler or plant reported back a clearly erroneous weight. 4 These clear errors included missing digits in the reported 5 weight, decimal point errors, or where the plant weight 6 was off by an even 1,000 or 10,000 pounds, or reported 7 weights so different that there's a clear error or other 8 problem. These accounted for 1,121 loads, .7%. 9 After removing these loads, I was left with a 10 total of 49,442 loads of milk, 28.9% of the annual load 11 total, with an actual reported plant weight reflecting a 12 variance from farm weights. 13 I analyzed the loads for positive and negative 14 variances. Of those loads, 21,822 which represents 15 44.1% of loads with variances, showed a positive variance, 16 where the plant weight exceeded the farm weight. And 17 27,619 loads, or 55.9% of those with variances, showed a 18 negative variance, where the plant weight was less than 19 the farm weight. 20 I then summed the negative and positive variances 21 for these loads. The total was a net negative variance of 22 1,331,434 pounds, representing a farm-to-plant shrink of 23 .04% on the total volume of those 49,442 loads. 24 On the whole, the weights of the loads with 25 reliable farm and plant weights were essentially equal. I 26 then reviewed the remaining shipments and removed another 27 subset of shipments where there were known issues that 28 affected the accuracy of the farm weight and plant weight 4394 1 comparison. My decision on which loads to place in this 2 category was based on my judgment as well as the 3 experience of my team. We identified one hauler and 4 customer who has had issues with the consistency of plant 5 weight reports due to the use of a drop yard. All of 6 those loads were excluded. Similar judgments were made 7 with respect to other customers. 8 After removing these loads I was left with 20,964 9 loads of milk, 42.4% of loads with an actual reported 10 plant variance reflecting a variance from farm weights. I 11 analyzed the loads for positive and negative variances. 12 Of those, 41% showed a positive variance where the plant 13 weight exceeded the farm weight, and 59% showed a negative 14 variance where the plant weight was less than the farm 15 weight. I then summed the positive and negative variances 16 for these loads. The total was 1,191,125 pounds, 17 representing losses of .07% on the total volume of those 18 20,964 loads. 19 I separated those loads into two categories. In 20 the first category I placed those whose plant weights were 21 within .5% of the farm weight. This accounted for 15,579 22 loads. In the second category I placed those loads with a 23 variance that exceeded .5%. Those loads accounted for 24 5,385 loads. Variances over .5% could occur for multiple 25 reasons, of which Cheslie Stehouwer from Continental Dairy 26 Facilities will provide more context. 27 In most instances, these discrepancies represent 28 identifiable fixable issues, many of which are wholly 4395 1 outside the producers' control or can be corrected by the 2 producer. 3 Tables 1 and 2, that follow, summarize everything 4 I just read. 5 So to conclude the testimony, most Select 6 customers accept farm weights and tests and report no 7 plant weight at all or log the farm weight as their plant 8 weight. Of the minority of loads where a plant weight is 9 reported, it is about as likely that the plant weight will 10 exceed the farm weight as it is that the farm weight will 11 exceed the plant weight. 12 Where the discrepancy between farm and plant 13 weight is particularly larger, non-shrink factors are the 14 cause in virtually every instance. Analysis of the subset 15 of loads where variances remain, the net variance across 16 all of these loads is less than .1%. 17 Thank you. 18 BY MR. MILTNER: 19 Q. Thank you, Ms. Campbell. I wanted to follow up to 20 get some additional detail on what you just testified to, 21 if I could. 22 The first question I would have, is you said you 23 have worked with Select for ten years now? 24 A. That's correct. 25 Q. What year were you hired? 26 A. 2013. 27 Q. So you were not part of Select during the last 28 time there was a hearing on formula factors in the Federal 4396 1 Order backs in 2007 then, were you? 2 A. I was not. 3 Q. Were you working with that oil and gas company 4 then? 5 A. Yes. 6 Q. Okay. So I want you to think back to the systems 7 and the software and the tools that you had available when 8 you started working at Select. 9 And what were you hired to do, by the way, when 10 you first were hired at Select? 11 A. When I was first hired, I was hired to reconcile 12 all of the work that I do now, described in the beginning 13 of my testimony, which is balance all of the milk and pay 14 producers, haulers, and invoice plants. So I was the 15 person reconciling that when I first started. 16 Q. So thinking back to that time when you were hired, 17 was there -- were there the tools and information 18 available to you to do the type of analysis that you did 19 in preparing your testimony here? 20 A. No, there was not. 21 Q. And so if you -- if you think about the systems 22 and the processes in place that existed then, how have 23 they changed in the ten years that you have been doing 24 this? 25 A. We have converted to electronic manifests, and 26 that pretty drastically changed all of the systems in 27 place where we capture significant ly more data on pickups 28 than we did historically. 4397 1 Q. And so before it was computerized and digitized, 2 was there any repository that would allow you to easily 3 analyze or sort 170,000 milk shipments? 4 A. No, there was not. 5 Q. So I'd also -- now I'd like to walk through really 6 the tables you have on the last page of your testimony. 7 A. Okay. 8 Q. And so I'm looking at Table 1 and the row which 9 reads "no reported plant weight." Just for clarity that 10 means that 47.5% of the shipments that are made by Select, 11 the plant does not report any information back to Select 12 on the weight at receipt; is that correct? 13 A. That is correct. 14 Q. And as a result, we certainly can't, or Select 15 certainly can't, analyze any shrink on those loads at all, 16 could they? 17 A. That is a correct statement. 18 Q. So now the next row reads, "plant weight identical 19 to farm weight." And you testified that in those 20 instances you do get a weight reported at point of 21 receipt, but it's exactly the same as the farm weight, 22 correct? 23 A. That is correct. 24 Q. Okay. And you made an assumption that in almost 25 every case that's not an actual plant scale weight, 26 correct? 27 A. Correct. 28 Q. Hypothetically, if you were going to include those 4398 1 39,337 loads in the analysis that you performed, would 2 that have materially skewed your average variance per 3 load? 4 A. Yes, it would have. It would have understated 5 what the shrink is. 6 Q. It would have understated the shrink? 7 A. Yes, sir. 8 Q. So you made the decision to exclude those loads? 9 A. That is correct. 10 Q. Okay. The next one you have "clearly erroneous 11 weights," and it's a relatively small fraction of those 12 loads. But what would you see, for instance, that would 13 make you say, this is clearly erroneous, and you excluded 14 it then from your analysis? 15 A. In -- in this particular set of data, a great 16 example is one of the loads came in with 14 million 17 pounds. Now, with the adoption of Mobile Manifest, the 18 data flows straight into our system, so whatever the 19 driver or receiver has put in, flows in, and we see that, 20 which is why I was able to perform the analysis. So we 21 all know there's not a tanker on the planet that can hold 22 14 million pounds of milk. 23 Q. And that's an example -- 24 A. Clearly erroneous. 25 Q. An extreme one. But that was not the only 26 instance of that type of data you were working from, 27 correct? 28 A. That's correct. We would have some come in with 4399 1 one pound. We would have some come in that would be just 2 clearly 10,000 pounds off from, you know, what the actual 3 scale was. All typo errors. 4 Q. And you had -- did you have some that would come 5 in with, say, an even 50,000 pounds or something like 6 that? 7 A. Several, yes. 8 Q. Okay. And so you excluded those from your 9 analysis; is that correct? 10 A. That is correct. 11 Q. So that left you with 49,441 loads to look at. 12 And then you -- you separated those out, and you said 13 there were some with identifiable issues. And you noted 14 that at least for a chunk of those it was a particular 15 hauling company and a particular drop yard that created 16 some anomalies that you felt uncomfortable with; is that 17 right? 18 A. That is correct. 19 Q. And so I just want to go through here. Where, in 20 Table 2, the column of "all analyzed loads," that includes 21 those -- those -- those loads that you said had 22 identifiable issues, right? 23 A. That's correct. 24 Q. And so that includes that hauler, that drop yard, 25 and similar issues that you felt shouldn't be analyzed, 26 correct? 27 A. Yes, sir. 28 Q. When you included those, you had an average 4400 1 farm-to-plant shrink of 0.04% though, right? 2 A. Yes. 3 Q. Now, when you excluded those loads, if I'm reading 4 your table correctly, your farm-to-plant shrink is higher. 5 It's 0.07%; is that correct? 6 A. That's correct. 7 Q. So just so the record's clear, when you remove 8 those that you had issues, it ended up with a result that 9 somewhat less favorable than to Select's argument here, 10 isn't it? 11 A. Yes, sir. 12 Q. But you felt that was important to show the most 13 accurate dataset that you had available; is that right? 14 A. Yes. If we know that there's an issue, I did not 15 want to include that in the analysis. It would skew the 16 number in my opinion, regardless of what the outcome is. 17 Q. Okay. So one more thing that I noticed, and 18 it's -- it is very minor. But I want you to look at 19 page 5 of your testimony. And in the first full 20 paragraph, the line at the very end, the total was, 21 1,191,125 pounds. 22 Do you see that? 23 A. Yes. 24 Q. And if you look at Table 2, in the final column, 25 it is 1,191,225 pounds? 26 A. Oh, that is correct. 27 Q. So there's a -- there's an extra hundred pounds 28 there. 4401 1 Now, I'm sure we could go back to your work and 2 find out which one of those two is right. But a hundred 3 pounds of milk over 21,000 loads of milk, is that going to 4 make a material difference -- 5 A. No, it is not. 6 Q. -- on the conclusion? 7 A. No. 8 Q. Okay. Is there anything else that you want -- you 9 think needs to be explained about your statement before 10 other folks have a chance to ask you questions? 11 A. No. 12 Q. Okay. 13 MR. MILTNER: Your Honor, we'd make the witness 14 available for additional questioning. 15 THE COURT: Who else has questions? 16 CROSS-EXAMINATION 17 BY MR. ENGLISH: 18 Q. My name is Chip English, and I represent something 19 called the Milk Innovation Group. And I want to thank you 20 for your testimony, and I really have some, in my mind, 21 clarifying questions. 22 Some of it is like, what's a drop yard? 23 A. A drop yard is when the hauler is going to go drop 24 the tanker in the yard and leave it up to the plant to 25 shuttle it into receiving bays as needed. 26 Q. And what kind of problem would that create with 27 the consistency of plant weights? 28 A. We discovered that set different driver -- so we 4402 1 can't ensure that the same tanker -- that the same truck 2 that pulls the tanker in across the scale is the same 3 truck that pulls it back out across the scale, or driver. 4 Weight could vary. Cheslie is actually going to speak a 5 little bit more to the drop yard issue in her testimony, 6 but things like that would definitely skew the scale 7 weight. 8 Q. And not saying you should throw her under the bus 9 or anything, but -- 10 A. Right. 11 Q. -- when I'm asking questions if -- if -- I don't 12 want to spend time twice doing it, so if that's the 13 answer, I'm perfectly happy to reserve questions like that 14 for her. 15 So would that also be something to ask her about 16 if similar judgments were made with respect to other 17 customers, which is on page 5, right after the drop yard? 18 A. No, that -- no, those were my judgments. 19 Q. Okay. What -- just what categories of judgments 20 that you were making, if you can? 21 A. Identifiable known issues at the plant outside of 22 the drop yards. There are instances over the past 23 12 months where a plant would inform us that they were 24 having scale issues. So if I knew what that set of data 25 was, I would also eliminate it, just so that we're looking 26 at variances that we do not know there was an issue, that 27 identifiably like actual variances between farm and plant. 28 Q. So would that go to your conclusions under 4(c) on 4403 1 page 6 where you say, "Where the discrepancy between farm 2 weight and plant weight is particularly larger, non-shrink 3 factors are the cause in virtually every instance"? Is 4 that what you are talking about there? 5 A. Yes. 6 Q. So help me out on something else. On page 4, and 7 a couple other times, you talk about where the plant 8 weight exceeded the farm weight. 9 That's not normally what I think about happening 10 here. So what can explain that? 11 A. I don't know that I have an explanation for that. 12 I -- because I don't work at the plants. I -- all I know 13 is the data showed clearly that over 40% were coming in 14 with a higher plant weight than farm weight. 15 Q. So would I be right when I was -- and thank you, 16 Mr. Miltner for some of your questions -- when I look at 17 page 4 and over to page 5, what I think you did, and 18 correct me if I'm wrong, you first did this analysis on 19 that paragraph I was just referring to where you have 20 44.1% of the variances showing positive, 55.9 showing 21 negative, and you sort of sum those up and you gave sort 22 of an average result for all of those, correct? 23 A. Correct. 24 Q. And then you didn't stop there. You went with 25 those -- using that analysis going further, as I 26 understand it, you then looked at those shipments and 27 excluded the ones that were inconsistent, correct? 28 A. Correct. 4404 1 Q. And then once you were left with the loads that 2 are described in sort of on Tables -- Table 2, the last 3 paragraph appears to provide a bit of a range, am I right, 4 that -- in that last paragraph you are providing sort 5 of -- 6 A. The last paragraph on page 5. 7 Q. Yes. 8 A. Yes. 9 Q. Okay. 10 A. The range -- the range referencing the variance. 11 The 5.5%, is that what you are referring to. 12 Q. Yes? 13 A. Yes. 14 Q. So there were loads where variances -- and I 15 understand that maybe someone else is going to explain 16 it -- but there are loads, like 5,385, where a variance 17 exceeded 0.5%, correct? 18 A. That's correct. 19 Q. Do you know how high that variance would have 20 gone? 21 A. I do not. 22 Q. That's fine. 23 And do you know how common the use of electronic 24 manifests is now outside of Select, in the industry? 25 A. It's becoming more common. That's all I know. 26 Q. Okay. 27 A. Yes. 28 MR. ENGLISH: I have no further questions. I 4405 1 thank you very much. 2 THE COURT: Any other questions other than AMS of 3 this witness? 4 Seeing none, AMS. 5 CROSS-EXAMINATION 6 BY MR. WILSON: 7 Q. Good afternoon. Todd Wilson, AMS. 8 Got a question on the bottom of page 5. 9 A. Okay. 10 Q. So after you separated loads out, results out, and 11 got kind of a good set, right, you came down to 20,000 -- 12 20,000-plus loads of milk. 13 Then in that last paragraph, as Mr. English was 14 asking about, that .5%, is that a -- is that a plus and a 15 minus .5%? 16 A. Yes. 17 Q. Okay. And so then the second one, is anything 18 greater than a plus .5 or minus .5? 19 A. Yes. 20 MR. WILSON: Okay. 21 CROSS-EXAMINATION 22 BY MS. TAYLOR: 23 Q. Good afternoon. 24 A. Hi. 25 Q. Thanks for coming up and testifying today. 26 A. Thank you. 27 Q. Just a couple questions. 28 So for your Select Producers, do all of your 4406 1 producers scale at the farm? 2 A. I don't believe all of them do. I'm not an expert 3 on the farm operations, though. I am an accountant. 4 Q. That's fair. Okay. 5 On page 3, you state that 47.5 of Select's loads 6 have no reported plant weight. Can you elaborate on why 7 that is? Do they -- there's not -- just elaborate on the 8 reasons why they don't provide you a plant weight. 9 A. I would assume that it's because it's not out of 10 variance from the farm weight enough for them to question 11 it. And we pay our producers on farm tests and weights, 12 and that's what's accepted -- 13 Q. Okay. 14 A. -- for the majority of our loads. 15 Q. Okay. And for your analysis in these numbers, 16 this includes both Select members and non-members who you 17 market -- or who you purchase milk from? 18 A. Correct. 19 Q. Okay. Also on page 3 -- and I should have said 20 this before, I'm going out of order, I apologize -- at the 21 top of that page, about half of Select's customers don't 22 report any plant weights except when there's a significant 23 discrepancy. 24 Can you just define what that would -- a 25 significant discrepancy would be? 26 A. Most plants would be outside of that .5% there -- 27 they have some sort of percentage in their system that 28 will flag it. Typically, that's going to be issues that 4407 1 we already are aware of with, you know, some -- a farm 2 scale being down or a driver has put in a very bad number 3 on the manifest and the plant scale shows a more accurate 4 picture of the weight. 5 MS. TAYLOR: Okay. 6 CROSS-EXAMINATION 7 BY MR. WILSON: 8 Q. Sorry. Todd Wilson, again. 9 A. Okay. 10 Q. I was trying to explain the question to -- 11 A. I saw. 12 Q. -- my counterpart. 13 A. She was like, nope, take the mic. 14 Q. So of the -- of the 170,000 occurrences that you 15 have, I know we have another witness coming on later, how 16 many of those are represented in the two plants of 17 Littlefield and Coopersville? Do you have an idea? 18 A. I do not. 19 Q. Let me ask you another question. 20 A. Okay. 21 Q. Is -- does Coopersville and Littlefield have plant 22 weights in your analysis? 23 A. Yes. 24 MS. TAYLOR: I think that's it from AMS. 25 THE COURT: You got to introduce her exhibit. 26 MR. MILTNER: A couple quick -- couple quick 27 redirect questions. 28 /// 4408 1 REDIRECT EXAMINATION 2 BY MR. MILTNER: 3 Q. Ryan Miltner, representing Select Milk. 4 Ms. Campbell, there was a question about that 5 positive plant variance where the farm weight is lower 6 than the plant weight. And I think you correctly stated 7 that Ms. Stehouwer can comment on that a little bit. 8 But do you ever have issues where the calibration 9 at a farm plant -- I'm sorry -- at a -- at a plant scale, 10 would be -- would be off or incorrect? 11 A. Yes. 12 Q. And would that lead to a discrepancy between the 13 farm weight and the plant weight? 14 A. Absolutely. 15 Q. And do you know if -- if a -- if a truck added 16 fuel on its journey, if that would affect the weights 17 between the farm and the plant? 18 A. Yes. 19 Q. And there could be other reasons that would -- 20 A. He could have picked up lunch, too. 21 Q. Could have picked up lunch. 22 Could have picked up somebody to ride along, who 23 knows, right? 24 A. Yes. Yes. 25 Q. And then there were some questions, I think, from 26 Mr. Wilson about what -- whether the CDF plant deliveries 27 were included in your dataset. And you answered that they 28 were; is that correct? 4409 1 A. Yes. 2 Q. And this included -- am I correct you included all 3 deliveries from any Select farm to any collect customer 4 for an entire 12-month period, correct? 5 A. That is correct. 6 Q. And so it would include those Select member loads 7 delivered to Continental Dairy Facilities and Continental 8 Dairy Facilities Southwest; is that correct? 9 A. Yes. 10 Q. Now, would your dataset include deliveries from 11 other cooperatives that sold milk to Continental Dairy 12 Facilities? 13 A. No. 14 MR. MILTNER: That's all I have. 15 And we would move the admission of her testimony, 16 please, Exhibit 216 (sic). 17 THE COURT: Any objection? 18 Exhibit 217 is made a part of the record. 19 (Thereafter, Exhibit Number 217 was received 20 into evidence.) 21 THE COURT: Thank you. You may step down. 22 MR. MILTNER: Thank you, your Honor. 23 We would next call Cheslie Stehouwer. 24 THE COURT: Raise your right hand. 25 CHESLIE STEHOUWER, 26 Being first duly sworn, was examined and 27 testified as follows: 28 THE COURT: Your witness. 4410 1 MR. MILTNER: Thank you, your Honor. 2 DIRECT EXAMINATION 3 BY MR. MILTNER: 4 Q. Good afternoon, Ms. Stehouwer. How are you? 5 A. Good. 6 Q. Have you had a chance to testify at a Federal 7 Order hearing before? 8 A. I have not. 9 Q. All right. You have had a chance to watch today 10 at least, though, and listen in a little bit beforehand, 11 correct? 12 A. Yes. 13 Q. Could we have you just state and spell your name 14 for the record, please? 15 A. Cheslie Stehouwer, C-H-E-S-L-I-E, 16 S-T-E-H-O-U-W-E-R. 17 Q. And could you also provide your business address 18 for the record? 19 A. 999 West Randall Street, Coopersville, Michigan, 20 49404. 21 Q. Thank you. 22 MR. MILTNER: Your Honor, we have given 23 Ms. Stehouwer Exhibit Select-3. Could we have that 24 marked, please, for identification? 25 THE COURT: That exhibit is marked 218 for 26 identification. 27 (Thereafter, Exhibit Number 218 was marked 28 for identification.) 4411 1 MR. MILTNER: Thank you. 2 BY MR. MILTNER: 3 Q. And, Ms. Stehouwer, you have that exhibit in front 4 of you? 5 A. I do. 6 Q. And you are familiar with that exhibit? 7 A. Yes. 8 Q. And is that your testimony in support of Select's 9 Proposal 11? 10 A. Yes, it is. 11 Q. And are you intending to read it for the record 12 today? 13 A. Yes. 14 Q. Could you go ahead and do that, and then when you 15 are done, we'll have some more questions for you. Thanks. 16 A. Okay. 17 My name is Cheslie Stehouwer. I'm the director of 18 sales and marketing for Continental Dairy Facilities, LLC, 19 and Continental Dairy Facilities Southwest LLC. 20 CDF operates a butter/powder plant in 21 Coopersville, Michigan. CDF Southwest operates a 22 similarly constructed butter/powder plant in Littlefield, 23 Texas. Both CDF and CDF Southwest are wholly-owned 24 subsidiaries of Select Milk Producers, Inc. 25 I was hired by CDF in 2011 as an administrative 26 assistant. My duties then include working on projects 27 related to the construction of the CDF plant, information 28 technology, and company policies and procedures. 4412 1 As the plant was commissioned, my role expanded 2 into monitoring and coordinating milk receiving, 3 overseeing milk balancing, and product sales. 4 When the design and construction of CDF Southwest 5 began in 2015, I was added to that team to plan for its 6 commissioning and to manage product sales. In my current 7 role with CDF and CDF Southwest, I'm responsible for sales 8 contracts of all bulk commodities, retail manufacturing 9 agreements, and hedging. My oversight includes 10 information technology and milk balancing. 11 In addition, I work closely with our president and 12 general manager, Steve Cooper, on all aspects of product 13 manufacturing. My job responsibilities also require me to 14 work with our accounting, finance, and receiving teams to 15 coordinate operations and analyze related performance and 16 financial data. 17 In overseeing milk balancing, I receive daily 18 reconciliation reports from my direct reports at CDF and 19 CDF Southwest. Those reconciliation reports provide 20 information on milk received from all suppliers, their 21 weights and tests, and highlight any particular area of 22 attention. I then provide guidance and feedback to our 23 receiving teams, where appropriate, to adjust problem 24 areas. 25 I was asked by Chris Allen, Select's director of 26 industry relations and analytics, to analyze the farm 27 weights and plant weights for all-milk received at our 28 Michigan plant and our Texas plant, CDF Southwest, and 4413 1 assess the extent of farm-to-plant losses. I was asked to 2 analyze this data to provide relevant information about 3 the differences between farm weights and plant weights. 4 This data and analysis was performed by me in 5 conjunction with Chris Allen and additional CDF staff. 6 These analysis were prepared for the purpose of supporting 7 Select's proposal to change the yield factors used in the 8 minimum price formulas. All the underlying -- underlying 9 data is regularly collected and maintained by CDF and CDF 10 Southwest as part of our regular operations. 11 I'm aware of the purpose of Select's proposal, and 12 that if adopted, it will impact the minimum prices paid to 13 our members. But I'm not an expert on Federal Order 14 language and price formulas. The scope of my testimony is 15 limited to describing the data and analysis performed by 16 me or under my supervision to support Proposal 11. 17 For my analysis, I generated reports from our 18 existing systems that produced the following data: The 19 originating supplier, the date and time of delivery, the 20 hauler, the ticket number, the slip weight, or farm 21 weight, and the scale weight or plant weight. The 22 report -- these reports were generated for both plants for 23 the period of August 1, 2022, through July 31st, 2023. 24 For the observed period, this encompassed 25 deliveries from the 15 different suppliers. For the 26 Michigan plant, there was a total of 16,396 distinct 27 deliveries. Of this total, 8,907, or 58.3%, were from 28 Select. The remainder were from other cooperatives and 4414 1 plants. 2 For each supplier, I then examined the 3 difference -- differences between farm and plant weights. 4 As would be expected, for any individual load, the farm 5 weight might be higher or lower than the plant weight. 6 But data on an individual basis is of little meaning when 7 determining the overall loss of milk for the plant. 8 To determine the aggregate farm plant losses, I 9 aggregated the total differences of each load for each 10 supplier, arriving at a net difference between the farm 11 and plant weights. Those results are reported in the 12 table on the next page. Negative net discrepancies 13 reflect a lower plant weight than farm weight. Positive 14 net discrepancies represent a higher plant weight than 15 farm weight. 16 The table shows the suppliers, the percent of 17 deliveries they are to the CDF plant, and the net 18 discrepancy for each supplier. 19 You will see that the overall net discrepancy was 20 negative 0.15%. Looking at only the loads from Select 21 Milk Producers, the net discrepancy was negative 0.2%, 22 slightly greater than the overall discrepancy. All of the 23 cooperatives listed, other than Select, include shipments 24 from milk from multiple farms -- multiple pickup routes. 25 I performed the same analysis for Texas plant over 26 the same time period. There was a total of 27,792 27 deliveries. The deliveries to this account came from a 28 much smaller set of suppliers. Accordingly, I'm not 4415 1 reporting the data by supplier. In total, the aggregate 2 net discrepancies across all deliveries was negative 0.1%. 3 The discrepancies of negative 0.15% for Michigan 4 and negative 0.1% for Texas were weight discrepancies 5 only. Neither CDF, nor CDF Southwest, regularly analyzed 6 farm-to-plant losses on a solids basis. We do, however, 7 measure the components of our silos and compare them with 8 aggregate component levels of our farm tests. Those two 9 measures are consistently aligned with one another. 10 Accordingly, it appears, from our internal data 11 that losses of milk solids occur across all components 12 equally. We do not realize losses of butterfat at a 13 greater weight than the overall loss of milk solids. 14 In addition to reviewing our actual plant data for 15 the volume of milk lost in farm-to-plant transit, I was 16 asked to offer my opinion as why discrepancies between 17 farm weights and plant weights occur, other than the 18 actual loss of milk. All plant weights are scaled 19 weights. Assuming that the farm weight is also a scale 20 weight, there are four principal reasons why weights would 21 be different. 22 The first would be scale calibration. The scales 23 at CDF and CDF Southwest are regularly calibrated and 24 certified. The same is true for most milk manufacturing 25 plants. While most farm scales are also properly 26 calibrated, some are not. Even with those that are well 27 calibrated, problems will occur. Where there is a 28 substantial discrepancy, there is a strong likelihood that 4416 1 an investigation will uncover a scale calibration issue. 2 The second would be hauler errors. Most of the 3 logistics process, including weighing and testing, is 4 being digitized. Within Select, new software has resulted 5 in most farm shipments being manifested electronically, 6 with data shared in realtime among farms, cooperatives, 7 haulers, and plants. 8 Other cooperatives and plants use similar software 9 and hardware systems to some extent. This movement to 10 electronic records and data has improved timeliness and 11 accuracy. However, the adoption of this technology is 12 still ongoing. A significant portion of the milk received 13 at CDF and CDF Southwest remains tracked on paper logs or 14 manually entered by haulers. Investigations into weight 15 discrepancies often find that numbers have been 16 transposed, entries were simply mistyped, or weights are 17 off by an even 1,000 or 10,000 pounds due to manual entry 18 or errors. Hauler errors of this type are the second most 19 common issue. 20 The third is drop yard and equipment changes. CDF 21 Southwest utilizes a drop yard and yard dogs to help 22 optimize milk deliveries and minimize demurrage costs. 23 When we notice an unusually high number of loads with high 24 weight variances, an investigation revealed that some 25 tankers were scaling and using a semi tractor and scaling 26 out using either a different semi tractor or a yard dog. 27 In addition, where a drop yard is used, different 28 drivers in the equipment at scale in and scale out will 4417 1 also affect weights. Even in the same equipment, it is 2 not difficult to imagine two different drivers having a 3 weight difference of a hundred pounds or more. 4 Importantly, we have taken corrective action to minimize 5 these occurrences. 6 And lastly, snow. While the drop yard 7 discrepancies were isolated to CDF Southwest, the CDF 8 plant in Michigan has its own unique discrepancy triggers, 9 snow and ice. In cold months, tankers, trucks, and scales 10 covered in snow and ice can add hundreds of pounds to a 11 scale weight. A cubic foot of snow weighs up to 20 12 pounds, and a standard milk tanker has a footprint of over 13 3,000 square feet. So a single inch of snow on a tanker 14 could weigh as much as 500 pounds. 15 When you consider that many of the deliveries in 16 Michigan are made with 100,000-pound super tankers, the 17 potential for snow and ice weight increases as well. We 18 have observed higher than usual negative weight 19 discrepancies during the winter months, which we have 20 determined are attributable to frozen precipitation. 21 In conclusion, first is as usually measured and 22 observed by CDF and CDF Southwest, the difference between 23 farm weights and plant weights is less than 0.2% of total 24 solids. Despite their different geographies, CDF and CDF 25 Southwest show similar farm-to-plant shrink numbers. 26 Within the universe of deliveries to CDF, the net 27 discrepancies for single farm shipments of Select Farms of 28 negative .2% is very close and slightly higher than the 4418 1 plant average of negative 0.15%. Given that many of the 2 non-Select shipments received by CDF come from multiple 3 farm loads, the necessary conclusion is that management 4 for farm-to-plant shrink is not unique to Select 5 specifically or larger farms generally. 6 CDF and CDF Southwest have identified areas that 7 are likely to contribute to farm-to-plant weight 8 variances. Those variances are neither inherent nor 9 unaddressable. Instead, significant farm-to-plant losses 10 often are the result of practices and circumstances that 11 can be addressed and do not represent actual milk losses 12 at all. 13 Thank you for the opportunity to testify today. 14 Q. Thank you, Ms. Stehouwer. I wanted to follow up 15 with a few questions that I have done with the other 16 witnesses. 17 So the first really doesn't deal with 18 farm-to-plant shrink at all. It's on the first page of 19 your testimony. You mention that you are responsible for 20 a number of things with CDF and CDF Southwest, and among 21 those is hedging. 22 What do you do for -- for the hedging -- or what 23 do you do in the area of hedging for the companies? 24 A. So myself and our business analyst are responsible 25 for our risk management program, which includes hedging of 26 commodities, butter, nonfat. 27 Q. So would you be analyzing potential hedge 28 positions for the sale of products out of the plant? 4419 1 A. Yes. 2 Q. Okay. Do you do -- you don't do any hedging on 3 the milk purchase side at the plant, do you? 4 A. No, I do not. 5 Q. And there have been some discussions throughout 6 the hearing about the impacts of all of the proposals that 7 we're talking about, on risk management and hedging. 8 Have you done any analysis on -- on that issue on 9 whether any proposals would affect the hedging activities 10 of Continental Dairy Facilities, or CDF Southwest? 11 A. I have not. 12 Q. Mr. Allen was asked about the products that were 13 produced at CDF and CDF Southwest. 14 Did you hear his answer? 15 A. I did. 16 Q. Did he miss anything? 17 A. He did not. 18 Q. All right. He did well. Great. 19 I wanted to call out and ask you, you analyzed 20 shipments for the exact same period that Ms. Campbell did. 21 Was that intentional? 22 A. Yes. 23 Q. You wanted the data to line up for comparative 24 purposes? 25 A. I think so. Yes. 26 Q. Okay. I'd like to ask you about your table on 27 page 4. 28 Now, you have not listed names of cooperatives or 4420 1 plants, just for confidentiality reasons. But am I 2 correct that each cooperative is a distinct single 3 cooperative and you have aggregated all the shipments from 4 that cooperative together in each individual row? 5 A. That's correct. 6 Q. And so you also have some plants that represent a 7 very small portion of the total. 8 So why would you be receiving milk from plants? 9 A. Sometimes we -- we buy from non-cooperative 10 suppliers. 11 Q. Okay. Would it happen like if a plant just had 12 too much milk that they weren't processing and they would 13 sell it to you for processing? 14 A. Yeah. Yes. Exactly. 15 Q. So when you and I were going over this testimony, 16 we looked at Cooperative A's numbers and noticed that the 17 net discrepancy was the lowest among the group. 18 A. That is correct. 19 Q. And you had -- you had stated that with respect to 20 that particular cooperative, that as part of your 21 reconciliations you made, in conjunction with that 22 cooperative, adjustments to their weights; is that 23 correct? 24 A. That is correct. 25 Q. Can you explain a little bit more about how that 26 works? 27 A. Yeah. So when we -- we do a daily balance of 28 receipts, we will flag anything that's over .8% and send 4421 1 it back to the cooperative or supplier. And in that 2 instance, the ones who I would say don't have reliable 3 scale weights or noticeable that something's off, then 4 they will either agree to take the plant weight due to the 5 fact that they know that their weights are not reliable, 6 or they will agree to split with us to become a little 7 more in line with where we should be. 8 Q. You were here for Ms. Campbell's testimony? 9 A. Yes. 10 Q. Would you say that what you're describing are 11 similar to what she said were, kind of known issues with 12 loads? 13 A. Correct. Yes. 14 Q. Nevertheless, are those situations a distinct 15 minority of instances with respect to the loads received 16 by CDF? 17 A. Yes. 18 Q. Would you expect that if there were no adjustments 19 to those loads, that the bottom line figure, I guess 20 literally the bottom line figure in your table, would be 21 affected much by that? 22 A. I think it would be affected but not 23 significantly. I think it would not be higher than the 24 highest one we have stated. 25 Q. Okay. On page 5 you're describing -- you make a 26 description of the components of milk in the silo, and the 27 components of the milk coming in based on farm tests. And 28 you testified that those two measurements are consistently 4422 1 in line with one another. 2 A. Correct. 3 Q. Is -- is that based on information provided to you 4 by others in the company? 5 A. That is correct. 6 Q. It's not something you personally measure and 7 track, is it? 8 A. That's correct. It's not in our department. 9 Q. Okay. When you say those measurements are in line 10 with one another, I assume that means that whatever the 11 protein is in the milk coming in, is the protein in your 12 silo, and butterfat is the same; is that your 13 understanding? 14 A. Yes, that's my understanding. 15 Q. Now, the farm-to-plant shrink figures that are in 16 the price formulas now, they assume that you lose a 17 certain amount of all the solids, which includes 18 butterfat, and then additional butterfat on top of that. 19 Is that consistent with the tests in your silos? 20 A. Not my area, but based on what I've talked to 21 individuals in our -- in our facility, that they align. 22 Q. Yeah. The farm plants and the silo tests align? 23 A. Yes, they align. 24 Q. Okay. You also go through a number of reasons why 25 there would be plant discrepancies, and I just wanted to 26 ask a few additional questions on those areas. 27 Scale calibration, is that something that you 28 frequently are advised about, that a farm has an issue 4423 1 with their scale? 2 A. I would say not from the farm level that we're 3 hearing it frequently, but we do very rarely. It's more 4 within our plant. 5 Q. I'm -- I don't know the answer to this because I 6 haven't asked you before. But do you know how closely the 7 scales are calibrated, to within how many pounds? 8 A. Of the farm or with our -- 9 Q. Within your plant scale. Like, is it calibrated 10 to within a range or -- 11 A. Yeah, it's calibrated quarterly, I know that, and 12 it is with a range. But I wouldn't be able to tell you 13 the exact range. 14 Q. Okay. So I want you to assume for a second that a 15 farm scale is calibrated within a range, and your plant 16 scale is calibrated within a range. Within any given load 17 of milk, you could be within the range at both places but 18 still show some kind of variance, wouldn't you? 19 A. I would agree. 20 Q. Okay. As far as hauler errors, when I first heard 21 Ms. Campbell's testimony, or first saw her put it 22 together, I was -- I was surprised, actually, at the 23 frequency of hauler errors in reporting. 24 How frequently are hauler errors, do you see 25 hauler errors in your analysis and your reconciliations? 26 A. I would say every day. 27 Q. Every day? 28 A. Yeah, that we're receiving, you know, quite a few 4424 1 tankers a day. 2 Q. Yeah. But it's not a rare occurrence? 3 A. No. 4 Q. You mentioned the use of drop yards and that CDF 5 Southwest uses a drop yard. 6 Is there a drop yard used at the Michigan plant? 7 A. No, there's not. 8 Q. And you describe use of different equipment. I 9 had to learn this in preparing for this testimony, too. 10 A yard dog, can you describe for us what that is? 11 A. Why he. So it's a -- it's a smaller tractor. 12 Doesn't have a cab, so smaller than what you would see 13 typically on the road. And they pull in the tankers and 14 pull them out. 15 Q. And it weighs, therefore, less than a regular semi 16 tractor? 17 A. That's correct. 18 Q. And then you also -- this is one that, when we 19 were reviewing your testimony, you know, folks weren't 20 clear on this. Where you talk about different drivers and 21 the equipment at scale in and scale out. Can you actually 22 explain for us like really simply what that is? 23 A. Yeah. So I mean your driver, for example, could 24 be someone who weighs 120 pulling it in, and then you 25 could have a truck driver that weighs 300 pulling it out. 26 So you could have an easily difference of 100 and 200 27 pounds just by the person that's in the cab. 28 Q. And this snow you note, again, something I had 4425 1 never thought about before you had clued me into it. In 2 the winter months in Grand Rapids or Coopersville, how 3 frequently does that issue arise? 4 A. A lot. January through March is pretty 5 significant on that problem. And we'll be able to notice 6 it by all the trucks being out of variance. 7 Q. You will notice a snowstorm and then a significant 8 number of variances occurring in that same period? 9 A. That's correct. 10 Q. How many years of analysis, like, before you all 11 realized it was the snow and ice that was doing that? 12 A. I think we figured it out the first year. 13 Q. First year? Okay. Great. 14 MR. MILTNER: The witness is available for 15 additional questioning. 16 THE COURT: We have been going a little bit over 17 an hour and a half. I think it's time for a break. 18 All right. Let's come back 2:05. I'm sorry, 19 3:05. 20 (Whereupon, a break was taken.) 21 THE COURT: Back on the record. 22 CROSS-EXAMINATION 23 BY MR. ENGLISH: 24 Q. Good afternoon. My name is Chip English from the 25 Milk Innovation Group. 26 A. Nice to meet you. 27 Q. Thank you very much for being here today. 28 Let me actually start off, you were here, I know, 4426 1 in the room when Ms. Campbell was testifying, correct? 2 A. Yes. 3 Q. And when I asked her some questions, and she 4 deferred to you, correct? 5 A. Yes. 6 Q. And then you gave your testimony and provided some 7 additional answers to Mr. Miltner. 8 Given the questions I had for her, which were 9 about discrepancies and how things were resolved, is there 10 anything you haven't covered in your testimony now in 11 addition to what Mr. Miltner, going back to the questions 12 I asked her? 13 A. Going off memory, I think we covered it. 14 Q. I think so, too. I just -- 15 So let me turn primarily, maybe not exclusively, 16 but primarily to page 4 of your testimony, which is the 17 chart. 18 And let me start by asking on the accounts which 19 are listed as Plant 1, Plant 2, Plant 3, Plant 4, I didn't 20 hear Mr. Miltner go into this exactly, is that milk that 21 is being reloaded at a plant and delivered to you? 22 A. I'd have to go back and look at specifics, but it 23 could also be milk that the plant is selling to us that 24 didn't go to the facility. 25 Q. So diverted milk? 26 A. Yes. 27 Q. Do you understand what that phrase is, diverted? 28 A. Yes. 4427 1 Q. Okay. So it could be diverted milk, it could be 2 reloaded milk, correct? 3 A. Correct. 4 Q. And you don't know what -- 5 A. No. I'd have to go back specifically and look. 6 The data is over a year, so... 7 Q. And with respect to the materials that you and 8 Ms. Campbell have put together, I think -- if I'm wrong 9 correct me -- I think what you put together is between the 10 two of you, the information about the Michigan plant, 11 correct? 12 And the Texas plant -- I want to break it down if 13 I can. I'm right that this information on page 4 is about 14 the Michigan plant, correct? 15 A. That's correct. 16 Q. And then you performed the same analysis, but 17 because of different supply issues, you didn't provide the 18 same detail, but between you and Ms. Campbell you provided 19 information about the Texas plant, correct? 20 A. Correct. So on page 7 is the Texas plant. 21 There's no chart because it is a smaller pool of data. 22 Q. Right. Okay. So -- and when we talk about the 23 Michigan plant, that's your plant, correct, Select's 24 plant? 25 A. That is, yes. 26 Q. And when we talk about the Texas plant, that's 27 Select's plant, correct? 28 A. Correct. 4428 1 Q. Is there another universe of milk that is 2 delivered to others, so purchasers of your milk, that 3 Ms. Campbell talked about, or is that not part of the 4 study? 5 A. That is not part of this. This is just deliveries 6 to the plants in Michigan and the plants in Texas. 7 Q. Okay. And that's what I was trying to get at. 8 A. Okay. 9 Q. So that this is not -- well, was Ms. Campbell's 10 testimony about milk being delivered to other plants? 11 A. Yes, that is correct. 12 Q. But there isn't any information for 13 confidentiality or competitive reasons about other plants 14 themselves in terms of their overall receipts, correct? 15 From others, other than Select, correct? 16 A. Can you repeat that? Sorry. 17 Q. So to the extent Ms. Campbell's testimony spoke to 18 milk delivered by Select to -- on what's purchased milk, 19 you don't go beyond that, so you don't know what the 20 plant -- that plant's other receipts are, correct? 21 A. I do not. My testimony is not over other plants. 22 Q. And then also on page 4, the sentence that says, 23 "All of the cooperatives listed, other than Select, 24 include shipments of milk from multiple pickup routes." 25 Does that mean that they aren't all full tanker 26 loads? 27 A. They are all full tankers, but they have 28 multiple -- some of the deliveries from the other co-ops 4429 1 have multiple farm pickups in one tanker. 2 Q. Okay. Do you know what percentage of their 3 deliveries are multiple pickups? 4 A. I do not. 5 Q. When your column on page 4, the right-hand column, 6 is labeled "net discrepancy," so for instance, Select Milk 7 Producers, a net discrepancy of minus 0.20%, just to be 8 clear for the record, what a net discrepancy means is when 9 you add up all the deliveries from Select and netted out 10 whatever variances, it was negative 0.2%, correct? 11 A. That is correct. 12 Q. Do you know what the range was of from, say, a 13 load that was the most negative to the most positive? 14 A. I do not. 15 Q. Would there be a range? 16 A. There would -- I mean, yes, there would be a 17 range. 18 MR. ENGLISH: I thank you very much. I have no 19 further questions. 20 THE COURT: Other questions other than AMS for 21 this witness? 22 Seeing none, Ms. Taylor. 23 CROSS-EXAMINATION 24 BY MS. TAYLOR: 25 Q. Good afternoon. 26 A. Hi. 27 Q. Thanks for coming to testify today. I don't have 28 too many questions. 4430 1 I did on the page 4 of the table, I just want to 2 clarify for the record first that that negative .15% is a 3 weighted average of all of the ones above; is that 4 correct? 5 A. That's correct. 6 Q. Okay. Weighted by the percent of deliveries? 7 A. Yes. By the total volume. Yes. 8 Q. Okay. And then I was wondering if you had any 9 insight why all the net discrepancies for the plants seem 10 to be positive, but yet all the ones for the cooperatives 11 seem to be negative? 12 A. That is a good question. I do not. 13 Q. Okay. That's fair. 14 For the cooperatives that have -- are on the 15 higher end the net discrepancy -- and you did mention that 16 all of these co-ops had multiple stops on their -- on 17 their routes, did you -- have you been able to go and look 18 at the data to see if there's a relationship between the 19 farm size of the co-ops on the routes and the percent 20 discrepancy? 21 A. I have not gone and looked at that. What I'll say 22 is, not all of the smaller deliveries are just based on 23 farm size, it's just based on how much we received from 24 that supplier throughout the year. 25 Q. Okay. So you are talking about the percent of 26 delivery. So it might be high like, negative .32, but you 27 only got 1% of your milk from them? 28 A. Right. 4431 1 Q. When you are talking about scale calibration on 2 page 5 as one the reasons for plant discrepancies, I asked 3 this same question of your co-worker where there is a 4 substantial discrepancy. And I was just wondering if you 5 could illuminate what you deem a substantial discrepancy 6 or what your suppliers deem as a substantial discrepancy 7 enough that they would discuss with you? 8 A. So depending on the weight of the load, you could 9 see substantial discrepancies be 10,000, 20,000 pounds for 10 each load. So it -- it's pretty -- I would -- I would say 11 it's pretty clear to see when looking at a table of what 12 would be substantial. It really sticks out and you know 13 that there's no way that -- you know, it's not just 100 or 14 200, or even 1,000, it's going to be a quite large 15 variance. 16 Q. Okay. Significant outliers? 17 A. Yes. 18 CROSS-EXAMINATION 19 BY MR. WILSON: 20 Q. Todd Wilson, USDA AMS. 21 Again, my question didn't pass mustard, I don't 22 think, with Erin. 23 On page 6 of your testimony, under the hauler 24 error paragraph, the last sentence, "Hauler errors of this 25 type are the second most common issue." 26 Is the second referring to within this paragraph, 27 that these types that you are identifying of the second 28 most hauler issues, or is hauler errors the second of the 4432 1 A, B, C, D groupings? 2 A. I would say we're saying it's the second most 3 common issue we see, so it kind of listed them in order. 4 The last two are outliers between each plant; the first 5 two is what we see at both locations. 6 Q. Okay. 7 MS. TAYLOR: That's it from AMS. Thank you. 8 THE COURT: Anyone else? 9 REDIRECT EXAMINATION 10 BY MR. MILTNER: 11 Q. Ms. Stehouwer, I just want to finish up with a 12 couple of clarifying questions on your testimony, and it's 13 going to touch on Ms. Campbell's as well. 14 So when you were asked to prepare your testimony 15 and your analysis, the purpose was to show, for the plant, 16 the variance between all of the receipts regardless of 17 source to your plant. 18 Was that your understanding of what your task was? 19 A. Yes, that's correct. 20 Q. And so you personally in your role at CDF and CDF 21 Southwest, you don't have visibility to any other plants 22 even really within Select's world, do you? 23 A. No, I do not. 24 Q. And then, you know, I think Ms. Campbell testified 25 to this, but as you were working with her and the Select 26 team on this whole project, was your understanding that 27 she was presenting the other side of the same coin, the 28 cooperative milk sales side deliveries from Select to its 4433 1 plants regardless of who owned the plant? 2 A. Yes. 3 Q. And that so in conjunction, your testimony and her 4 testimony would show what it looks like for the sale of 5 milk and what it looks like for the purchase of milk, 6 correct? 7 A. That's correct. 8 MR. MILTNER: Okay. I don't think that I have any 9 other questions. 10 And so, your Honor, we would ask the admission of 11 Exhibit 218. 12 THE COURT: Any objection? 13 Exhibit 218 is entered into the record of this 14 proceeding. 15 (Thereafter, Exhibit Number 218 was received 16 into evidence.) 17 THE COURT: Thank you. You are dismissed. 18 MR. MILTNER: We would call to the stand to talk 19 about Proposal 12, Chris Allen again, and we will 20 distribute his statement. 21 THE COURT: Let's say you are still under oath. 22 THE WITNESS: Yes, sir. 23 THE COURT: You were just here. 24 CHRIS ALLEN, 25 Having been previously sworn, was examined 26 and testified as follows: 27 DIRECT EXAMINATION 28 BY MR. MILTNER: 4434 1 Q. Good afternoon, Mr. Allen. Welcome back. 2 A. Thank you. 3 Q. We have already had your name and address entered 4 into the record, and the judge has noted you are still 5 under oath. 6 In front of you is a document. Marked in the 7 upper right as Exhibit Select-4. 8 Do you have that in front of you? 9 A. Yes. 10 Q. Are you familiar with that document? 11 A. Yes. 12 Q. Does it represent your written testimony submitted 13 to USDA in support of Proposal 12 in this hearing? 14 A. Yes. 15 MR. MILTNER: And, your Honor, could we have 16 Exhibit Select-4 numbered for identification, please? 17 THE COURT: Yes. It is marked as identification 18 219. 19 (Thereafter, Exhibit Number 219 was marked 20 for identification.) 21 MR. MILTNER: Thank you. 22 BY MR. MILTNER: 23 Q. And, Mr. Allen, as you did previously with your 24 prior testimony, are you going to read a somewhat 25 abbreviated version -- 26 A. That is correct. 27 Q. -- of this? 28 A. Okay. 4435 1 MR. MILTNER: Your Honor, we previously qualified 2 Mr. Allen as an expert in the field of dairy economics and 3 cooperative analysis, so I just recognize his prior 4 designation. 5 BY MR. MILTNER: 6 Q. And, Mr. Allen, if you could go ahead and read 7 your statement, that would be great. 8 A. Will do. 9 I am here to testify on behalf of Select Milk 10 Producers, Inc. My testimony today addresses Proposal 12 11 related to the yield of nonfat dry milk, which I will also 12 refer to as NFDM, and the inclusion of the nonfat solids 13 in dry buttermilk powder, which I will also refer to as 14 BMP. 15 Select's Proposal 12 changes the yield factor for 16 NFDM to properly account for the value of milk solids 17 utilized in the manufacturing of BMP. If adopted, 18 Proposal 12 would change the yield for NFDM from 0.99 to 19 1.03. 20 The current yield factor for nonfat solids of 0.99 21 was set as part of the Department's 2002 Final Decision on 22 the Class III and IV price formulas. The 2002 Final 23 Decision "eliminates the consideration of nonfat solids 24 that end up in buttermilk powder from the Class IV nonfat 25 solids pricing formula." 26 The Department concluded then that the elimination 27 of these nonfat solids from the Class IV formulas was 28 appropriate because, and I quote: "[R]ecognizing a 4436 1 minimum value for buttermilk powder does not materially 2 affect the Class IV skim milk price. Record evidence 3 indicates that the price of buttermilk powder can be a low 4 of 70% of the nonfat dry milk price for the same period. 5 In addition, according to the record, the Make Allowance 6 of buttermilk powder is an additional 2 cents per pound 7 higher than the nonfat dry milk Make Allowance. Official 8 notice of weekly Dairy Product Prices published by the 9 National Agricultural Statistics Service for January 2000 10 through May 2002 is hereby taken. 11 "Using the 2-cent higher Make Allowance for 12 buttermilk and prices for nonfat dry milk and buttermilk 13 powder for the period of January 2000 through May 2002, it 14 was determined that the effect of including buttermilk 15 powder in the nonfat solids price and the Class IV skim 16 milk price was negligible. Therefore, this decision 17 eliminates the consideration of nonfat solids that end up 18 in buttermilk powder from the Class IV nonfat solids 19 pricing formula." 20 However, the effect of buttermilk powder on the 21 formulas was not then, nor is it now "negligible." The 22 2002 Final Decision did not set forth the mathematics to 23 support its conclusion then. As further explained in this 24 testimony, had the 2002 Final Decision properly analyzed 25 the impacts of removing buttermilk powder, it should have 26 arrived at a yield of 1.02. 27 The situation 20 years later is even more 28 pronounced. Current data demonstrate that the spread 4437 1 between the prices of nonfat dry milk and buttermilk 2 powder is minimal and not uniformly negative. USDA 3 reported dry buttermilk prices and nonfat dry milk 4 low/medium heat prices established a much tighter price 5 alignment than assumed by the 2002 Final Decision. 6 Accordingly, the proper yield for NFDM should be increased 7 to 1.03 to reflect the current state of the industry. 8 Select's Proposal 12 recognizes that the current 9 yield factor wholly fails to compensate producers for the 10 value of milk solids used in the manufacturing of 11 buttermilk powder. 12 The 2002 Final Decision Improperly Accounted for 13 the Value of Buttermilk Powder. 14 In developing Select's Proposal 12, we partially 15 accepted the Department's reasoning in setting the NFDM 16 yield described in the 2002 Final Decision. Specifically, 17 we accepted that the portion of milk solids in Class IV 18 milk used to manufacture buttermilk powder should reflect 19 the proper value of the end product and the cost to 20 manufacture it. 21 We did not accept, however, the Department's 22 conclusion "that the effect of including buttermilk powder 23 in the nonfat solids price and the Class IV skim milk 24 price was negligible." Our starting point was to 25 determine what the proper yield of NFDM would be, assuming 26 that the yield was adjusted for the value of buttermilk 27 powder rather than its wholesale removal from the yield 28 formula. 4438 1 My written testimony provides a relevant analysis 2 and calculation of the NFDM yield factor from USDA's 2002 3 Finals Decision. 4 Select sought to restore the proper value of the 5 buttermilk solids in dry buttermilk. To do so we took the 6 calculated quantity of buttermilk solids and multiplied it 7 by 70%, reflecting the Department's conclusion regarding 8 the value of dry buttermilk. Next, we multiplied that 9 result by 87.5% to account for the higher make costs for 10 buttermilk powder recited by the Department. 11 Next, we took the 0.9975 pounds of nonfat solids 12 and subtracted the 0.0479 pounds of solids in dry 13 buttermilk and restored 0.0293 pounds of those solids 14 based on the calculation above. 15 Finally, we adjusted the pounds of nonfat solids 16 to the presumed moisture content of 3.8%. That 17 calculation results in a yield of 1.02, not 0.99. This 18 establishes that the Department’s conclusion that the 19 value of buttermilk powder in the nonfat solids price is 20 not "negligible." It has a real impact on the stated 21 yield. 22 The price relationship between NFDM and Buttermilk 23 Powder is closely aligned. Consistent with Select's 24 approach and philosophy that all the elements of the 25 minimum price formulas should reflect current realities, 26 we next revisited the price relationship of NFDM and 27 buttermilk powder. 28 For this analysis, we compared the reported prices 4439 1 for NFDM and BMP reported by the Dairy Market News 2 ("DMN"). We utilized the DMN monthly averages of the 3 mostly price series for West and East/Central dry 4 buttermilk and for Western and East/Central NFDM. We 5 utilized prices from January 2021 through June 2023. We 6 selected January 2021 to provide the longest continuous 7 representative window possible while attempting to avoid 8 the pricing impacts triggered by the COVID-19 pandemic. 9 The table provided in my written testimony 10 provides the full scope of these comparisons and analyses. 11 This data demonstrates two important truths: First, there 12 is little difference between the Western and 13 Central/Eastern prices of either NFDM or BMP; second, and 14 more relevant to Proposal 12, BMP prices are aligned very 15 closely to NFDM. BMP as a percentage of NFDM prices was 16 97.0% in the west and 98.0% in the Central/East. Steve 17 Cooper from Continental Dairy Facilities will offer 18 additional testimony confirming that its sales of 19 buttermilk powder align with this analysis. 20 Once this analysis was complete, I looked further 21 back over the period of January 2017 through July 2023 to 22 confirm this price alignment. The additional charts in my 23 written testimony demonstrate the longer-term price 24 alignment of NFDM and BMP. The Department's finding that 25 BMP is sold at 70% of NFDM is not borne out by current 26 realities. 27 Recognizing this close price alignment, I 28 performed the same calculation of the NFDM yield performed 4440 1 by USDA in the 2002 Final Decision using the current price 2 alignment. I maintained the same relationship between the 3 cost of manufacturing BMP and NFDM (in other words, NFDM 4 make costs are 87.5% of BMP make costs). 5 The arithmetic works out as follows. I took the 6 calculated quantity of buttermilk solids and multiplied it 7 by 97.5%, reflecting the proper price alignment. Next, I 8 multiplied that result by 87.5% to account for the higher 9 make costs for buttermilk powder. 10 Next, I took the 0.9975 pounds of nonfat solids 11 and subtracted the 0.0479 pounds of solids in dry 12 buttermilk. I then restored the 0.0409 pounds of those 13 solids based on the calculation above. 14 Finally, I adjusted the pounds of nonfat solids to 15 the presumed moisture content of 3.8%. 16 Changing the NFDM yield impacts the nonfat solids 17 price and the Class IV prices. Based on my analysis of 18 the changes, using five- and ten-year averages of 19 commodity prices through April 2023, I computed the 20 following component and Class price impacts: For the 21 five-year average, the nonfat solids price under the 22 current formula is 1.0219. Using Proposal 12, the nonfat 23 solids price would be 1.0632. For that same five-year 24 average the Class IV price under the current formula would 25 be $17.26; under Proposal 12, it would be $17.62. 26 The ten-year average same commodities, nonfat 27 solids price, under the current formula, the price would 28 be 1.0021; Proposal 12 adjustments, the nonfat solids 4441 1 price would be 1.0426. The Class IV price for the 2 ten-year average would have been 16.92; using Proposal 12, 3 the Class IV price would have been 17.27. 4 Because the Class II price is based on the 5 Class IV price, the Class II price would change likewise. 6 The precise impacts on the statistical uniform price or 7 blend price would vary by order and could be further 8 impacted by any adjustments the Department elects to make 9 to the Class I mover. 10 The adoption of Proposal 12 in full would require 11 the following amendment to 7 CFR Part 1000 as outlined in 12 my written testimony. 13 The current yield factor for nonfat dry milk in 14 the Class IV formula is lower than it would be otherwise 15 due to USDA's policy decision to disregard the value of 16 milk solids that are used to manufacture buttermilk 17 powder. That policy decision was erroneous in its 18 conclusion that the value of those solids was negligible. 19 Even under the assumptions regarding the relationship of 20 NFDM and BMP prices from the 2002 Final Decision, the 21 conclusion was incorrect. 22 When taking into consideration the current price 23 relationship, the error is even more impactful. If it 24 remains USDA's goal to utilize price discovery mechanisms 25 that establish the true value of producer milk used in the 26 four classes, the value of Class IV milk must be corrected 27 and updated to reflect the values of buttermilk solids. 28 Q. Thank you, Mr. Allen. A few additional questions 4442 1 before we open you up to other questions. 2 I'm looking at page 4 of Exhibit 219, and it's the 3 first two lines. I think you read a yield of 1.03, but it 4 is 1.02 in your statement, which is consistent with the 5 analysis on page 6. So I just want to confirm that that 6 should be 1.02. 7 A. Yes. Like the prior testimony, I think I grabbed 8 the wrong version of the draft, and so I think you are 9 correct, that should have been 1.02. 10 Q. Great. 11 So as far as the approach of your analysis here, 12 would it be fair to state that you took the rationale that 13 USDA outlined in its prior decisions on the Class IV 14 formulas and tried to apply current data to it? 15 A. Yes. 16 Q. And so there's really no change -- are you trying 17 to change USDA's policy on this or are you just trying to 18 update their analysis? 19 A. Just update the analysis. 20 Q. Now, on page 8 of your testimony, just a thing 21 that I noticed as we were going through this. In the 22 column -- really the fourth column, "DMN BMP East-Central 23 Mostly Average." Dairy Market News publishes a mostly 24 range for nonfat dry milk and for buttermilk powder in the 25 West, but in the East/Central, it's just a pure average, 26 right, they don't separate out a mostly? 27 A. That is correct. That was a typo. Yes. 28 Q. Yeah. 4443 1 And so your numbers there are the average of the 2 range reported, correct? 3 A. Yes. Yes, that is correct. 4 Q. Let me ask this: In all your work as a dairy 5 economist, what -- what is your opinion of Dairy Market 6 News and the reliability of the data they report? 7 A. It's the best source we have, but it is reliable. 8 Q. Now, on the top of page 11, you say you took the 9 calculated quantity of buttermilk solids and multiplied it 10 by 97.5. 11 And I think this was implied but not expressly 12 stated, that that 97.5 is just the simple average of the 13 relationships between the Western and the -- I'm sorry -- 14 of -- yeah, of the Western and the East/Central 15 relationships you described in your tables, correct? 16 A. That is correct. Yes. 17 Q. And then finally -- maybe not finally, but next, 18 on page 12, where you show your five- and ten-year 19 averages, was the methodology, the lookback methodology 20 the same as what you answered with respect to your 21 testimony on Proposal 11 that it goes back from April of 22 2023? 23 A. The prior -- 60 consecutive months and the prior 24 120 consecutive months using the announced prices in the 25 monthly price formulas. 26 MR. MILTNER: I would make Mr. Allen available for 27 additional questioning. 28 THE COURT: Anyone have questions other than AMS? 4444 1 Can we take a minute? 2 THE WITNESS: Yeah. Okay. 3 MS. HANCOCK: Yes, if you want to. 4 THE COURT: I wasn't thinking of a break so much 5 because -- 6 MS. HANCOCK: We kind of went into a different 7 topic area that I wasn't ready for yet, so I just want to 8 make sure -- if we want to take a break, we can, or if 9 Chip wants to go, that's fine, too. 10 MR. ENGLISH: All right. I'll go ahead and just 11 proceed, if we can muddle through a little bit here. 12 THE COURT: Okay. Your witness. 13 CROSS-EXAMINATION 14 BY MR. ENGLISH: 15 Q. Chip English again for the Milk Innovation Group. 16 Good afternoon, Mr. Allen. 17 Let me start on page 8, or more particularly, with 18 questions that -- that you were asked by your counsel. 19 And your response -- really your response is you were 20 agreeing with Mr. Miltner that Dairy Market News is the 21 best source we have, and it's very reliable, correct? 22 A. Yes. 23 Q. It's not audited, correct? 24 A. It's a good question. I don't believe so. 25 Q. Thank you. 26 So let me start with a question about technology 27 and what the results are. When the skim and fat are 28 separated, would you agree that it's inevitable that cream 4445 1 includes an addition of the water and fat, small amount of 2 SNF? 3 A. I would agree, yes, sir. 4 Q. So where -- where in the existing formula does 5 that small amount of SNF that goes with the cream show up? 6 A. I assume when the cream is churned to butter, and 7 then you have the resulting product is then dried into 8 BMP, buttermilk powder. 9 Q. Do you know that for a fact? 10 A. I don't. That's my assumption. 11 Q. But it's certainly not in the nonfat dry milk, 12 correct? 13 A. Yes. I would agree with that. 14 Q. You would agree that there's no such thing as a 15 loss-less plant, correct? 16 A. Yes. 17 Q. That, somewhere in the process, whatever -- 18 whatever your views are about from the farm-to-plant, that 19 once the milk gets to the plant, there's going to be 20 losses in solids and butterfat, correct? 21 A. Yes. 22 MR. ENGLISH: Okay. I have no further questions. 23 MS. HANCOCK: We don't have any questions. 24 THE COURT: Oh, no questions. 25 AMS? Or anyone else, I guess. 26 Seeing none, AMS, are you ready? 27 MS. TAYLOR: I guess we're going to be ready. 28 /// 4446 1 CROSS-EXAMINATION 2 BY MS. TAYLOR: 3 Q. Well, there's a lot of math to work through here, 4 so I'm not going to focus on that now. 5 A. Thank you. 6 Q. We'll just have to figure it out later. 7 A. Great. 8 Q. So the assumption, in Select's mind, if I'm 9 correct, is that whatever doesn't go into the churn, they 10 put it into buttermilk powder, whatever left over that 11 goes -- it gets dried as buttermilk powder, and they sell 12 it; is that correct? 13 A. Yes, that is correct. Sorry. I was just nodding. 14 Yes, that is correct. 15 Q. And, therefore, that should be accounted for in 16 the price formulas because that is a saleable product? 17 A. Yes. 18 Q. Okay. We can go -- I'm not going through the 19 math, but one can go through the math you provide. But do 20 you know for a fact that that is actually what happens at 21 butter plants? 22 A. I will have a better source speak for Select 23 following me. I don't think he's here presently, but 24 he's -- he may have landed here, but he's not here in -- 25 he may have landed in town, but he's not here in the 26 facility yet. We'll have somebody who can very much 27 answer that question. 28 Q. Okay. 4447 1 A. It will be a better resource than me. 2 Q. Okay. And so if I'm looking over on page 3 when 3 you review our past decision, and you quote from it, and 4 say -- the one line reads: "Record evidence indicates 5 that the price of buttermilk can be as low as 70% of the 6 nonfat dry milk price." 7 So the data that you provided, and it looks like 8 that came from some NASS information. I have to go back 9 and read the decision we wrote, but I'm guessing that we 10 took official notice of something that was published by 11 NASS to draw that conclusion, the 70% number. 12 So is the information you provided on 7 and 8 13 looking at Dairy Market News numbers, to conclude from 14 that that the lowest -- if I was to compare the 70% then 15 to a number now, it would be the 80.92% number as the 16 lowest observed relationship during the two years that you 17 looked at. Is that a fair comparison? 18 A. Are you referencing that number from the chart? 19 Q. Yeah -- well, if I'm looking on page 7, the min 20 number at the very bottom is 80.92%. So if I wanted to 21 look at the comparable number between the 70% that was 22 quoted from in the decision, which says "can be as low," 23 so it's not the average there, it's the min. So the min 24 on the data you provided would be 80.92%. I just want to 25 make sure I'm correctly comparing those numbers. 26 A. Yes. 27 Q. Okay. And then you go on to talk -- you -- you 28 quote this decision where the buttermilk powder is an 4448 1 additional $0.02 per pound in manufacturing costs. And 2 then you -- you use that in your calculations to come up 3 with the yield that you are proposing. 4 But what -- do you have any data that 5 substantiates that it's still a $0.02 difference? 6 A. I believe Steve's testimony speaks to that. I 7 could be incorrect, but I was thinking that he 8 specifically addressed that. 9 Q. Okay. 10 A. If not, I think we can ask him. Again, he would 11 be a better person to speak to that than me. 12 Q. Okay. So I don't think I have more questions on 13 this exhibit, but we might think of them later since you 14 get to come back up here. 15 A. Excited to do that. 16 Q. I'm excited as well. 17 I do have one question since you're up here. I 18 want to recap the last proposal because you spoke, and 19 then we kind of got the data to substantiate your 20 position. So now that you are back up here, I want to 21 make sure we understand the position. 22 And so amongst all that testimony, I think what we 23 heard was, in Select's view, farm-to-plant shrink should 24 be eliminated from the formulas, because even though your 25 data shows that it still exists, there -- that's the 26 control of either the producer or the plant to eliminate 27 that. 28 A. I think we go on to specifically state that we 4449 1 recognize that USDA has discretion in making a decision 2 based on the data presented on record in this hearing. 3 And if USDA were to find that complete elimination is not 4 reasonable, we would be okay with that as long as the 5 decision was based on the evidence provided in this 6 hearing. 7 Q. Okay. That's helpful. 8 MS. TAYLOR: Thank you. 9 THE WITNESS: Yep. 10 MR. MILTNER: Mr. Allen, can I ask a few more 11 questions? 12 THE WITNESS: Absolutely. 13 REDIRECT EXAMINATION 14 BY MR. MILTNER: 15 Q. So in the Class III formula, there's a -- it's 16 primarily for pricing cheese, correct? 17 A. Yes. 18 Q. It also prices dry whey, doesn't it? 19 A. Well, you mean uses dry whey to establish the 20 price? 21 Q. That's a better way to state it. 22 A. Correct. Yes. 23 Q. Now, do all cheese plants fully utilize their whey 24 stream? 25 A. I mean, well, do they all sell it; is that the 26 question you are asking about utilizing? 27 Q. Yes. Again, better phrased. 28 A. I don't believe so. 4450 1 Q. Nevertheless, those plants pay a Class III price 2 that presumes the sale of at least dry whey, correct? 3 A. Yes. 4 Q. And so when you were listening in to the testimony 5 remotely, did you hear any of the butter plants, some of 6 them say, yes, we make buttermilk powder, and others say 7 no? Did you hear any of that? 8 A. I don't recall specifics, no. 9 Q. If a plant manufactured and sold buttermilk powder 10 today, what's the raw input cost for that buttermilk 11 powder? 12 A. I believe it's Class IV. 13 Q. And since the formula assumes no buttermilk powder 14 value, what are they paying for the solids that are used 15 in that buttermilk? 16 A. I don't think it's captured in what they pay for 17 the producers for the milk. 18 Q. So it's other than the cost of manufacturing, 19 would it be pure profit? 20 A. I assume so. 21 Q. Thank you. 22 MR. MILTNER: I don't have anything else for 23 Mr. Allen on this topic. 24 We're prepared to offer his testimony on 25 Proposal 10. Can we take a -- we can go right into it. 26 We can take ten minutes before we do so. I'll defer to 27 everyone else. 28 THE COURT: Can we put this exhibit into evidence? 4451 1 MR. MILTNER: Yes. We would move that into 2 evidence. 3 THE COURT: Yes. Exhibit 219 is offered into 4 evidence. 5 Any objections? 6 It is admitted. 7 (Thereafter, Exhibit Number 219 was received 8 into evidence.) 9 THE COURT: I guess, yeah, let's take a break. 10 Come back at -- come back at 4:05. 11 (Whereupon, a break was taken.) 12 THE COURT: I consider you still under oath. 13 MR. MILTNER: Hello, Mr. Allen. 14 THE WITNESS: Hey there. 15 CHRIS ALLEN, 16 Having been previously sworn, was examined 17 and testified as follows: 18 DIRECT EXAMINATION 19 BY MR. MILTNER: 20 Q. You are under oath. We know your name. We know 21 your address. And in front of you is a document in the 22 upper right. It says Exhibit Select-6. 23 Do you have that? 24 A. Yes. 25 Q. And have you seen it before? 26 A. Yes. 27 Q. I believe it represents your testimony in support 28 of Select's Proposal Number 10; is that correct? 4452 1 A. That is correct. 2 MR. MILTNER: Your Honor, could we have an exhibit 3 number assigned to Select-6, please? 4 THE COURT: Yes. This exhibit is marked 220 for 5 identification. 6 (Thereafter, Exhibit Number 220 was marked 7 for identification.) 8 MR. MILTNER: Very good. 9 BY MR. MILTNER: 10 Q. Mr. Allen, you have done this twice already today. 11 Both times you gave us a somewhat abbreviated version of 12 the testimony. 13 Is that your intent again? 14 A. Yes, I would like to do that again. 15 Q. Okay. Why don't you go ahead and do that, and 16 then I'll come ask you some questions. 17 A. Will do. 18 Okay. My testimony today addresses Proposal 10 19 related to butterfat recovery. Select's Proposal 10 would 20 update the factors for butterfat recovery in the formulas 21 for protein and cheese to reflect the currently achievable 22 and actually achieved factor of 93%. The change 23 necessitates a corresponding increase in the butterfat 24 yield in cheese to 1.624. This change to the butterfat 25 yield in cheese does not consider the correction of 26 farm-to-plant shrink. 27 The current butterfat recovery factor of 28 90% originated with the adoption of the 2002 Final Rule, 4453 1 which reasoned, and I quote: "The recommended decision 2 stated that even though many cheese makers may be able to 3 achieve a higher fat retention in cheese, the use of the 4 1.582 factor representing 90% of fat recovery in cheese 5 continued to be appropriate. The recommended decision 6 also stated that as a result of the 90% level, butterfat 7 in cheese was not overvalued, and those cheese makers who 8 failed to recover more than 90% of the fat would not 9 suffer a competitive disadvantage. The preponderance of 10 the record indicates that most cheese manufacturers should 11 be able to obtain a 90% butterfat recovery," end of quote. 12 In the hearing preceding the 2002 Final Rule, 13 Select and others argued that the factor should be higher, 14 relying on hearing testimony that butterfat recovery in 15 cheddar cheese generally ranges between 90 and 93%. 16 Although Kraft testified that their butterfat recovery is 17 lower, the commenters favored a use of a factor that 18 reflected 91 or 92% fat recovery because that level of 19 recovery is common. 20 This argument was again presented in the 2007 21 formula hearing. Again, the Department declined to 22 increase the recovery factor. In its reasoning then, the 23 Department concluded, and I quote, "While the record 24 contains evidence of what butterfat recovery in cheese 25 production is possible by the use of more modern 26 manufacturing methods in technology, the preponderance of 27 evidence reflects that many cheese manufacturers generally 28 achieve butterfat recovery near 90%. It is important that 4454 1 the product price formulas reflect current market 2 conditions, not market conditions that may be possible but 3 not widely achieved or not reflective of general industry 4 wide conditions. Accordingly, this decision rejects the 5 adoption of a 94% butterfat recovery factor," end of 6 quote. 7 The adoption of Proposal 10 as measured by an 8 analysis of five- and ten-year averages are reflected in 9 the table provided in my written testimony. Based on this 10 analysis, we would expect modest increases in the value of 11 protein and in the Class III price overall. 12 I note also that the survey prices for butter and 13 cheddar cheese could result in higher or lower Class III 14 prices as a result of adopting Proposal 10. 15 I provided a table in my written testimony that 16 demonstrates the impacts of changing the butterfat 17 recovery factor at various cheese and butter prices. 18 Depending on the relationship between cheddar and butter, 19 adopting Proposal 10 will reduce prices in certain 20 circumstances. 21 Despite this fact, Select believes this change is 22 warranted, in fact, it is compelled by our desire to have 23 formulas that accurately reflect current realities. As 24 noted in my prior statements, ensuring the accuracy of the 25 formulas is more important than the result. 26 It is imperative that we introduce into this 27 record the fact that Select and the majority of producer 28 entities do not possess, or have not been authorized to 4455 1 introduce evidence they do possess, regarding the actual 2 butterfat recoveries in the manufacturing of commodity 3 cheddar cheese. 4 The nature of Federal Milk Marketing Order 5 hearings are such that the protection of proprietary or 6 otherwise confidential business information precludes the 7 Department from compelling manufacturers to offer evidence 8 about their actual butterfat recoveries and other relevant 9 data regarding costs and yields. 10 We fully support efforts to implement mandatory 11 audited reporting of make costs, yields, and other 12 relevant data for those firms subject to reporting sales 13 through the NDPSR. 14 We cannot, however, defer action on updating the 15 formulas while we optimistically wait for Congress to act. 16 While we respect the protection of such information and 17 the confidentiality constraints upon Select which 18 precludes us from submitting more probative evidence, such 19 prohibitions illustrate the disadvantage facing the dairy 20 farmer community. The fact is that producers are left to 21 shadowbox opponents who are not obligated to engage. 22 Select absolutely knows that not only is butterfat 23 recovery at or above 93% achievable, we know that it is 24 actually achieved. 25 Select has modeled its own cheese plants for the 26 production of commodity cheddar and other cheeses. Select 27 is part of multiple joint ventures that manufacture 28 commodity cheddar. Select has conducted diligence 4456 1 regarding the acquisition of or partnerships with multiple 2 cheese plants in various locations throughout the country. 3 Select employees and employees of Select's subsidiary 4 companies have experience in manufacturing cheese in 5 various styles. Our claims here are neither speculative 6 nor theoretical; they are based on actual observations and 7 experience. 8 We fully expect that opponents of increasing the 9 butterfat recovery factors will offer testimony arguing 10 that 90% remains a rational benchmark. And as testimony 11 offered under oath, we do not doubt its veracity. But we 12 must note that where there is no ability to compel 13 testimony, there is little incentive for those market 14 participants who achieve greater butterfat recoveries than 15 those currently utilized in the minimum price formulas to 16 testify. 17 The Van Slyke formula, upon which the entire 18 Class III pricing formula is premised, was first developed 19 in 1894. Van Slyke observed actual butterfat retention 20 achieved by New York cheese manufacturers. This fact was 21 testified to by Dr. David Barbano in a hearing preceding 22 the 2002 Final Decision, and I quote: "The values 23 selected for percent fat recovery in the cheese for 24 calculation can be debated. However, a 93% fat recovery 25 in the cheese is achievable with modern cheese-making 26 equipment and was achievable in the mid-1890s when 27 Van Slyke developed his cheese yield formula based on 28 observations of cheddar cheese making practice in many 4457 1 factories in Central New York over a two-year period." 2 A well-recognized academic text on cheese 3 manufacturing teaches a "basic" Van Slyke formula 4 incorporating the 93% butterfat recovery observed by Van 5 Slyke. Additionally, journal articles, research, and 6 other publications utilize the same 93% recovery factor 7 for analysis or reference. 8 Without the ability to introduce data establishing 9 that commodity cheddar manufacturers can and do achieve 10 butterfat recoveries of 93% or greater, Select will 11 provide expert testimony to establish these facts. 12 Dr. Farkye of California Polytechnic State University in 13 San Luis Obispo will testify about his research and 14 observations on butterfat recoveries, as well as available 15 equipment and technologies for optimizing butterfat 16 recovery. 17 The amendment to 7 CFR Part 1000 necessary to 18 implement Proposal 10 -- the amendments, sorry, to 7 CFR 19 Part 1000 necessary to implement Proposal 10 are provided 20 in my written testimony. 21 In conclusion, recovery of 93% of butterfat used 22 in the manufacturing of cheddar cheese was documented in 23 the late 19th Century and incorporated in the formula, 24 which provides the basis for the Class III pricing 25 formula. 26 The 2008 Final Decision recognized that butterfat 27 recoveries higher than 90% were achievable. In the 28 intervening 15 years there must be a recognition that what 4458 1 USDA recognizes as achievable by some is now achievable by 2 most. 3 While the industry consensus seems to be that 4 mandatory survey of manufacturing costs and yields is 5 desirable, USDA should not delay adjusting the price 6 formulas based on the possibility of obtaining legislative 7 authority that might never come to pass. 8 Q. Thank you, Mr. Allen. Let's start with a couple 9 clarifying questions, if we could. 10 On page 4 of Exhibit 220 you present information 11 on the five-year average and ten-year average. 12 And is it correct that those were calculated using 13 the same periods as the calculations you provided in 14 support of Select's other two proposals? 15 A. Yes, same periods, same methods. 16 Q. Further down that page you show a chart showing 17 the calculated impact on the Class III price of a 18 93% butterfat recovery at various prices, and you 19 testified that in some instances this proposal would 20 actually have a negative effect on producer income. 21 And is that what this table reflects here? 22 A. This reflects that the proposal could have a 23 negative impact on the milk prices paid to producers, yes. 24 Q. And it is a function of the relationship between 25 the butter price and the price of cheese, correct? 26 A. Yes. The value of butter and the value of cheese, 27 yep. 28 Q. I did some -- I don't know, I wouldn't call it 4459 1 analysis, let's call it arithmetic. And it appears to me 2 that when the butter price is about 137% or higher than 3 the cheese price, that relationship seems to flip. 4 Does that seem about right to you? 5 A. I'm going to trust your arithmetic. That does 6 seem about right. 7 Q. Now, on page 5 you talk about supporting evidence, 8 and I think it's fair to say that Select respects the 9 right of participants in these hearings to protect what 10 they believe to be confidential information. 11 Would that be correct? 12 A. Yes. 13 Q. And obviously, Select wants to protect the 14 confidential information of its partners and to some 15 extent its own operations, correct? 16 A. Yes. 17 Q. When you were listening to parts of the hearing, 18 did you happen to hear the testimony from Mr. DeJong from 19 Glanbia? 20 A. Portions. 21 Q. Did you hear him discuss the butterfat recoveries 22 of the Glanbia's plants? 23 A. If I did, I'm failing to recollect what he said. 24 Q. Okay. I believe he stated that all of Glanbia's 25 plants achieved higher than 93%. I hope I'm not 26 misstating my recollection. But if that were stated, 27 would that surprise you? 28 A. No, not based on some of the information we have 4460 1 available. 2 Q. Okay. And you also go through and you describe, 3 beginning at the bottom of page 5, several points of data 4 that Select, through one person or one area or another, 5 might have some information on butterfat recovery or 6 butterfat retention. 7 Your -- each of those data points informs your 8 testimony and Select's proposal, correct? 9 A. Yes. 10 Q. And I don't -- I hope you are not suggesting that 11 any or all joint ventures Select is in achieves 93% across 12 the board, are you? 13 A. No. 14 Q. And I don't think you are suggesting either that 15 every model that Select has done for a cheese plant 16 achieves 93% or more or less, correct? 17 A. Correct. No, I'm not assuming that. 18 Q. In fact, I imagine that some of these observations 19 and data points that Select has probably fall on the other 20 side of the line of that 93% line, correct? 21 A. That would be correct. 22 Q. But out of respect for other confidentiality 23 agreements, Select does not feel comfortable putting all 24 of this data into the record? 25 A. That is correct. 26 Q. I imagine Dr. Farkye can answer this question for 27 me too when he testifies, but I literally found this book 28 after we submitted all of the testimony here. It's a book 4461 1 called the Science and Practice of Cheese Making, and it 2 was written by Lucius L. Van Slyke in 1916. 3 And in his book he has the formula, which we now 4 call the Van Slyke formula, and it says the yield of 5 cheese is equal to -- and the formula looks familiar to 6 most of us here -- fat minus .007%. And you make 7 reference to that -- the age of that formula. 8 Do you think it's a bit anomalous that our 9 formulas recognize a butterfat retention that is lower 10 than what is in this 110-year old book? 11 A. I do find that hard to believe. 12 Q. And more -- more to the point, not only hard to 13 believe, is that consistent with your observations and 14 understanding about what the industry is doing today? 15 A. No. 16 MR. MILTNER: We would offer Mr. Allen for any 17 additional questions, your Honor. 18 THE COURT: Anyone have questions for Mr. Allen? 19 CROSS-EXAMINATION 20 BY MR. ENGLISH: 21 Q. Getting familiar, aren't we? 22 A. Yes, sir. 23 Q. Chip English, Milk Innovation Group. Good 24 afternoon, again. 25 So I do want to -- you know, Mr. Miltner just 26 discussed the formula. The formula, of course, the 27 depends on what's in the vat, correct? 28 A. Yes. 4462 1 Q. So if, for instance -- well, are you aware that 2 inevitably in the plant milk solids are lost in 3 wastewater? 4 A. Yes. 5 Q. So that doesn't end up in the vat, right? 6 A. Correct. 7 Q. And as I asked you earlier, and you agreed, 8 there's no such thing as loss-less plant, correct? 9 A. Correct. 10 Q. So where in the formula are those kinds of losses 11 accounted for? 12 A. That's where I would be speaking beyond my 13 expertise. 14 Q. But if there are losses, why would you think that 15 a cheese plant would be able to recover 100% of the fat? 16 A. 100% of the fat? 17 Q. In terms of its ability to even achieve 18 something -- there's going to be loss fat, correct? 19 A. Yes. 20 Q. And you focus on the butterfat recovery. But do 21 you make Grade AA butter of the type that can be reported 22 to NDPSR? 23 A. I believe so. 24 Q. Do you use whey cream in your AA butter? 25 A. I don't know. 26 Q. Isn't it true that whey cream can't be priced as 27 Grade AA butter -- can't be graded as AA butter? 28 A. I believe that is correct. 4463 1 Just so we're clear, we'll have another person 2 that can testify to that. Yeah. 3 Q. Are you aware that dry whey typically has a fat 4 test of 1.25%? 5 A. I couldn't say specifically that I would know that 6 off the top of my head. I could go look it up, but I 7 don't know that. 8 Q. So just one last series of questions. I already 9 asked this question once, but it seems to have come up 10 again. 11 IDFA commissioned a study on Make Allowances. And 12 you could have commissioned a survey on yields, correct? 13 A. Select could have. 14 Q. Select could have commissioned or sought the 15 industry to commission a study on yields, correct? 16 A. That's correct. 17 Q. And you didn't do that, correct? 18 A. Correct. 19 Q. And one of the purposes of a study like that would 20 be to allow people to provide, like they did 21 Dr. Stephenson, confidential information, correct? 22 A. Yes. 23 Q. And then, as I think -- I wasn't going to bring it 24 up yet because it really was in Mr. Cooper's testimony, 25 but since National Milk Producers counsel brought it up, 26 Select did not participate in the Stephenson study, 27 correct? 28 A. As far as I know we didn't. 4464 1 Q. Okay. Is that a little incongruous that -- I 2 mean, as I hear it, you are implicitly criticizing cheese 3 companies for not coming forward and talking about their 4 butterfat recovery, and yet, you didn't commission a study 5 and you didn't participate in Stephenson's study? 6 A. Again, as I explained earlier, I can't explain why 7 we didn't participate. 8 MR. ENGLISH: I have no further questions. 9 THE COURT: Other questions? 10 I guess you are up, AMS. 11 CROSS-EXAMINATION 12 BY MS. TAYLOR: 13 Q. We're moving right through today. All right. 14 I want to turn to page 5 -- and I think you talked 15 about this a little with Mr. Miltner, and I apologize if I 16 missed some of those answers -- about at the bottom you 17 talk about Select has modeled its own cheese plants. And 18 I guess you are using this as the basis to say that you 19 know that butterfat recovery of 93% is achievable; is that 20 right? 21 A. It's one of the means, yes. 22 Q. And so how many plants are you talking about 23 there? 24 A. I wouldn't be able to say. Proprietary. 25 Q. Okay. So we're not sure how many cheese plants 26 that incorporates but -- 27 A. Well, to be clear, this includes cheese plants 28 that we have looked at acquisitions. I mean, this 4465 1 includes not just plants owned and operated today by 2 Select. 3 Q. Oh, but plants maybe Select looked at purchasing 4 at some point in time? 5 A. Yes. That's why I don't want to start throwing 6 out numbers. 7 Q. Okay. How do those plants compare to maybe other 8 areas that I don't know where those plants are located, 9 but to other plants in the country, cheddar plants? 10 Older, newer, certain locations versus other parts of the 11 country, I mean? 12 A. A mix, yes. Both newer and both on the older side 13 of I guess of average, whatever you want to call average 14 in this industry. I don't know that I would have a good 15 number to pinpoint for average, but some more -- 16 relatively newer and some older. 17 Q. We have had some discussion at the hearing about 18 using UF to take out some water or condensing before it 19 goes in the vat. 20 Do those impact butterfat recovery at all? 21 A. Wouldn't be able to speak to that. I just don't 22 know. 23 Q. Your testimony talks about that these 93% -- this 24 93% butterfat recovery is achievable at modern plants. 25 Do you know what a guess on what percent of the 26 cheddar production is from these types of plants? 27 A. I don't. I'm trying to recall if Dr. Farkye's 28 testimony will reference that or not, but I do not know. 4466 1 Q. Okay. And so that -- Dr. Farkye is going to get a 2 little more into the technical side of things? 3 A. Absolutely more technical than I can possibly be. 4 Yeah. 5 Q. Okay. We'll save some questions for him. 6 So on a very technical note, we do try to run 7 everyone's numbers again to make sure we see them, and on 8 your five- and ten-year averages that you use, and I think 9 you said you started in April of I guess '21 through April 10 of '23 to do that -- oh, five years, so '19? 11 A. Yeah, you're throwing me off. Right. 12 Q. I haven't had enough coffee today. 13 A. Start with May, end in April. So I think May of 14 '18 through April of 2023, I believe that's right. Am I 15 off a year? Oh, sorry, to be clear I will -- for the 16 record, it ends April of 2023, and it includes the five 17 consecutive years before that. 18 Q. So it would have started in May of -- 19 A. I believe that is correct, May, yes. 20 MS. TAYLOR: I think we'll save the rest of the 21 questions for later. Thank you. 22 THE COURT: Anything else? 23 MR. MILTNER: I don't have any addition al 24 questions, your Honor. We would ask the admission of 25 Exhibit 220. 26 THE COURT: Seeing no objections, Exhibit 220 is 27 admitted into the record. 28 (Thereafter, Exhibit Number 220 was received 4467 1 into evidence.) 2 MR. MILTNER: So, your Honor, we -- we have two 3 additional statements to present. I am astonished at how 4 quickly we have gone through what we did today. 5 Mr. Cooper, I think his flight landed in the last 6 45 minutes or so. We would be prepared to present him in 7 the morning. 8 Dr. Farkye is actually here, just in full 9 disclosure. He took a red eye in. Otherwise, he would 10 not have arrived until much later tonight, which was his 11 original plan, which is why I had told everyone that we 12 would be prepared to put him on Tuesday. 13 So my preference would be to start with both of 14 those witnesses first thing in the morning and proceed 15 from there, but we will, of course, defer to your Honor's 16 direction. 17 THE COURT: Okay. I will defer to the will of the 18 parties, if I can. 19 Mr. Rosenbaum has stood up. 20 MR. ROSENBAUM: Your Honor, I have no objection to 21 what was just stated. 22 I am standing on a different issue, which is when 23 Mr. Brown was testifying this morning, USDA pointed out 24 they thought there was an error in the calculations on 25 page 12 of his PowerPoint presentation, which has been 26 marked as Hearing Exhibit 215, and they were correct. 27 And so we would like to have Mr. Brown retake the 28 stand. I think this is a five-minute undertaking, just to 4468 1 put in the corrected numbers. 2 THE COURT: Okay. That seems like a good use of 3 time unless someone's got -- got a concern about -- 4 let's -- I mean, we can come back -- do we want to handle 5 whether we take up Mr. Cooper and Mr. Farkye first thing 6 in the morning after this, or do we -- 7 MS. TAYLOR: I think AMS thinks that's a good 8 idea, to start that in the morning. 9 THE COURT: I don't see an objections from anyone 10 else. 11 So let's do -- let's do as you proposed, 12 Mr. Miltner, you're betting general support from the 13 audience. 14 Welcome back. Mr. Brown, you are still under 15 oath. 16 MIKE BROWN, 17 Having been previously sworn, was examined 18 and testified as follows: 19 REDIRECT EXAMINATION 20 BY MR. ROSENBAUM: 21 Q. Mr. Brown, I have put before you a one-page 22 document that is entitled in the upper right-hand corner 23 Updated IDFA Exhibit 42, corrected page 12. 24 Do you see that? 25 A. Yes. 26 MR. ROSENBAUM: Your Honor, I would ask that this 27 document be marked with the next Hearing Exhibit number. 28 THE COURT: This page is marked Exhibit 221. 4469 1 (Thereafter, Exhibit Number 221 was marked 2 for identification.) 3 MR. ROSENBAUM: Could I have that again, please, 4 your Honor? 5 THE COURT: 221. 6 MR. ROSENBAUM: Thank you very much. 7 BY MR. ROSENBAUM: 8 Q. Now, is Hearing Exhibit 221 a corrected page 12 of 9 your PowerPoint presentation that was marked as Hearing 10 Exhibit 215? 11 A. Yes. 12 Q. All right. And so if we just -- if you get before 13 you Hearing Exhibit 215, page 12, turn it to page 12, and 14 then just side by side have new Hearing Exhibit 221. 15 Could you just indicate what corrections you have made in 16 your calculations of the percentage of various commodities 17 in terms of total production that were addressed by the 18 2019 Stephenson survey that resulted in the 2021 19 Stephenson report? What changes have you made? 20 A. Okay. The error was in participating plants. The 21 original had 29 nonfat dry milk plants and 14 butter; the 22 correct numbers are 27 and 12. 23 I also double checked the rest of the numbers to 24 make sure that they were in alignment, and they are. 25 And so those survey production shares dropped for 26 both nonfat dry milk and butter. Nonfat dry milk dropped 27 from 59.6 to 64.8; butter dropped from 95.7 to 82.1. 28 I also had an error in one of the reference 4470 1 documents, dairy products, and those have also been 2 corrected, and the pages are listed where the data came 3 from. 4 Q. Okay. And so just to make sure we're actually all 5 looking at the exact same information. 6 Under the heading 2019 USDA NASS and Stephenson 7 cost survey dairy products volumes, the information with 8 respect to cheddar cheese and whey are unchanged, correct? 9 A. That is correct. 10 Q. And for nonfat dry milk, the corrected version, 11 which is Exhibit 221, has 27 plants rather than 29, 12 correct? 13 A. Correct. 14 Q. The average annual production remains the same, 15 correct? 16 A. Yes. 17 Q. But the total survey annual production has gone 18 down because there are two fewer -- T-W-O, fewer plants, 19 correct? 20 A. Correct. 21 Q. And so that number is now the -- that number is 22 now 1,199,496,654, correct? 23 A. Correct. 24 Q. And as -- and as a share of total NASS production 25 of nonfat dry milk, the percentage has now gone down in 26 terms of what percentage was surveyed from 69.6 to 64.8, 27 correct? 28 A. Yes. 4471 1 Q. And similarly for butter, there now are only 12 2 participating plants, correct? 3 A. Correct. 4 Q. The average annual production per plant is 5 unchanged, correct? 6 A. Correct. 7 Q. Because that's from the Stephenson survey itself, 8 correct? 9 A. Yes. 10 Q. But the total survey annual production has fallen 11 because now you are multiplying the average annual 12 production by 12 plants rather than 14 plants, correct? 13 A. Correct. 14 Q. And that actually drops the percentage of total 15 production covered rather materially, instead of 16 95.7% it's now 82.1%, correct? 17 A. Correct. 18 Q. And so if we go back to page 11 of Hearing 19 Exhibit 215, that's where you had the percentage covered 20 by the 2023 Stephenson survey of 2022 costs that actually 21 is the source of information used by IDFA and calculated 22 its proposed Make Allowance, correct? 23 A. Correct. 24 Q. All right. So just one by one, let's go through 25 each of the commodities so we know the correct numbers. 26 In the 2023 Stephenson study, what percentage of 27 the total cheddar cheese production in the United States 28 was covered by the Stephenson survey? 4472 1 A. 55.6%. 2 Q. And that compares as to what percentage in the 3 Stephenson 2021 report? 4 A. 16.3%. 5 Q. So -- 6 A. It's -- it's actually more than three times. 7 Q. More than three times as much coverage. 8 And for whey, the -- and by that I mean the 2023 9 report has more than three times as much coverage -- 10 A. Yes. 11 Q. -- as the 2001 report -- 2021 report; is that 12 correct? 13 A. Yes. 14 Q. Okay. And then for whey, what's the 2023 number? 15 A. It's 50.8%. The 2019 number is 29.7%. So it's 16 about 21% higher. 17 Q. Okay. Well, 21 percentage points higher. But, I 18 mean, in terms of -- well, you can look at it different 19 ways. But 21 percentage points higher, correct? 20 A. Right. 21 Q. And then for nonfat dry milk in the 2023 report, 22 what percentage of total nonfat dry milk production was 23 covered by the survey? 24 A. 91.2%. 25 Q. And what percentage had been covered back in 2019? 26 A. 64.8%. 27 Q. Okay. So once again, a materially higher coverage 28 in the 2023 report, correct? 4473 1 A. Correct. 2 Q. And now, lastly, in terms of butter, what 3 percentage was covered in the 2023 report? 4 A. 80.1%. 5 Q. And what percentage in the 2019 report? 6 A. 82.1%. 7 Q. So the 2021 study continues to cover more butter 8 than the 2023 report, but at this point now it's only 9 slightly more as opposed to the rather substantially more 10 that had been shown in your original version -- 11 A. Yes, that's correct. 12 Q. -- version of Hearing Exhibit 12; is that right? 13 A. Yes. 14 Q. Okay. Now I think going to Hearing Exhibit 221, 15 and going back to page 12 of Hearing Exhibit 215, did you 16 also -- there's a second part of that page that talks 17 about the 2006 USDA NASS and Stephenson cost survey dairy 18 product volumes, correct? 19 A. Yes. 20 Q. And the numbers in that part of this page are 21 unchanged, correct? 22 A. That is correct. 23 Q. Did you, though, change one of the citations in 24 the data sources? 25 A. Yes, I did. 26 Q. Okay. Is that -- is the -- does Hearing 27 Exhibit 221 reflect the corrected -- 28 A. Yes, it does. And it was -- it was -- essentially 4474 1 it was the page references that need to be updated. 2 MR. ROSENBAUM: Okay. That's all I have, your 3 Honor. 4 THE COURT: Questions for this witness? 5 AMS? No? No? 6 Seeing no cross, I guess we can move Exhibit 221 7 into the record, and it's accepted into the record as 8 evidence. 9 (Thereafter, Exhibit Number 221 was received 10 into evidence.) 11 MR. ROSENBAUM: Thank you, your Honor. 12 THE COURT: Thank you, Mr. Rosenbaum. 13 I guess, immediately prior to this witness 14 retaking the stand, we talked about having those two 15 witnesses, Cooper and Farkye, come up first thing tomorrow 16 morning, so we'll do that. 17 Is there anything we can do to make productive use 18 of the last 15 minutes? 19 MS. TAYLOR: For tomorrow as well, we have a 20 witness from American Farm Bureau Federation that would 21 like to testify in the morning, so we would like -- they 22 were here -- he was here last week. He's coming back to 23 testify tomorrow, so we do need to squeeze him in. 24 THE COURT: Okay. Do we need to figure out an 25 order? 26 MS. TAYLOR: I mean, I would think he could go 27 first, if possible. I don't -- is that okay? 28 MR. MILTNER: I think that's fine, yes. 4475 1 MS. TAYLOR: Okay. We would like him to go first, 2 and then we can proceed with the rest of Select's 3 witnesses. 4 THE COURT: Okay. Very good. 5 MR. ROSENBAUM: Just to round out the order, we 6 have two witnesses, then, Ms. Krebs and Mr. Brown, 7 addressing these yield issues that are raised by Select 8 Milk. 9 THE COURT: Very good. 10 And they can come after the three witnesses we 11 were just talking about. 12 MR. ROSENBAUM: Yes, your Honor. 13 THE COURT: Thank you. 14 Off the record. 15 (Off-the-record.) 16 THE COURT: On record. 17 In off-the-record discussion we talked about the 18 next witnesses who we will take up tomorrow morning and 19 afternoon. And with that, we're seeing no other business. 20 We're adjourned until tomorrow at 8:00. 21 (Whereupon, the proceedings concluded.) 22 ---o0o--- 23 24 25 26 27 28 4476 1 STATE OF CALIFORNIA ) ) ss 2 COUNTY OF FRESNO ) 3 4 I, MYRA A. PISH, Certified Shorthand Reporter, do 5 hereby certify that the foregoing pages comprise a full, 6 true and correct transcript of my shorthand notes, and a 7 full, true and correct statement of the proceedings held 8 at the time and place heretofore stated. 9 10 DATED: November 2, 2023 11 FRESNO, CALIFORNIA 12 13 14 15 16 MYRA A. PISH, RPR CSR Certificate No. 11613 17 18 19 20 21 22 23 24 25 26 27 28