8356 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 Jill Clifton, Judge 15 16 ---o0o--- 17 18 Carmel, Indiana 19 November 28, 2023 20 21 ---o0o--- 22 23 24 25 26 Reported by: 27 MYRA A. PISH, RPR, C.S.R. Certificate No. 11613 28 8357 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 Michelle McMurtray 6 FOR THE MILK INNOVATION GROUP: 7 Charles "Chip" English Grace Bulger 8 FOR THE NATIONAL MILK PRODUCERS FEDERATION: 9 Nicole Hancock 10 Brad Prowant 11 FOR SELECT MILK PRODUCERS, INC.: 12 Ryan Miltner 13 FOR INTERNATIONAL DAIRY FOODS ASSOCIATION: 14 Steve Rosenbaum 15 FOR THE AMERICAN FARM BUREAU FEDERATION: 16 Dr. Roger Cryan 17 FOR LAMERS DAIRY: 18 Mark Lamers 19 FOR DAIRY FARMERS OF AMERICA: 20 W. Todd Miller 21 ---o0o--- 22 23 (Please note: Appearances for all parties are subject to 24 change daily, and may not be reported or listed on 25 subsequent days' transcripts.) 26 27 ---o0o--- 28 8358 1 M A S T E R I N D E X 2 SESSIONS 3 TUESDAY, NOVEMBER 28, 2023 PAGE 4 MORNING SESSION 8361 AFTERNOON SESSION 8500 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 8359 1 M A S T E R I N D E X 2 WITNESSES IN CHRONOLOGICAL ORDER 3 WITNESSES: PAGE 4 Joe Brinker: 5 (Continued) Cross-Examination by Mr. English 8361 6 Cross-Examination by Ms. Taylor 8380 Redirect Examination by Ms. Hancock 8384 7 Michael John: 8 Direct Examination by Ms. Hancock 8386 9 Cross-Examination by Mr. English 8408 Cross-Examination by Mr. Miltner 8441 10 Cross-Examination by Dr. Cryan 8451 Cross-Examination by Mr. Lamers 8453 11 Cross-Examination by Mr. Rosenbaum 8456 Cross-Examination by Ms. Taylor 8458 12 Redirect Examination by Ms. Hancock 8467 13 Skylar Ryll: 14 Direct Examination by Ms. Hancock 8472 Cross-Examination by Mr. English 8508 15 Cross-Examination by Mr. Miltner 8553 Cross-Examination by Ms. Taylor 8562 16 Cross-Examination by Mr. Rosenbaum 8574 Redirect Examination by Ms. Hancock 8577 17 Scott Werme: 18 Direct Examination by Ms. Hancock 8581 19 Cross-Examination by Ms. Bulger 8589 20 21 ---o0o--- 22 23 24 25 26 27 28 8360 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. 5 357 MIG-53 8366 8370 6 358 MIG-54 8371 8379 7 356 Testimony of Joe Brinker 8385 8 359 NMPF-41 8386 8470 9 360 NMPF-42 8470 8550 10 361 NMPF-42A 8471 8551 11 362 NMPF-42B 8471 8551 12 363 NMPF-42C 8471 8551 13 364 NMPF-42D 8471 8552 14 365 NMPF-42E 8471 8552 15 366 MIG-50 8519 8552 16 367 MIG-39 8537 8553 17 368 MIG-51 8537 8553 18 369 MIG-55 8538 8553 19 370 NMPF-43 8581 20 371 Federal Register Notice 8603 8604 21 372 Press Release 8603 8604 22 23 ---o0o--- 24 25 26 27 28 8361 1 TUESDAY, NOVEMBER 28, 2023 - - MORNING SESSION 2 THE COURT: Let's go back on record. 3 We're back on record. It is 2023, November 28th, 4 approximately 8:00 in the morning. 5 I don't think there are any preliminary matters, 6 but if there are, let me know now. 7 No. All right. 8 The witness who was on the stand yesterday may 9 take his seat at the witness chair. 10 Mr. Brinker, would you again state and spell your 11 name? 12 THE WITNESS: Joe Brinker, J-O-E, B-R-I-N-K-E-R. 13 THE COURT: You remain sworn. 14 And, Mr. English, you may resume your 15 cross-examination. 16 MR ENGLISH: Thank you, Your Honor. 17 JOE BRINKER, 18 Having been previously sworn, was examined 19 and testified as follows: 20 (CONTINUED) CROSS-EXAMINATION 21 BY MR. ENGLISH: 22 Q. Chip English for the Milk Innovation Group. 23 Good morning, Mr. Brinker. 24 A. Good morning. 25 Q. I do want to mostly start where I left off, but I 26 want to digress just for one moment. 27 In the intervening time since last you were on the 28 stand last night, have you learned anything more about the 8362 1 University of Wisconsin model? 2 A. No. 3 Q. Did you look at Exhibits 300 or 301, which are the 4 big spreadsheets? 5 A. I did not. 6 Q. Is there anything, before we get started, that you 7 would like to revise from yesterday's testimony? 8 A. There is not. 9 Q. Okay. So we have earlier in this proceeding taken 10 official notice of some documents from USDA with respect 11 to milk production, disposition, and income. 12 (Court Reporter clarification.) 13 MR. ENGLISH: Milk production, disposition, and 14 income. 15 And, Your Honor, I would like to -- he obviously 16 doesn't have copies with him, I assume. I brought extras 17 for him to look at. These are the -- not like yesterday, 18 because yesterday Mr. Hoeger had looked at a different 19 time period, but this is the original set for the 2000 20 summary issued in April 2001, and the 2022 summary issued 21 in April 2023, and they have already been taken official 22 notice of, and people may or may not still have copies 23 with them. 24 But may I approach the witness, Your Honor? 25 THE COURT: You may. 26 BY MR. ENGLISH: 27 Q. So, Mr. Brinker, these documents are official 28 publications of the United States Department of 8363 1 Agriculture, and they provide information with respect to 2 milk production, both the total quantity and the percent 3 that is fluid grade or Grade A. 4 So I would like to start. And just for clarity, I 5 have provided only one page of each. In the case of 2000, 6 it's page 9, and in the case of 2022, it's page 11. But 7 it's basically the same information, although the 8 formatting is somewhat different. And they use 9 abbreviations for the states in 2000 and the state names 10 in 2022. 11 But let's start with Missouri for a moment, which 12 is about the middle of the page, "MO" under 2000. And 13 would you confirm with me that the total quantity of milk 14 produced in Missouri at that time was -- these are in 15 million pounds -- 2,229 million pounds. 16 Can you confirm that, please? 17 A. Yes. 18 Q. And that 95% was Grade A, correct? 19 A. Correct. 20 Q. So now let's look at 2022. 21 And the state of Missouri now is 922 million 22 pounds, correct? 23 A. Correct. 24 Q. Which is down over 1.3, so 1,300 million pounds in 25 2002, correct? 26 A. Correct. 27 Q. Very significant drop, correct? 28 A. Yes. 8364 1 Q. Okay. And it's at 97% Grade A, correct? 2 A. That is correct. 3 Q. Okay. So now let's look at Nebraska, two lines 4 down, on 2000. 5 That number shows 1,239 million pounds, correct? 6 A. Yes. 7 Q. And 96% Grade A, correct? 8 A. Yes. 9 Q. And if we look at 2022, it's gone up some to 1,410 10 million pounds, correct? 11 A. That is correct. 12 Q. And 100% Grade A, correct? 13 A. Yes. 14 Q. So now let's go back up the page and look at 15 Kansas. 16 So Kansas, or KS in 2000, is listed at 17 1,508 million pounds, correct? 18 A. Yes. 19 Q. At 99% Grade A, correct? 20 A. Yes. 21 Q. And on -- in 2022, Kansas is now 4,130 million 22 pounds, correct? 23 A. Correct. 24 Q. And 100% Grade A, correct? 25 A. Yes. 26 Q. So Missouri is down significantly, correct? 27 A. Correct. 28 Q. Nebraska is up a little bit, correct? 8365 1 A. Yes. 2 Q. And Kansas is more than tripled, correct? 3 A. Correct. 4 THE COURT: More than tripled? 5 MR. ENGLISH: More than tripled. 6 THE COURT: Did you say the second number was 7 4,130? 8 MR. ENGLISH: Yes. 9 THE COURT: Wouldn't it have to be -- 10 MR. ENGLISH: I'm sorry, not quite tripled. 11 You're right, Your Honor. 12 THE COURT: Okay. 13 MR. ENGLISH: Late-night math. 14 A little less than tripled, two and a half times, 15 correct that. Correct? 16 THE WITNESS: Yes. 17 MR. ENGLISH: Thank you, Your Honor. 18 THE WITNESS: Roughly. 19 MR. ENGLISH: Thank you. Roughly. 20 BY MR. ENGLISH: 21 Q. Do you know where that Kansas growth is 22 concentrated? 23 A. I don't know exactly where it's at, but I would -- 24 I would guess that it's Western Kansas. 25 Q. Near Wichita? 26 A. No. 27 Q. Some of it near Wichita, some of it just south of 28 Wichita, in Gray County? 8366 1 A. Not that I'm aware of. 2 Q. So Wichita is in Sedgwick County; is that correct? 3 A. I don't know that for a fact. 4 Q. Do you know if the growth in Kansas is in Gray 5 County and Kearney County? 6 A. I don't know that for a fact. 7 Q. Nonetheless, there is significant growth of milk 8 production in Kansas, correct? 9 A. In the state, correct. 10 MR. ENGLISH: Your Honor, I would like to have a 11 document marked which was -- it doesn't have any label on 12 it because it comes from Central Order statistics, but we 13 submitted it this morning to USDA as MIG-53. 14 THE COURT: All right. I believe our next number 15 is 357. Yes, it is, Exhibit 357. 16 (Thereafter, Exhibit Number 357 was marked 17 for identification.) 18 THE COURT: And let's go off record while those 19 exhibits are -- proposed exhibits are distributed. 20 Off the record. 21 (An off-the-record discussion took place.) 22 THE COURT: Let's go back on record. 23 We're back on record at 8:10. 24 Mr. English. 25 MR. ENGLISH: Thank you. Off the record we have 26 marked a document labeled Central Order States as MIG-53, 27 and this exhibit, Your Honor, I'm sorry, I was -- 28 THE COURT: 357. 8367 1 MR. ENGLISH: 357. 2 And we had a conversation off the record with Erin 3 Taylor of USDA confirming for those who did not hear that, 4 or for the purpose of the record, that the website will 5 not reorder them, but MIG-53 will be listed, and then 6 there will be a document provided by USDA that will 7 link -- that shows that's Exhibit 357. 8 Your Honor, this is an official publication from 9 the Central Order States. You can find it on the website. 10 I'll provide the cite later. 11 BY MR. ENGLISH: 12 Q. But, if I may, Mr. Brinker, have you seen 13 documents like this before from USDA? 14 A. I have. 15 Q. Okay. So in looking at this document, and going 16 back now as far as 2000, which confirms the data we just 17 saw from NASS, the milk production increases, would you 18 agree, are in Colorado, Iowa, Kansas, and South Dakota, 19 and a little bit Nebraska? 20 A. Yes. 21 Q. And Illinois and Missouri and Oklahoma are down, 22 correct? 23 A. That is correct. 24 Q. So what is the specific reason why National Milk 25 Producers Federation proposes that Wichita goes up $0.90 26 over the model? 27 THE COURT: Over what? 28 MR. ENGLISH: The model results. 8368 1 THE COURT: The model. Thank you. 2 THE WITNESS: Again -- again, the model was the 3 baseline, the background, and then National Milk looked at 4 the price alignment between markets, and did our best to 5 maintain those current alignments. 6 BY MR. ENGLISH: 7 Q. Is price alignment more important than milk 8 production and population centers? 9 A. I don't -- I'm not sure what your -- what your 10 question is. 11 Q. So -- so what principles should USDA apply in 12 establishing Class I differentials? And I'm asking, is 13 the preference for price alignment or is it a recognition 14 of where the milk is produced, where it is processed, and 15 where it is sold? 16 A. I -- I don't know that any of those are in the 17 model as far as the population centers and where the milk 18 is sold. 19 Q. If the model does take into account where milk is 20 produced, where it is processed, and where it is sold, 21 wouldn't that be relevant to your consideration? 22 A. Yes. And I believe the model does look at where 23 it is -- it is produced and bottled, if you will. 24 Q. So you talk about -- why is price alignment 25 relevant to your consideration? 26 A. Well, I would say that the price alignment is -- 27 you know, we're -- the market currently has established 28 market alignments, price alignments that appears to be 8369 1 working, if you will, for lack of a better term, and so 2 whatever those relationships are, there was an effort to 3 maintain the similar relationships. 4 Q. What's the point of updating the Class I 5 differentials from data from 25 years ago if at the end of 6 the day the current alignments are going to prevail over 7 what the model results are? 8 A. I don't understand the question. 9 Q. Could you repeat it back? 10 THE COURT: It was brilliant. I'm -- I don't want 11 her to repeat it back. Ask again even if it's not exactly 12 the same. 13 MR. ENGLISH: All right. 14 BY MR. ENGLISH: 15 Q. What is the point of updating Class I 16 differentials after 25 years, using new data about where 17 milk production is, where the milk's produced, where it is 18 processed, and where it needs to be sold, if at the end of 19 the day existing price alignments are going to govern over 20 what the model results are? 21 A. Well, I -- I would not characterize it existing 22 alignments govern over that. That's just one part of the 23 considerations that were made. 24 Q. So other than price alignment, why are you 25 proposing that Wichita goes up $0.90 over the model versus 26 Kansas City going zero over the model? 27 A. Again, that would be one of the considerations on 28 price -- price alignment. 8370 1 Q. What are the other considerations? 2 A. Well, the other considerations were -- would be 3 distance from the market, from -- the raw milk distance 4 from the market. 5 Q. And wouldn't the documents we just looked at 6 suggest that with milk production down in Illinois and 7 Missouri, and up significantly in Kansas, that milk 8 production is closer to Wichita than it is to Kansas City? 9 A. I don't know that to be the fact. 10 Q. Do you have any evidence to provide to the 11 contrary? 12 A. I do not. 13 MR. ENGLISH: Your Honor, I move admission of 14 Exhibit 357. 15 THE COURT: Is there any objection to the 16 admission into evidence of Exhibit 357? 17 There is none. Exhibit 357 is admitted into 18 evidence. 19 (Thereafter, Exhibit Number 357 was received 20 into evidence.) 21 MS. HANCOCK: Your Honor, it would be helpful if 22 we had the actual source on here, the cite for it. 23 THE COURT: Well, Mr. English said he would 24 provide that later, but this is all from USDA website 25 material. 26 Is that correct, Mr. English? 27 MR. ENGLISH: Yes, it is, I believe -- there's 28 somebody nodding his head, but all I can testify about -- 8371 1 I will provide the citation, and if we need to wait, I'll 2 put it on hold. 3 THE COURT: You do not need to wait. 4 MR. ENGLISH: Fine. 5 THE COURT: We appreciate your courtesy and 6 showing us where to look, but if this is public data, then 7 I'll accept the exhibit. 8 MR. ENGLISH: I will do so no later than tomorrow 9 morning and maybe even today. 10 THE COURT: Thank you. Did I admit it? I did, 11 didn't I? Okay. 12 MR. ENGLISH: Yes, thank you. 13 THE COURT: Oh, so we will appreciate the courtesy 14 of the citations to the USDA website as to source of this 15 material, but nevertheless, with or without it, I do admit 16 into evidence Exhibit 357, also known as MIG-53. 17 MR. ENGLISH: Thank you, Your Honor. 18 My next document is marked Exhibit MIG-54. It is 19 prepared by MIG and uses sort of the headline that we have 20 tried to use and deleted any reference to National Milk. 21 And it is four selected locations in Order 32. If I could 22 provide that yourself and the witness, copies to USDA, I 23 would like to have that marked as the next exhibit. 24 THE COURT: Yes. Let's go off record while we do 25 that. 26 (Thereafter, Exhibit Number 358 was marked 27 for identification.) 28 THE COURT: Let's go back on record. Back on 8372 1 record at 8:21. 2 Mr. English, while off record I labeled MIG-54 as 3 Exhibit 358. 4 MR. ENGLISH: Thank you, Your Honor. 5 So for the benefit of both the witness and the 6 parties, this is yet another chart, in this case, 7 extracting Jackson, Missouri, Row 1497; Omaha, Nebraska, 8 Row 1648; Sedgwick, Kansas, Row 941; and Reno, Kansas, 9 that's the county, of Row 942, where there are four pool 10 distributing plants. 11 THE COURT: So there are four distributing -- 12 MR. ENGLISH: Four plants. There are four -- 13 THE COURT: Oh, go ahead. 14 MR. ENGLISH: -- pool distributing and supply 15 plants. And the source of most of the information -- all 16 the sources are labeled in the columns, similar to 17 previous documents, although we have done a few different 18 calculations here with the differences and percent 19 changes. 20 BY MR. ENGLISH: 21 Q. Sir, I continue to struggle with this. Why is 22 Reno, Kansas, where proprietary operation operated by 23 Kroger, when the model results go up $0.10 from the 24 current, add -- National Milk proposes adding an 25 additional $1.05? 26 A. Well, the -- if I remember correctly, this was a 27 situation where now we are looking at the price alignment 28 as we move south, and trying to attempt to maintain those 8373 1 relationships to -- into Oklahoma. 2 Q. Well, but looking at the four plants that are in 3 your area -- well, let me backtrack. 4 We just looked at documents for Oklahoma, and 5 Oklahoma is shrinking milk production, correct? 6 A. Correct. 7 Q. And presumably the model would pick up the fact 8 that the Oklahoma milk production is shrinking, correct? 9 A. I don't know if it would or not. I can't speak to 10 the model. 11 Q. But you are here talking about why National Milk 12 has proposed numbers that turned out to be different from 13 the model. 14 How is USDA to make a determination of why your 15 numbers are correct if you can't even testify as to the 16 model? 17 A. Again, the model is used as a benchmark. And then 18 for this particular area, I was looking at current 19 relationships and -- and what would be least disruptive to 20 the existing environment. 21 Q. Well -- all right. Least disruptive to the 22 existing environment. 23 But nonetheless, to the extent, you know, Kroger 24 in Kansas may sell east, and Hiland in Kansas City may 25 sell west, currently, yet in the 1997 data that USDA used, 26 that would be $0.20 higher under the current column, but 27 you make it $0.50 higher under your proposal, correct? 28 A. Can you repeat that? 8374 1 Q. Comparing the Kansas City location where a 2 cooperative plant is located, to Kroger's proprietary 3 operation in Reno, Kansas, right now, would you agree, 4 that Kansas City is at $2.00 Class I differential, and 5 Kroger is at $2.20 Class I differential, correct? 6 A. Correct. 7 Q. And that's a $0.20 difference, correct? 8 A. Currently, yes. 9 Q. Yes. But if you go under "Proposal" -- the column 10 "Proposal Number 19 June '23," that is now a $0.50 11 difference, correct? In favor of Kansas City, correct? 12 A. That is correct. 13 But I would also point out that the Wichita price 14 alignment is the same as the Kroger plant in Hutchison. 15 Q. In order to get there you modified it by the 16 additional $0.15 over the model, correct? I understand 17 you have made it the same, but you have, nonetheless, 18 added, based upon what the model would do, an additional 19 $0.15 over Wichita, if you look at the difference column, 20 correct? 21 A. Uh-huh. 22 Q. From $0.90 to $1.05, correct? 23 A. Per the model. 24 Q. Sir, what's the point of the model if you are just 25 going to go for price alignment? 26 A. Well, I think it's been established that the model 27 was used as the foundation. You have to start somewhere, 28 and -- and that's the somewhere that we started. 8375 1 Q. Let's look at your map on page 5, as we also look 2 at Exhibit 358. 3 THE COURT: So we're looking at 356, page 5? 4 MR. ENGLISH: Yes. 356, page 5. 5 BY MR. ENGLISH: 6 Q. Given growth of milk -- let me back up. 7 You agree that milk production has also gone up in 8 Colorado significantly since 2000? 9 A. Yes. 10 Q. So given that milk production growth in Colorado, 11 and given the milk production in Kansas that has gone up, 12 and the fact that Nebraska has gone up slightly, but 13 Missouri and Illinois have gone down, what is the 14 justification for this $3.30 zone along Interstate 70 from 15 Colorado into Kansas? 16 A. I believe there will be a future witness that 17 would speak to Western Kansas and the Colorado price 18 surface. 19 Q. But you are here to testify about Wichita, 20 correct? 21 A. That is correct. 22 Q. And so you are saying ask somebody else? 23 A. Not about Wichita. 24 Q. Well, isn't Wichita affected by this $3.30 range? 25 I guess -- let me back up. 26 When I look at the map, you have Wichita in the 27 $3.85 zone on the map. 28 A. That is correct. 8376 1 Q. Wichita is not farther west in the state than 2 that? 3 A. I would not consider Wichita Western Kansas. 4 Q. So you are saying it's in the $3.85 zone? 5 A. That is correct. 6 Q. Other than this idea of retaining current price 7 alignment, what is National Milk Producers' justification 8 for the results that appear on Exhibit 354 that leave 9 Kansas City at the model number, which is a 0% increase, 10 versus Sedgwick, Kansas, of 31% increase, and Reno, 11 Kansas, a 38% increase over the model? 12 A. Again, we started with the model, and it was an 13 attempt to maintain those price alignments. 14 Q. Any other reason other than price alignments? 15 A. That was -- that was a main point of it. Also the 16 distance from the market for the milk that is actually 17 physically delivered into those locations. 18 Q. That is raw milk delivered to plants? 19 A. Correct. 20 Q. And you don't know whether the model takes that 21 into consideration. 22 A. Oh, I would assume that it does, but I don't know 23 that for a fact. 24 Q. Well, if you assume that it does, then hasn't the 25 model already accounted for that, and therefore, it's not 26 the reason for your deviation? 27 A. I -- I don't know at what percentage it takes that 28 into consideration. 8377 1 Q. Did you have any conversations with anybody about 2 that before you proposed these significant increases over 3 the model for Sedgwick, Kansas, and Reno, Kansas? 4 A. I did not. 5 Q. Other than price alignment, and assuming that the 6 model does take into consideration where milk is produced, 7 where it's processed, and where it's sold, how is the 8 model deficient in recognizing the distinctions that you 9 have now made between Kansas City, Omaha, and Wichita? 10 A. Can you repeat that question? 11 Q. Assuming that the model does account for where 12 milk is produced, where it is processed, and where it is 13 sold, other than your arguments for retaining current 14 price alignment, how is the model deficient when it comes 15 to recognizing the distinctions that you have proposed in 16 your testimony to make for the location Kansas City, 17 Omaha, and Wichita? 18 A. Well, I -- I don't know that I would characterize 19 the model as being deficient. Again, it was a starting 20 point for the group to -- to work on this project. 21 Q. What principles were used then, other than price 22 alignment, for saying, from this starting point we're 23 going to make these changes? 24 A. The main consideration was price alignment. 25 Q. Going back to your map on page 5, and looking at 26 the zones, where is the milk production growth? Is it the 27 $3.00 zone of Kansas? Is it in the $3.30 zone of Kansas? 28 Where is that milk production growth? 8378 1 A. I would guess it to be the $3.00 zone, but I don't 2 know that to be at fact. 3 Q. So, now, you understand the concept of 4 stair-stepping milk? 5 A. I do. 6 Q. What is your understanding of that concept? 7 A. That you would move milk from -- maybe move milk 8 out of one location -- I'll use an example. So if you 9 have milk in -- in outside of Dallas, you move Dallas 10 farther east, and then milk that's west of Dallas into the 11 Dallas market, until it -- until it fills the hole where 12 you have a need for the milk. 13 Q. So assuming that that milk supply in Western 14 Kansas is in a $3.00 zone, given the fact that you have 15 set up a proposed 3.85 zone in Southeast Kansas and 16 Central Oklahoma, but then it's only $4.00 when you get to 17 Western Missouri and Southeast Oklahoma, how are you going 18 to move milk to where it may be needed in where it's short 19 in Southeastern Oklahoma and short in Western Missouri, 20 with only a $0.15 difference between the 3.85 you proposed 21 for Wichita and the $4.00 that you proposed for areas in 22 Missouri and Oklahoma? 23 A. I'm not sure I understand the question. 24 Q. Do you agree that milk is short in Oklahoma? 25 A. Yes. 26 Q. Doesn't that milk need to come either from the 27 north or the west, since Missouri and Illinois can't be 28 sources of milk for Oklahoma? 8379 1 A. Yes. 2 Q. Whether that milk comes from the north or from the 3 west, having set up a $3.85 zone in Central Kansas and 4 Central Oklahoma, how will milk be attracted that 5 additional distance into Southeast Oklahoma or Southwest 6 Missouri when the differential is $4.00 or a $0.15 7 difference? 8 A. Well, these are -- these are the zones that were 9 proposed. And obviously, if the Department needs -- that 10 there needs to have some further refinement, that would be 11 up to their discretion. 12 Q. You agree that in order to stair-step milk, you 13 need to think about beyond price alignment for current 14 operations, correct? 15 A. That is correct. 16 Q. Thank you. 17 MR. ENGLISH: I have no further questions. I move 18 admission of Exhibit 358. 19 THE COURT: Is there any objection to the 20 admission into evidence of Exhibit 358, also known as 21 Exhibit MIG-54, that's 5-4? 22 There is none. Exhibit 358 is admitted into 23 evidence. 24 (Thereafter, Exhibit Number 358 was received 25 into evidence.) 26 MR. ENGLISH: Thank you, Mr. Brinker. 27 THE COURT: Who next will cross-examine the 28 witness? 8380 1 I see no one, so I'll invite the Agricultural 2 Marketing Service to ask questions. 3 CROSS-EXAMINATION 4 BY MS. TAYLOR: 5 Q. Good morning. 6 A. Good morning. 7 Q. You caught me off guard this morning. 8 If we could turn to page 3, and the bottom half of 9 the page is where you are talking about the three 10 different cities and how much milk is locally sourced 11 within 150 miles. 12 And -- and this is just DFA data; is that correct? 13 A. That is correct. 14 Q. Okay. And my first question, when you say fall, 15 what months are you meaning there? Is this one month of 16 data or three months of data? 17 A. Until September. 18 Q. And if this is only DFA data, is there other 19 non-DFA supplies in those areas that the Department should 20 be looking at to get a full picture of milk in that area? 21 A. Not to my knowledge. 22 THE COURT: Ms. Taylor, if I might ask a question 23 that's along those lines. 24 Would you turn to your Exhibit 356 on page 2, 25 Mr. Brinker, and the third paragraph, your oral testimony 26 said "since 2005 the number of dairy farms located," and 27 your written testimony says "the number of DFA farms." 28 Can dairy farms and DFA farms actually be 8381 1 considered interchangeable in that geography? 2 THE WITNESS: If I misspoke, it should be DFA 3 farms. 4 THE COURT: All right. 5 THE WITNESS: So this is -- my testimony 6 specifically is DFA member farms. 7 THE COURT: Throughout your entire exhibit? 8 THE WITNESS: That is correct. 9 THE COURT: Thank you. 10 MS. TAYLOR: Thank you, Your Honor. 11 BY MS. TAYLOR: 12 Q. Earlier in your statement you talk some about how 13 milk -- your facts we just discussed about local supplies 14 have decreased. Earlier in your statement you state that 15 milk must move further. 16 And I'm just curious, based on your knowledge, 17 where -- where are the milk production regions that are 18 servicing Wichita, for example, since that has the least 19 amount of the three cities that is locally supplied? 20 A. The -- there is a large percentage of milk that 21 moves from Northwest Kansas or even Southwest Nebraska. 22 Q. And what's the mileage, would you say, a 23 guesstimate on those? I mean, you gave us data for the 24 150, but -- 25 A. Correct. I would guess somewhere between 3 and 26 400 miles. 27 Q. In regards to your transportation cost information 28 you put on, also earlier in your statement, you compare 8382 1 2005 to 2022. 2 Have you seen -- if I wanted to plot out those 3 increases over time, is it more consolidated in recent 4 years of where you have seen the most increase? Has it 5 been steady over that time? 6 A. I can't answer that. So you are referring to like 7 a trendline, if you will? 8 Q. Uh-huh. 9 A. I don't know that -- I don't have that 10 information. 11 Q. Okay. On page 4 -- and I think you went over this 12 some with Mr. English, but I want to make sure we're 13 clear -- you have a sentence in there, and it says, at the 14 end of the first paragraph, "Considerations were also made 15 in regards to the recommended differentials and the 16 surrounding marketplaces." 17 So I was wondering, I'm thinking that's what you 18 are talking about when you are talking about price 19 alignment? 20 A. Yes. 21 Q. And -- and so if I look on your map on the 22 following page, are you talking more price -- and I'll 23 focus on Wichita for the moment -- are you focusing on 24 price alignment more on the Southeastern side as it abuts 25 up to the $4.00 zone than you are from the Northwestern 26 side? 27 A. I think they are all interchangeable, because 28 it -- it would be difficult to just pick one spot in the 8383 1 country that says, this is where I'm considering it, 2 because it's the domino effect of one market's going to 3 touch another market, is going to touch another market. 4 So I think in -- in my opinion, you have to take a 5 global view of all those markets as they touch each other. 6 Q. Okay. And I understand that. And I ask just 7 because there is a big difference -- there's not a big 8 difference between your 4.00 and your 3.85; that's only 9 $0.15. But then there is a big difference on the 10 alignment side going the other way. And I'm just curious 11 if you see any issues going the other way on that, because 12 there's such a large -- $0.55 in some instances, $0.85 in 13 others, difference between zones. 14 I'm sorry, I think I talked over your answer. 15 A. Okay. So repeat your question. 16 Q. Sure. I'm just asking, you know, there's only 17 $0.15 between going from Wichita down towards the 18 Southeast. Yet, going the other way, you know, $0.85 or 19 $0.55, I'm just wondering if you considered if there's 20 issues there being there's such a big -- much larger 21 difference in the differentials between those zones. 22 A. Yeah. I don't anticipate there would be. 23 However, if that's a concern for you, you -- you know, you 24 have the discretion to adjust our proposal. 25 Q. That's it from AMS. 26 MS. TAYLOR: Thank you. 27 THE COURT: Before we go to redirect, are there 28 any additional questions that are prompted by the 8384 1 Agricultural Marketing Service questions? 2 I see none. 3 Ms. Hancock. 4 MS. HANCOCK: Thank you, Your Honor. 5 REDIRECT EXAMINATION 6 BY MS. HANCOCK: 7 Q. Thank you, Mr. Brinker, for your time. Just a 8 couple of questions. 9 Yesterday you received a question about the USDSS 10 model from Mr. English, and you said you weren't familiar 11 with it. But in your testimony you actually refer to the 12 Wisconsin model. 13 Were you aware, when you answered his question 14 yesterday, those were one and the same? 15 A. I was not. 16 Q. Now, since he's had an opportunity to continue his 17 examination, has that been made clear to you? 18 A. Yes. 19 Q. Okay. And I just want to maybe go back to just 20 the point of the testimony here that you are providing in 21 Exhibit 356. 22 If I'm summing up your testimony, is it fair to 23 say that the first premise is that you were here to 24 provide testimony about the increased hauling costs that 25 you have firsthand -- excuse me -- that you have firsthand 26 observations about in your role and work at DFA? 27 A. Yes. 28 Q. And that they have -- and what you have described 8385 1 since 2005, have increased on the hauling costs by a total 2 of 151% in that time period? 3 A. That is correct. 4 Q. And the three areas that you have the most 5 experience with and that you are providing testimony on 6 that you have listed in Table 1 there, Kansas City, Omaha, 7 and Wichita, in total, those three proposed increases are 8 an increase of 67.5%. 9 A. Correct. 10 Q. Okay. And so even with the proposed increases, 11 that doesn't capture the total amount of hauling costs 12 that you have observed in your experience? 13 A. That is correct. 14 MS. HANCOCK: Okay. Your Honor, at this time we 15 would move for the admission of Exhibit 356. 16 THE COURT: Is there any objection? 17 I see none. Exhibit 356 is admitted into 18 evidence. 19 (Thereafter, Exhibit Number 356 was received 20 into evidence.) 21 MS. HANCOCK: Mr. Brinker, is there anything you 22 would like to add that you feel you weren't adequately 23 allowed to make us understand? 24 THE WITNESS: There is not. 25 THE COURT: All right. Thank you very much. 26 Appreciate your testimony. You may step down. 27 MS. HANCOCK: Your Honor, at this time we would 28 call Michael John as our next witness. 8386 1 While he's taking the stand, I would note that our 2 Exhibit NMPF-41 had one minor correction on the bottom of 3 page 6, so your hard copies are reflecting the corrected 4 version, and it's been sent to USDA. So at some point, it 5 will be updated on the website as well. 6 THE COURT: Before we go off record -- well, maybe 7 we don't have to. I think people already have their 8 copies from yesterday, so we won't go off record. 9 So I'm going to mark Exhibit NMPF-41 as 10 Exhibit 359. 11 (Thereafter, Exhibit Number 359 was marked 12 for identification.) 13 THE COURT: Mr. John, would you state and spell 14 your name? 15 THE WITNESS: Michael John, M-I-C-H-A-E-L, 16 J-O-H-N. 17 THE COURT: Have you previously testified in this 18 proceeding? 19 THE WITNESS: Yes, I have. 20 THE COURT: You remain sworn. 21 THE WITNESS: Thank you. 22 MICHAEL JOHN, 23 Having been previously sworn, was examined 24 and testified as follows: 25 DIRECT EXAMINATION 26 BY MS. HANCOCK: 27 Q. Mr. John, did you prepare Exhibit 359 in support 28 of your testimony today? 8387 1 A. Yes, I did. 2 Q. Okay. Would you provide us your statement, 3 please? 4 A. Sure. 5 My name is Michael John. I am executive vice 6 president of milk marketing for Maryland and Virginia Milk 7 Producers Cooperative, Inc., hereafter I'll say MDVA, 8 located at 13921 Park Center Road, Suite 200, Herndon, 9 Virginia. MDVA is a member of National Milk Producers 10 Federation, which I'll say from now on NMPF, and I serve 11 as a member of the NMPF economic policy committee and a 12 member of the Class I working group. 13 The Class I working group was assigned the 14 responsibility of developing updates to the current 15 Federal Order Class I differentials and for proposing 16 amendments to the method for computing the Class I mover. 17 The purpose of my testimony is to provide support to 18 NMPF's proposed changes to the Federal Order Class I 19 differentials. 20 The overwhelming majority of MDVA's milk -- member 21 milk -- is pooled on Federal Order 1 and Federal Order 5. 22 MDVA's members own and operate three pool distributing 23 plants: Two are located in Federal Order 5 and one is 24 located in Federal Order 1 (Table 1). In addition, MDVA's 25 members own and operate pool supply plants, two pool 26 supply plants: One located in Federal Order 5, as well as 27 one located in Federal Order 1. The majority of MDVA's 28 member milk is received and processed by Class I plants, 8388 1 including the three plants owned by our members, serving 2 markets in Federal Orders 1 and 5. With most of our milk 3 serving the Class I market, and the remaining percentage 4 of our milk mostly supplying our member-owned pool supply 5 plants, we fully understand and support the need to update 6 and increase the Class I differentials. 7 The next part of my testimony has the Table 1. It 8 shows MDVA's plants and their location. The first column 9 is the Federal Order that they are located in and the town 10 or city that they are located in, and then the second 11 column shows the type of plant that they are, whether they 12 are a pool distributing plant or pool supply plant. 13 Subtitle: The Cost of Supplying the Class I 14 Market. 15 To consistently supply pool distributing plants, 16 whether member-owned or operated by a third party, MDVA's 17 pool supply plants give us the ability to balance 18 fluctuations in processing demand and in raw milk 19 production. Constant ebbs and flows of milk orders placed 20 by customers and their subsequent effects on the movement 21 of milk are a fact of supplying the Class I market. The 22 balancing adds additional cost and requires a steady and 23 reliable source of revenue to serve the market. In part, 24 Class I differentials were instituted to help meet these 25 revenue requirements. 26 At MDVA, we are constantly moving milk from supply 27 points located in Federal Order 1 to demand points located 28 in Federal Order 1 or Federal Order 5. Fluctuations in 8389 1 milk needs and milk movements can vary tremendously 2 depending on the time of the year. An example of a large 3 seasonal variation of milk flowing from Federal Order 1 to 4 Federal Order 5 would be to compare the month of April to 5 the month of September. In a typical year, we move twice 6 as much milk from Federal Order 1 to Federal Order 5 in 7 September versus April. If we look at changes that occur 8 during the week, for example, comparing a Saturday to a 9 Wednesday, we see definite fluctuations in demand between 10 the days of the week. 11 In addition to the cost associated with servicing 12 the Class I market, the cost of transportation to move the 13 milk has increased as outlined on page 39 of NMPF's 14 hearing request, and in subsequent NMPF testimony, the 15 cost of moving milk has greatly increased from the early 16 2000s. The proposed increase in Class I differentials is 17 to provide some cost relief to those experiencing 18 increased costs to move milk to Class I plants and to make 19 sure incentives are high enough to attract raw milk to 20 Class I processing plants. 21 It has been over 15 years since Class I 22 differentials have been increased in Federal Order 5. In 23 the face of enormous transportation cost increases, that 24 means the mechanism -- the mechanism to attract milk from 25 supply points has become less effective. The cost of 26 transportation has increased significantly, and at least a 27 portion of that cost needs to be satisfied through an 28 increase in Class I differentials. To continue to meet 8390 1 customer demands for milk, our dairy farmer members must 2 make up the difference in that cost, which comes directly 3 out of their monthly milk checks. 4 Internally, we have designated a hauling subsidy 5 to cover this cost. The subsidy can fluctuate 6 dramatically from month to month based on the fluctuations 7 in supply and demand and in the cost of transportation, 8 which includes the cost of fuel. 9 Table 2 below gives some examples of 10 transportation rates since 2008. The rates below are 11 based on what the trucking industry calls running mile 12 rates. If they were calculated on a -- on a loaded mile 13 rate, the rates would be double. 14 Now we have Table 2, and let me explain Table 2. 15 So we're comparing hauling rates using the same month but 16 different years. So we're comparing January of 2008 17 versus January of 2023. I have three examples here that 18 we put together. Each example has different roundtrip 19 miles, and each example has different -- could have 20 different origin points and different destination points. 21 So let's start with the first one, the first 22 scenario, which has roundtrip miles of 171 miles. What we 23 did was we looked at the same origin or the same route. 24 It may have had different farms on it because some farms 25 may have gone out of business, but in essence it's the 26 same route in the same geographical area in 2008 versus 27 2023, and it went to the same destination, meaning the 28 same pool distributing plant. 8391 1 Now, the next column has the average load size. 2 The average load size in 2008 was 47,500 pounds of milk on 3 that load. And what I'm trying to show here is in 2023 4 you will see that went up to 55,000 pounds. I'm trying to 5 show that we have done what we could do from -- from an 6 industry standpoint to gain efficiencies to move more milk 7 on -- on one truck. 8 And so the -- you know, unfortunately, we're not 9 like some areas like Michigan, so on the East Coast we 10 get -- our weight limits get limited by regulation, state 11 regulations. So we have been able to increase in this 12 particular load by 7,500 pounds. But even with that work 13 towards efficiency, the total cost went up by $251.45, and 14 the rate per mile increase went up by $1.47, or a 15 56% increase in rate per mile. 16 The next example is an example of 732 miles 17 roundtrip, or roughly about 360 miles one way. And so 18 this started out with a Federal Order 1 location going to 19 the Federal Order 5 location plant, and, again, the same 20 load going to the same location in 2008 has the same load 21 in 2023 going to the same location in Federal Order 5 in 22 2023. You can see that we gained a little more efficiency 23 on loads, maybe not as much as we did in Federal Order 1. 24 One might ask why. The reason for that is that many of 25 these trailers are multiuse trailers, they don't just haul 26 milk, they also haul orange juice. You know, they're 27 over-the-road trailers, so they have to haul other 28 products, so they are not necessarily -- can weight them 8392 1 out the full weight. They are limited by what their other 2 uses. 3 But even with that efficiency, we still had a 4 $765 -- $765.46 increase, and that caused a rate per mile 5 increase of $1.04, which gave a rate per mile change of 6 68% increase. 7 The last roundtrip scenario is 303 miles, roughly 8 150 miles one way, going from a Federal Order 5 origin to 9 a Federal Order 5 destination. Again, same location 10 starting point to the same ending point. And -- and we 11 see some efficiency gained there, about 1500 pounds. And 12 then, again, showing a rate increase of $383.24, and the 13 rate increase of $1.26, and a rate per mile increase of 14 64%. 15 The other thing I would like to say about the 16 cost, these are total costs, so they would be including 17 what we call in the milk marketing world, assembly cost 18 and destination cost. So what do I mean by that? 19 Assembly cost is whatever it takes to load out that truck. 20 So in Federal Order 1, for example, we have a lot smaller 21 farms, so it may take four to six farms to -- you know, 22 stops, to fill out a tractor-trailer load of milk. And 23 then you have the destination. Once that trailer is full, 24 then the cost of moving that milk to the final 25 destination. So it's -- it's costs that include all costs 26 of hauling milk. 27 So now I'll continue on with the rest of my 28 testimony. 8393 1 Based on the need for changes to the Class I 2 differential to help cover additional cost, I will give 3 examples of how we determine changes in the Class I 4 differentials for our geography. As shared by Jeff Sims 5 in his testimony, NMPF created four regional Class I 6 working groups. 7 With MDVA located in the Mid-Atlantic region as 8 well as in Southeast, we were involved in two of the four 9 working groups: The Northeast/Mideast region and the 10 Southeast/Southwest region. Both regions started with the 11 results from the University of Wisconsin spatial price 12 model. The model was run using data from two specific 13 months, May of 2021 and October of '21. We averaged the 14 results of these two months and that established a base 15 for the Class I differential analysis. 16 I'll just say, just to add to that, the reason 17 we -- in our world, the reason we average it is we have a 18 big seasonal difference between May and October. And so 19 by averaging that, we feel like we get a more true result 20 of what it really costs to move that milk. 21 Our next step was to review the current price 22 relationships between specific locations, and compare 23 those to what the model revealed. 24 For example, in Federal Order 1, the current 25 Class I differential relationship between Landover, 26 Maryland, and Frederick, Maryland, is $3.00 per 27 hundredweight at Landover versus $2.90 per hundredweight 28 at Frederick, for a difference of $0.10 per hundredweight. 8394 1 Continuing with the two-city example, the model 2 suggests the Class I differentials should be increased to 3 $4.90 per hundredweight at Landover, Maryland, and only to 4 4.55 per hundredweight at Frederick, Maryland. This 5 resulting price relationship -- this resulting price 6 relationship then becomes $0.35 per hundredweight, which 7 is significantly higher from the current price 8 relationship. Recognizing that these two locations are 9 only about 55 miles apart, and recognizing both are in the 10 same competitive market, a $0.35 per hundredweight 11 difference would create on artificial competitive 12 advantage of one processor over the other. 13 The Northeast -- 14 THE COURT: Go ahead and finish reading that 15 sentence. I think it adds value. 16 THE WITNESS: Oh, okay. I missed something there. 17 Okay. 18 Recognizing that these two locations are only 19 about 55 miles apart, and recognizing both are in the same 20 competitive market, a $0.35 per hundredweight difference 21 would create an artificial competitive advantage of one 22 processor over another relative to the regulated cost of 23 raw milk. Thank you. 24 The Northeast working group took this into 25 consideration when proposing revisions to the model's 26 results for NMPF's Class I differential proposal. In 27 another example, when comparing Philadelphia, 28 Pennsylvania, to York, Pennsylvania, the current 8395 1 difference is -- differentials -- in differentials is 2 $0.15 per hundredweight. The model increased Class I 3 differentials for both locations by $1.65 per 4 hundredweight and $1.70 per hundredweight, respectively, 5 for a differential difference of $0.20 per hundredweight, 6 thus, closely preserving the historical price 7 relationship. 8 The Southeast working group followed the same 9 basic analytics as the Northeast working group when 10 reviewing locations within Federal Order 5. To give an 11 example, the Class I differentials for Mount Crawford, 12 Virginia, and Verona, Virginia, are the same at 2.90 per 13 hundredweight. The model determined a $0.10 per 14 hundredweight higher difference for Verona, Virginia. 15 These two locations are approximately 15 miles apart and 16 compete in the same markets. We kept the price 17 relationship the same as current by increasing the 18 differentials in both locations by $1.80 per hundredweight 19 to a new proposed differential of 4.70 per hundredweight. 20 In a second Federal Order 5 example, the current 21 Class I differentials for Lynchburg, Virginia, and Newport 22 News, Virginia, are the same at $3.20 per hundredweight. 23 The model determined a $0.40 per hundredweight higher 24 differential for Newport News, Virginia. Because these 25 two locations serve the same geographical market and both 26 locations draw from farm milk from the same milk sheds, we 27 decided to keep the current price relationships and 28 propose a differential of $5.00 per hundredweight for both 8396 1 locations. 2 Analyzing these price relationships throughout 3 Federal Order 1 and 5 led the Northeast and Southeast 4 working groups to follow two guiding principles: Namely, 5 that Class I differentials needed to increase to cover the 6 additional cost of servicing fluid milk markets, and to 7 maintain current price relationships between fluid markets 8 to avoid as much unnecessary and unwarranted changes in 9 competitive relationships. 10 In sum, MDVA supports the proposed price 11 differential changes to update and modernize the 12 differentials to better reflect the market increases and 13 cost of serving the Class I market and of moving milk from 14 supply areas to deficit areas, and to recoup some of the 15 increased costs that have occurred since the last time 16 differentials were updated. 17 I want to thank USDA for having this hearing, and 18 thank you for the opportunity to speak on behalf of MDVA's 19 dairy farmer members. 20 BY MS. HANCOCK: 21 Q. Thank you, Mr. John. I just have a couple of 22 questions. 23 In your Exhibit 359 you talk, on page 3, about 24 running mile rates and loaded mile rate. 25 I'm wondering if you could explain the difference 26 there. 27 A. Well, a running mile rate would include -- so 28 if -- if a -- if a truck left one destination point and 8397 1 then goes -- or one starting point and went to a 2 destination, a running mile rate takes in that whole 3 circle. It's the empty trailer moving back, so roundtrip 4 versus a loaded mile would just be one way. 5 Q. Okay. And if there's multiple stops, it's one way 6 just once it starts loading? 7 A. Yes. 8 Q. Okay. And the numbers that you provided were just 9 the loaded mile rates, and you noted that if you included 10 the full running mile rates that would be double? 11 A. It was -- 12 Q. I'm sorry, did I say that backwards? 13 A. Yeah, I think it's the other way around. 14 Q. You included in your -- in your -- in your hauling 15 rates that you have included on your Table 2, is that the 16 loaded mile rates? 17 A. That's the running mile rates. 18 Q. Okay. 19 A. If it had been the loaded mile rates, it would 20 have been doubled. 21 Q. And so you have given the more conservative 22 approach? 23 A. Yes. 24 Q. And you, on your -- when you were providing some 25 of the examples on the -- how and why the work on the 26 teams that you performed deviated from the model, and one 27 of the reasons that you talked about was preserving that 28 historic price relationship. 8398 1 A. Yes. 2 Q. I'm wondering if you can provide us with some 3 insights as to why -- why does that matter to try to 4 preserve that historic price relationship? 5 A. Well, for us, number one, you know, I guess I'll 6 have to get more specific in looking at geographical 7 areas. 8 So if I look at the 95 corridor, for example, 9 the -- just being in this business for almost 40 years 10 now, looking at Philadelphia to D.C., there's not many 11 miles there. And all those plants compete for the same 12 markets. 13 And so I think the original -- the Class I 14 differentials that we use today are closely aligned, and 15 so I don't know that there's a lot of change in that 16 alignment needs to happen. And that's what we tried to 17 preserve, because we know that those markets, that whole 18 market, for example, from Philadelphia to D.C., all 19 compete for the same -- the same customer base. 20 Q. And when you receive those model results, you 21 talked about some examples in your testimony. 22 Were there any other examples that -- that you 23 noted that didn't seem to make sense as it came out of 24 those model results? 25 A. Yes. So if I -- if I go down to -- I'm looking at 26 kind of my sheet that I've put together here. If I look 27 at the Federal Order 5 area, and you -- and you look at, 28 you know, many cases were lower, quite a bit lower than 8399 1 what the model suggests. And if you look at where those 2 plants align -- I call it the kind of the triangle of 3 North Carolina -- so you have Asheville out on the west, 4 you kind of have Winston-Salem, High Point in the middle, 5 and then you have Spartanburg, which is just across the 6 line in South Carolina, it kind of makes a triangle. And 7 within that triangle is where all the milk is produced. 8 And also, kind of in the Southern Virginia is where the 9 milk is produced. So from Southern Virginia and then kind 10 of that middle part inside that triangle is where all the 11 milk is produced in Southern Virginia and in North 12 Carolina. 13 And so for us, that's number one, you know, that 14 that milk's a lot closer to the market. Secondly, it's 15 not -- you can move milk out of Federal Order 1 to North 16 Carolina. To move milk, say for example, out of Federal 17 Order 1 to Atlanta is a whole different story. So in that 18 area, you can get milk to that area, not only out of 19 Federal Order 1 but also out of Federal Order 33, you can 20 get milk to that area. So we just didn't feel like 21 warranting that increase -- 22 THE COURT: I'm sorry, is "that area" Atlanta? 23 THE WITNESS: That area would be that Central Area 24 of North Carolina. 25 THE COURT: Okay. Back up. 26 THE WITNESS: Okay. 27 THE COURT: So you talked about what doesn't serve 28 Atlanta. 8400 1 THE WITNESS: Right. 2 THE COURT: Right? And then we -- from then on 3 we're not talking about Atlanta anymore; is that right? I 4 need -- 5 THE WITNESS: Yeah. I'll back up a second. I 6 talk this language all the time, so it's just so easy, but 7 I understand. 8 THE COURT: It's so easy? 9 THE WITNESS: For me. 10 But I'll -- yeah. So it's -- we can move milk out 11 of Federal Order 1 to that Central North Carolina region, 12 even to Spartanburg, which is just across the border from 13 South Carolina. 14 And so to move milk -- you know, so you have 15 really -- you have that Central North Carolina area, that 16 triangle that I'm talking about, there's -- there's a good 17 bit of milk produced right there. That's where all the 18 milk that is in that Southeast of Federal Order 5 area, 19 that's where it's produced. And, secondly, you can move 20 milk out of Federal Order 1 to that area. And that's why 21 we didn't feel like that Central North Carolina area 22 should go up as much as the model did. 23 BY MS. HANCOCK: 24 Q. But the model takes into account the locations of 25 plants and farms, doesn't it? 26 A. It does, but it doesn't -- it doesn't take in -- 27 the model -- I guess the way I look at the model, the 28 model is a -- is the book work. It's the theory. It's, 8401 1 you know, putting -- plugging numbers into an algorithm, a 2 big one, and letting it run. Now we got to put boots on 3 the ground. 4 And that's what our group did, we put the boots on 5 the ground. And we said, this is how the industry really 6 looks. And so we had to tweak it, and that's why we 7 tweaked it there. 8 Q. Okay. And so when you say "boots on the ground" 9 you mean your 40 years of experience -- 10 A. Yes. 11 Q. -- and the collective knowledge of the teams that 12 were working on this with you? 13 A. Yes. 14 Q. And the strategies that people deploy when they 15 are buying and selling milk? 16 A. Yeah. And I would say if you add my 40 years 17 with -- there was a couple of other 40 years in there, so 18 I am going to say it's probably collectively about 19 200 years' worth of experience there, so... 20 Q. And things that the model can't take into account 21 when you add the human dynamics into the mix? 22 A. Yes. 23 Q. And -- and other things like having a Federal 24 Order system that governs behaviors and people's buying 25 and purchasing decisions as well? 26 A. That's right. 27 Q. Okay. What about Prince George's County, was that 28 another area that you made a modification to? 8402 1 A. Yeah. So Prince George's County, there's a plant 2 in Prince George's County. It's -- it's on the northeast 3 edge of the beltway. It is 28 miles from the plant in 4 Baltimore. And to have a -- and I'm not exactly sure why 5 the model came up with that high of a location adjustment 6 at, I think it had $4.90, and we -- we said that it needed 7 to be -- needed to align with Baltimore, which also 8 aligned with Philadelphia. So we kept that whole section, 9 what I called the 95 corridor, at 4.70. 10 Q. And so there were places -- and so in that example 11 you actually reduced down the proposal that National Milk 12 is making over what the model had forecasted. 13 A. Yes. 14 Q. And so is it fair to say that in -- in the working 15 group's efforts, that sometimes the prices were left the 16 same, sometimes they were increased, and sometimes they 17 were decreased from what the model predicted? 18 A. Yes. 19 Q. And at any time, did you hear anybody trying it 20 make any kind of recommendations or decisions that were 21 based on giving themselves a competitive advantage over 22 any of their other competitors? 23 A. No. 24 Q. Was anybody trying to give their competitors a 25 disadvantage in making the decisions that -- that were 26 made in order to get to National Milk's proposal? 27 A. No. 28 Q. Okay. And you have plants that service fluid milk 8403 1 markets. 2 A. Yes. 3 Q. How many? 4 A. Three. 5 Q. And your customers, do they have standard 6 requirements for your fluid mark- -- for your fluid 7 markets? 8 A. Yes. 9 Q. And do those fluid milk market standards exceed 10 the PMO Grade A standards? 11 A. Yes. We have -- and I'll -- it's not just our 12 plants, but also we market a considerable amount of milk 13 to what we call third-party plants, which are not owned by 14 our cooperative. And we have -- well, I'll call it 15 Grade A plus standards. We have -- for example, we have a 16 plant probably for 30 years now. The milk has to be 17 40 degrees. The standard is 45. If it is 40.56, which 18 rounds up to 41, they will reject the load, and they have 19 rejected a load, and so we had to move that load away. 20 We have several customers that require us to give 21 them the full quality makeup in somatic cell and PI counts 22 on each farm, on each load that comes into that plant 23 every month. Now, we don't give out names or addresses, 24 we just give a producer number, but they require the 25 quality information for that farm. 26 And then if -- if a specific farm on that load 27 does not meet what they are looking for, even if the load 28 is okay, but if a specific farm on that load doesn't meet 8404 1 it, they will say, you cannot bring that milk back into my 2 plant until you do an M-CAP, which is a Mandatory 3 Corrective Action Plan, and there's a whole series of 4 paperwork -- I guess electronic work now -- but paperwork 5 that goes into all that, and we have to justify why that 6 farm was allowed to be back on that load again. So we 7 have a couple customers that do that, and these are all 8 Class I customers. 9 So, yes, we have -- and then we have some 10 customers that want lab pasteurized counts run, what we 11 call LPCs, in addition to the standard plate counts and 12 somatic cells. We have customers that -- that want a 13 somatic cell under 200,000. 14 So, yes, there are -- I would say, and I think 15 Chris mentioned it yesterday, a lot of that is for -- 16 everybody's trying to find that longer shelf life, they -- 17 especially in high temperature short time, HTST, type of 18 production, they are trying to find that one extra day of 19 shelf life. 20 And so a much lower somatic cell count, much 21 lower, you know, bacteria count, gives them that one extra 22 day which is a lot of money to them. So, you know, I 23 understand it, but -- and we work hard to meet those 24 standards every day. 25 Q. Is there a cost associated at the farm level in 26 order to achieve those Grade A plus standards from their 27 end? 28 A. Absolutely. I mean, it's extra work from our 8405 1 field staff. It's a lot more milk testing, you know, 2 drawing samples and testing milk, and just working closely 3 with the farmer. It could mean they would have to -- for 4 on the somatic cell count, they could have to take -- take 5 cows out of the herd. They could stop milking those cows, 6 you know, whatever. Whatever they need to do, they need 7 get there. So, yes, there's definitely cost. 8 We say that cost is somewhere in the neighborhood 9 minimum $0.60 additional. 10 Q. $0.60 a hundredweight? 11 A. $0.60 a hundredweight, yeah. 12 Q. And -- and then also the additional cost 13 associated with the cooler temperature control 14 requirements? 15 A. Yes. 16 Q. Okay. And in order for you to achieve your 17 Class I fluid milk sales, you have to exceed those Grade A 18 standards that are required by your customers? 19 A. That's correct. 20 Q. So is it fair to say that that Grade A plus 21 standard is now the market expectation for the fluid milk, 22 in your experience? 23 A. Yes. I mean, I have had customers say to me 24 directly, "If you don't want to do this, I'll find someone 25 who does," so -- 26 Q. And then I want to talk for just a second about 27 balancing -- balancing milk. 28 Are you able to balance -- or balancing costs, are 8406 1 you able to balance those costs of your Class I fluid milk 2 with -- by using cheese plants? 3 A. No. 4 Q. Why not? 5 A. There really isn't any cheese plants in our area. 6 You have to get further north to Pennsylvania to get to 7 cheese plants. So we -- we have our own two plants, as I 8 have testified before in the Make Allowance part of the 9 hearing. We have Laurel, Maryland, and then -- which does 10 make powder, and then Strasburg, Virginia, which is just 11 separates and condenses. 12 Q. And you just mentioned Make Allowances. 13 If Make Allowances are increased through this, 14 through this hearing, would that put further pressure on 15 servicing the Class I markets if there is not an increase 16 in those differentials? 17 A. Yes. 18 MS. HANCOCK: That's all I have, Your Honor. 19 We would submit him for cross-examination. 20 THE COURT: Thank you, Ms. Hancock. 21 Before I invite the first examiner, I need you to 22 go, please, to Table 2 on page 4, Exhibit 359. 23 Now, that involves the roundtrips. Are the 24 roundtrips the running trips or the loaded trips? 25 THE WITNESS: These are the running trips. 26 THE COURT: Roundtrip means running trip. 27 THE WITNESS: Yes. 28 THE COURT: Even though one way there's no load, 8407 1 it's empty? 2 THE WITNESS: Exactly right. Yes. 3 THE COURT: Okay. Just checking. 4 THE WITNESS: Basically, that truck has to come 5 back to the -- to the truck terminal and start getting 6 ready to start its route again. 7 THE COURT: And so at the bottom of page 3 when 8 you say, "If they were calculated on a loaded mile rate, 9 the rates below would be doubled." 10 THE WITNESS: Yes. 11 THE COURT: That's because? 12 THE WITNESS: You are just, instead of -- instead 13 of doing the rates on a -- for example, instead of doing 14 the rates -- take the first one, which would be roughly, 15 let's say 85 miles, you are just lowering the miles. And 16 instead of -- it's the same dollar amount, but it would be 17 85 miles as opposed to 171 miles. 18 THE COURT: Thank you. 19 THE WITNESS: Uh-huh. 20 THE COURT: All right. Who would first like to 21 cross-examine Mr. John on this topic? 22 MS. TAYLOR: Your Honor, might I suggest a break? 23 It's 9:25. 24 THE COURT: How did that happen? 25 MS. TAYLOR: It's riveting. 26 THE COURT: All right. Do we want 15 minutes? 27 Yes. Okay. So please come back ready to go at 28 9:40. 8408 1 We go off record at 9:24. 2 (An off-the-record discussion took place.) 3 THE COURT: Let's go back on record. 4 We're back on record at 9:40. 5 Cross-examination for Mr. John. 6 Mr. English. 7 MR. ENGLISH: Good morning, again, Your Honor. 8 CROSS-EXAMINATION 9 BY MR. ENGLISH: 10 Q. Good morning, Mr. John. 11 My name is Chip English with the Milk Innovation 12 Group. I know you know that. 13 Let me start with what I hope is an easy one, but 14 then I'm easily confused. 15 Before you actually gave your written statement, 16 your counsel pointed out that there was a change in the 17 testimony. 18 A. Yes. 19 Q. And I confess that, you know, I had the one handed 20 out today, I had the one printed out from a long time ago, 21 and I missed it. So I don't want to miss it, and I want 22 to understand what the change or typo is, or whatever was 23 done. 24 A. Sure. So if you go to page 6, and then go to the 25 top of the page, that first paragraph I mistakenly had in 26 my first version -- which would probably be in my sixth 27 rewrite -- but anyway, it's my first submittal, 28 submission -- I had Philadelphia and York at the -- at 8409 1 $0.15, that they went up the same amount, $1.65. And, 2 actually, one went up $1.65, one went up $1.70. So it was 3 $0.20 difference versus the same $0.15 difference. 4 Q. Okay. So which is which? Which is -- which went 5 up $1.65 versus $1.70? 6 A. So York went up $1.65 -- no, I'm sorry, 7 Philadelphia went up $1.65, and York went up $1.70. 8 Q. And is that what is actually reflected in National 9 Milk Proposal 19 -- 10 A. Yes. 11 Q. -- or did that change? 12 A. No. No, that's -- I had misread it. 13 Q. Thank you. I'll come back to that at an 14 appropriate place, but thank you very much for that 15 clarification. 16 A. All right. 17 THE COURT: Let me stop you. 18 Let's go off record for just a moment. 19 (An off-the-record discussion took place.) 20 THE COURT: Let's go back on record. 21 We're back on record at 9:44. 22 BY MR. ENGLISH: 23 Q. So given the fact that you have discussed 24 Pennsylvania as well as Maryland and Virginia, were you 25 then part of two different red pencil crews, both the 26 Order 1 and the Southeast? 27 A. Yes. And they weren't red pencils, they were 28 colored pencils. If you've seen the map, you know it's 8410 1 all different colors. 2 Q. Well, other people called it red pencil club. 3 A. Yeah, it's not red pencils, it's colored pencils. 4 Q. So who -- I think you are the first person to 5 testify for the Northeast. 6 So who was the "we" for the Order 1 work? 7 A. You mean the specific people? 8 Q. Yes. 9 A. Oh, man. 10 Q. If you can't remember the people, the companies or 11 co-ops. 12 A. Yeah. So there was -- well, two of them are 13 sitting in the back back there. There's -- 14 Q. That doesn't help the record. 15 A. So you have folks from Agri-Mark, folks from DFA 16 Northeast, folks from Upstate, Land O'Lakes. Am I missing 17 anybody else? I think that's it -- everybody. 18 Q. And just because you said -- you said that there's 19 two people in the back of the room, you meant Scott Werme 20 from Agri-Mark and Skylar Ryll from DFA, just for 21 clarification? 22 A. Yes. 23 Q. And at the end your testimony you say that there 24 were two guiding principles: One was the Class I 25 differentials needed an increase; and second, that you 26 needed to maintain current price relationships between the 27 fluid markets? 28 A. Yes. 8411 1 Q. Are those two in conflict in some way? 2 A. They could be. You know, the -- if you increase 3 prices -- and I'll give you my personal -- I don't think 4 that the regulated price should be the catalyst that 5 creates a disorderly market. And if all of a sudden the 6 model shows a huge increase in the differential that 7 creates a disorderly market between two competing 8 facilities, I think that that's a problem. And so that's 9 how they could be in conflict. 10 Q. Well, how can we reconcile, I mean, if after 11 25 years there's these increased costs, doesn't the 12 attempt to preserve existing price relationships at some 13 point mean that you are not recognizing those additional 14 costs, or that you are over-recognizing them if you go 15 higher than the model was set at? 16 A. Or in some cases we went under where the model was 17 set, right? 18 Q. Yes. So that's what you did. 19 But isn't there a problem with the reconciliation 20 of, boy, we have had these increased costs -- 21 A. Yeah. 22 Q. -- but we want, nonetheless, to maintain the same 23 relationships, say, between York and Philadelphia? 24 A. I don't think so, and let me -- let me tell you 25 why. I would say if you go back and check 25 years ago, 26 that the average shelf life of HTST milk was probably more 27 like 16 days, and today they are getting 22 -- 21, 28 22 days, so now all of a sudden their market has expanded, 8412 1 and there's fewer plants, and the customers are much 2 bigger that -- that these plants have to deal with. And 3 so I -- I don't think so for those, just for those 4 reasons. 5 I think the market has expanded to the existing 6 plants. I think technology has allowed even HTST to serve 7 larger markets, and we have to take that into 8 consideration. I have always told my customers, I don't 9 want to be the reason that, you know, I'm causing you hurt 10 or pain, I want to supply you, I want to help you. 11 Q. But at some level if you -- if you say, look, the 12 I-95 corridor has this current relationship from 13 Philadelphia down to the south, aren't some of those costs 14 in terms of getting there going to have to be covered 15 either in the raw form or the packaged form? That is to 16 say, if somebody tries to sell into that area where 17 there's a toll across the bridge into New Jersey from 18 Philadelphia, that, as we heard yesterday from Mr. Hoeger, 19 it's more expensive to move packaged milk, right? 20 Correct? 21 A. Yes. 22 Q. Okay. So if -- 23 A. I'll say to some extent. It depends on how it's 24 packaged. If it's traditional crates, I would agree with 25 that. But if it's not traditional crates, I would not 26 agree with that. 27 Q. And why is that not the case? 28 A. So you don't have the crates. You don't have to 8413 1 worry about bringing the crates back. 2 Q. So how much of that is going on along the I-95 3 corridor? 4 A. There's more than you know. 5 Q. Okay. More than I know is not a very good record. 6 A. Well, I can't -- I don't want to give -- I don't 7 want to give out private information. 8 Q. All right. And I always, I want to emphasize, I 9 think you know that about me, I've never asked for that, I 10 never want it, so that's fine. 11 I guess what I'm getting at is, doesn't there have 12 to be a break at some point in the numbers if Class I 13 differentials need to go up, say, in Winchester, Kentucky, 14 because that's what the model suggests, but you keep 15 prices or you lower prices per the model in North Carolina 16 because of your theory, haven't you created a new problem 17 somewhere else? 18 A. That's -- that's a possibility. I don't know. 19 You know, I -- I'm looking at it from my geography. I 20 can't talk about Winchester, Kentucky. I can talk about, 21 you know, the eastern corridor, that type of thing, 22 because that's kind of where we live, and that's -- that's 23 the market we're at. But I can't talk about Kentucky. 24 So if -- could I do something in -- could we do 25 something in Washington, D.C. that could affect someone in 26 the Mideast? I don't know. Possibly. I don't know. If 27 that's what you are asking. 28 Q. Well, that's part of what I'm asking. There's a 8414 1 couple of different pieces there. You just mentioned the 2 Mideast, and I know you are not part of the Mideast, but 3 we had testimony as to the Mideast, at least as to Western 4 Pennsylvania, where price alignment wasn't used. 5 THE COURT: Wasn't used? 6 BY MR. ENGLISH: 7 Q. So I'm trying to -- was not applied, for instance, 8 for Pittsburgh. 9 And so I'm trying to understand what would be the 10 consistent principle across groups that USDA should apply? 11 A. I think that -- to me, I think the most consistent 12 principle USDA could apply is to keep things -- to keep 13 the markets as orderly as possible, and let competition 14 then, in those markets, play out. That's what I think. 15 Q. And is your definition of orderly marketing, then, 16 maintaining current price relationships? 17 A. Yes, I think that's it. 18 Q. Unless you simply increase the base of Class I 19 differentials everywhere, aren't you necessarily going to 20 alter price relationships somewhere? 21 A. Well, I'll say this. So 23 years ago, and I -- 22 I'm not an expert on the Panhandle of Texas, for example. 23 But 23 years ago, did we have a lot of milk in the 24 Panhandle of Texas? Probably not. All of a sudden that 25 milk showed up. Now all of a sudden we got milk in the 26 Dakotas where milk wasn't at before. So just the sense 27 that milk shifts and moves creates challenges. 28 So, you know, I -- I think there's other factors 8415 1 other than differentials. I mean, there's just -- you 2 know, when -- for example, I'm old enough to remember, you 3 know, Federal Order Reform in 2000, and what was -- what 4 my understanding was that Federal Order Reform was 5 differentials were to be adjusted periodically, and now 6 here we are 20-some years. 7 Q. And in Federal Order Reform, isn't the case that 8 what were then current price relationships were altered? 9 A. Yes. 10 Q. So you brought up the fact that the idea that, 11 okay, there's been new milk production in the Panhandle of 12 Texas. 13 By and large that's not the case much east of the 14 Mississippi, correct? 15 A. That's right. 16 Q. So the reality is, we're short of milk east of the 17 Mississippi, correct? 18 A. Well, I would say that in -- 19 Q. In the Southeast, I'm sorry. 20 A. Yeah, in the Southeast, I would agree with that. 21 Because Pennsylvania has been flat. It's been about 22 10 million -- 10 billion pounds of milk a year forever. 23 Q. Are we moving milk out of Order 1 into Order 5, as 24 you talked about could happen? 25 A. Yes. 26 Q. Okay. Do we move milk out of Order 5 down to 27 Order 7? 28 A. No, not as much. No. Very little. At least our 8416 1 experience has been very little. I -- for example, we 2 only go as far south as Atlanta. And Atlanta is just hard 3 to get to. And so you're basically -- to move milk out 4 of -- even out of 5 to 7, when there's so many locations 5 within Federal Order 5 where that milk's needed, it's 6 pretty hard to pull it out of 5 to take it down to 7 7 because it's needed there in 5. 8 Q. Well, isn't that the concept of stair-stepping 9 milk? You move milk from where it is to the next location 10 and down? That's what Mr. Hoeger testified about 11 yesterday. 12 A. Yeah, we -- we do some of that. But it's also, 13 you have to look at each situation separately. For 14 example, if I'm taking -- ultimately I have to take milk 15 out of a location where there is milk. So I always use -- 16 not because I grew up there, but I think it's a good 17 center point, is Chambersburg, Pennsylvania. That's what 18 I use, Franklin County, Pennsylvania. And depending on 19 the hauler, depending on the rate and all that, it might 20 be better to move that load the whole way to North 21 Carolina versus taking it down to somewhere mid-Virginia 22 and then rolling something out of mid-Virginia on down to 23 North Carolina. 24 You have to look at each case separately to 25 determine whether, what is the right, you know, cost 26 scenario. 27 Q. Do you know about milk moving from Chambersburg, 28 Pennsylvania, to North Carolina? 8417 1 A. Absolutely. 2 Q. So if the model suggested, before National Milk 3 proposed altering it, higher values for North Carolina, 4 wouldn't that further compensate for those movements of 5 milk from Chambersburg, Pennsylvania, to North Carolina? 6 A. If we went by the model you are saying? 7 Q. Yes. 8 A. If we used the model numbers? 9 Q. Yes. 10 A. Yes, that would create more dollars there, no 11 question about it. 12 Q. And that would, therefore, incentivize more milk 13 being moved, or at least be reimbursed, for milk moved 14 from Chambersburg to North Carolina, correct? 15 A. It could. It could. 16 Q. But -- but if you lower it by, say, 40 to $0.55 a 17 hundredweight, or in the case of the anchor city of 18 Asheville by $0.30, to the extent the model was suggesting 19 an encouragement of milk from Chambersburg to North 20 Carolina, you have actually gone the other way, correct? 21 A. Well, I think, again, as I shared with Nicole, is, 22 if you look at where the milk is produced today, at least 23 a large quantity of the milk that's left in the Federal 24 Order 5 area, is in that Southern Virginia to mid-North 25 Carolina region. And, yeah, could we have gone with the 26 model? I guess the thought process was, is if -- if there 27 wasn't a need to do it, why do it? You know, just to be 28 quite honest about it. 8418 1 I mean, there's -- there's milk there. We have 2 already proven we can move -- move milk from the Federal 3 Order 1 to that Carolina region, and there's milk there. 4 So why -- you know, why have the extra dollars? 5 Q. So while it is not a Final Decision yet, there -- 6 there is a pending decision from USDA with respect to new 7 proposals for increased monies in the Southeast for 8 transportation credits, correct? 9 A. Uh-huh. 10 Q. And that includes -- I'm sorry, "uh-huh" 11 doesn't -- for the court reporter, doesn't help. 12 A. Yes, I'm sorry. 13 Q. And that includes Order 5, correct? 14 A. That's correct. 15 Q. That includes North Carolina, correct? 16 A. Correct. 17 Q. Did anybody testify at that proceeding about 18 transportation credits, look, North Carolina is different, 19 we don't need milk because it's already there? 20 A. Yeah, but you are mixing apples with oranges. 21 Q. How am I mixing apples with oranges? 22 A. Transportation credits, at least the ones from out 23 of the region into the region, are only available certain 24 times of the year. And like I said, we -- we take -- we 25 take milk -- twice as much milk when it's needed, when 26 transportation credits are in their glory, so to speak, in 27 the fall of the year, we take twice as much milk down, so 28 that's when we need the transportation credits. We don't 8419 1 need them as much in the -- the spring of the year, 2 because there's milk there. 3 So to me, transportation credits do exactly what 4 they are supposed to do, is to help out in that short 5 season to move that milk. So they are not available all 6 year round, and that's -- that's the idea. 7 Q. So yesterday I discussed a little bit the idea of 8 reserve supply. 9 Are you familiar with the concept of reserve 10 supply -- 11 A. Yeah. 12 Q. -- as USDA applies to Class -- Class I? 13 A. Uh-huh. 14 Q. Sorry, yes? 15 A. Yes. Sorry. I'm getting too comfortable with 16 him. 17 Q. Well, we've had a lot of conversations. 18 Do you agree that USDA believes that adequate 19 reserve supply is 25 to 30% for the market? 20 A. I don't know. I'd have to do my own math and do 21 my own... 22 Q. Do you believe that North Carolina has enough milk 23 for its reserve supply? 24 A. No, it does not. 25 Q. And shouldn't Class I differentials address that? 26 A. I think they do. So here's just what I looked at 27 on -- if we look at all the plants, and I listed out all 28 the plants and just kind of did my own little analysis 8420 1 here, but if you look at the plants in Virginia, North 2 Carolina, and the Spartanburg plant in South Carolina, I 3 mean, we have gone up from $1.80 to -- anywhere from $1.80 4 to $2.00. So we did. We did increase the differentials 5 quite substantially. 6 Because if you go up into Federal Order 1, we're 7 looking at $1.65 to $1.70. But it just didn't make a lot 8 of sense to just go -- like, I mean, you are talking about 9 numbers now that would have us be up in the $2.30s to 10 $2.40 range increase. And we looked at it, and we said, 11 you know, an increase of $1.80, $2.00 makes sense, not 12 2.40. 13 Q. So isn't the case that from Day 1 of this hearing 14 all we've heard about is milk is short in the Southeast? 15 A. Uh-huh. 16 Q. I'm sorry, yes? 17 A. Yes. Yes. 18 Q. So, again, I'm struggling when I look at some of 19 these numbers. You know, for instance, Jones County, 20 North Carolina, line number 1909, the model would have it 21 at 6.15, and you propose 5.60, or a $0.55 drop. I don't 22 know of any decreases in the United States that are -- 23 that deviate that much from the model on the downside. 24 Why -- why -- why, given the fact that milk is 25 short in the Southeast, is North Carolina unique in that 26 respect? 27 A. Well, I think to me, I'll just say, I think you 28 are making the assumption that the model is the end-all of 8421 1 everything. And Chuck even testified in his testimony, 2 it's a guideline, it's not -- it's not the end-all number. 3 We have to add common sense to -- you know, to the theory. 4 And what we were doing is adding common sense to the 5 theory. 6 If I'm a Class I processor in North Carolina, I'd 7 probably be pretty happy. 8 Q. I understand. 9 I guess you were here yesterday, right? 10 A. For part of the day, yeah. 11 Q. But there's -- so Minneapolis, Hennepin County, 12 National Milk proposes raising $0.35, even though there's, 13 like, a Class I utilization of 6% of the Order, Order 30. 14 How is common sense served to increase the Class I 15 differential for those maybe unhappy Class I plants in 16 Minneapolis where there's tons of milk, and down in the 17 Southeast where we have heard nothing but "we need milk, 18 we need milk, we need milk," we're going to lower it in 19 some counties by $0.55? I'm trying to understand what the 20 common sense is. 21 A. We're not lowering it. 22 Q. Well, lowering it from the model -- 23 A. Okay. Okay. But we're still increasing it quite 24 a bit. We're increasing it from -- to 1.80 to 2 bucks. 25 Q. What is the specific shortfall in the model that 26 says in North Carolina it's wrong by 40 to $0.50? 27 A. There is no shortfall in the model. The model is 28 the model. It's just like any other model. You adjust 8422 1 it. I'm sure you have had examples in your own life where 2 you've had models and it wasn't reality. 3 THE COURT: Now, that's not fair. 4 THE WITNESS: Chip and I know each other too well. 5 BY MR. ENGLISH: 6 Q. So if I -- I can shortcut some of this. 7 If I were to look at North Carolina for Guilford, 8 where Dairy Farmers of America has a plant, where the 9 model would say 5.60 and the National Milk proposal is 10 5.20, and then Davidson, North Carolina, where I believe 11 there is a plant, and the model says 5.75, and the 12 proposal is 5.20, one of the reasons is that you are going 13 to keep those two at the same level because they are both 14 at 3.40 today, correct? 15 A. Yes. 16 THE COURT: Because they are both what? 17 MR. ENGLISH: At 3.40 -- $3.40. Correct? And he 18 said yes. 19 THE WITNESS: Yes. 20 BY MR. ENGLISH: 21 Q. So like other witnesses, you have talked about the 22 cost of hauling. 23 Do you agree that the University of Wisconsin 24 model includes hauling in its analysis? 25 A. It covers -- yes. It covers the cost of -- I 26 don't know if it covers all the cost, but it covers 27 probably a good portion of the cost. 28 Q. So other than to support the general proposition 8423 1 that Class I differentials need to go up, what is the 2 point of the hauling discussion in your chart relative to 3 any modifications to the model that you have made? 4 A. I guess it's just trying to support the model. 5 The example that I used, I think if I -- if I'm answering 6 your question correctly, the example -- or the three 7 examples, three scenarios that I used are to support the 8 fact that these are some actual cost examples. And to me, 9 I would hope that that would support the -- the -- you 10 know, the increase that the model is demonstrating. 11 Q. I think you have been here for other parts of this 12 proceeding. 13 Are you familiar with Exhibits 300 and 301, which 14 are the spreadsheets? 15 A. That's the big long -- 16 Q. Yes. 17 A. Yes. 18 Q. Okay. Had you seen those before we introduced 19 them? 20 A. No. 21 Q. Do you know who the author was? 22 A. You mean, as far as the National Milk spreadsheet? 23 Q. Yes. 24 A. Oh, yeah, yeah, I have seen that. I mean, I have 25 them on digital form. I don't have it in the big long 26 spreadsheet. 27 Q. And you had them in digital form prior to the time 28 that the Milk Innovation Group submitted them? 8424 1 A. Well, we had it on a National Milk spreadsheet, 2 yeah. 3 Q. Okay. That's what I mean. 4 A. Yeah. 5 Q. So you had them prior to the hearing? 6 A. Yes. Yeah. 7 Q. Okay. Do you know who the author is? 8 A. I don't know who exactly put it together. I 9 just -- National Milk put it together. But, you know, I 10 don't know which staff person, if that's what you are 11 asking. 12 Q. Okay. There is a column -- I mean, I can show 13 them to you, but I'm trying to speed things up a bit. 14 There's a column on Exhibit 300, which was the 15 original you made, called Column R, that seems to have 16 volume numbers in it. 17 Do you know about that column? 18 A. No. 19 Q. Let's talk about some specific differentials. And 20 since you -- we have talked about the correction. Let's 21 talk about York versus Philadelphia. And I think what you 22 just told me a few moments ago is that the change in the 23 testimony, just because you -- yeah, whatever, it's the 24 correction -- 25 A. Yeah. 26 Q. -- testimony, was that the current difference 27 between York and Philadelphia is $0.15, and in order to 28 achieve your preserving historic price relationship, you 8425 1 made an alteration, correct? 2 A. Yes. 3 Q. And that alteration was to decrease Philadelphia; 4 is that correct? 5 A. No, it was to increase the difference between York 6 and Philadelphia by $0.05. 7 Q. That was the model. That's what the model did, 8 correct? 9 A. Let me check here. Too many numbers, I can't 10 remember them all. 11 THE COURT: Which page should we look at while we 12 listen to this? Is this page 6? I think this is page 6, 13 right? 14 MS. TAYLOR: Yeah. 15 THE WITNESS: That's correct. That is correct. 16 BY MR. ENGLISH: 17 Q. What's correct, that you -- 18 A. That the model showed $0.20 as well. 19 Q. Okay. And that's where you ended up? 20 A. Yes. 21 Q. So in that case, you are not disagreeing with the 22 model? 23 A. No. 24 THE COURT: Actually, the answer to that was yes. 25 Yes, we are not disagreeing with the model. 26 Would you go back to that, if you want? 27 MR. ENGLISH: Sure. 28 BY MR. ENGLISH: 8426 1 Q. In essence, your whole discussion about York and 2 Philadelphia is, in the end, that the numbers in National 3 Milk's 19 are the same as the model and you are not making 4 adjustments; is that correct? 5 A. The end numbers are not the same, but the relative 6 difference between Philadelphia and York are the same. 7 Q. So what change did you make to both? 8 A. Okay. So we took both up by -- let me see here. 9 Okay. We took -- we took York up by -- and it was 10 York; is that correct, that you were asking about? 11 Q. Yes. 12 A. We took York up by $1.70. We took Philadelphia up 13 by $1.65. So you were correct there, which was we didn't 14 take Philadelphia up quite as much. 15 Q. Okay. 16 A. That's right. You are right. 17 Q. Okay. So let's backtrack now. I think the record 18 is, at best, confused. 19 A. Sorry about that. 20 Q. That's okay. There are a lot of numbers. 21 A. Yeah. 22 Q. Let me see if I can correct it. 23 You have proposed adjusting the model results so 24 that you are not taking Philadelphia up as much as York 25 would take it up, and that's basically $0.05, correct? 26 A. Right. 27 Q. And the rationale for that, then, is to maintain 28 the current price relationship between York and 8427 1 Philadelphia, correct? 2 A. Yes. And then also, taking a look at Philadelphia 3 as it relates to Baltimore and Washington and all that, 4 that 95 corridor, to try to make sure -- so it's not only 5 kind of looking at it east to west, but also looking at it 6 north to south, too, you know, that whole, like I was 7 saying earlier, that whole 95 corridor. 8 Q. So the bottom line, there's two different pieces 9 to that. There's west to east, York to Philadelphia, 10 correct? 11 A. Yes. 12 Q. And then there's north to south, Philadelphia 13 down -- 14 A. To D.C. 15 Q. -- to D.C., correct? 16 A. Yes. 17 Q. And you are proposing, I believe, Philadelphia to 18 be 4.70, correct? 19 A. Yes. 20 Q. Baltimore to be 4.70, correct? 21 A. Yes. 22 Q. And Laurel over to Landover, Maryland, would be 23 4.70, correct? 24 A. Yes. That takes Philadelphia down by a nickel, in 25 the current price relationship even, because currently 26 Baltimore is at $3.00, Philadelphia is at 3.05, and 27 Landover is at $3.00. 28 Q. Where does the milk from Philadelphia come from? 8428 1 A. The milk from Philadelphia comes from that 2 Lancaster County area. 3 Q. In the same place where the York milk comes from, 4 Lancaster? 5 A. Yes. And the same place from Landover milk comes 6 from. 7 Q. So doesn't the milk to Landover have to move 8 farther than the milk in Lancaster that goes to either 9 York or Philadelphia? 10 A. Not necessarily to Philadelphia. Again, as I 11 mentioned in earlier testimony, the miles might be a 12 little bit longer, but, you know, you got traffic both 13 ways. So, you know, it's -- it's relatively the same 14 whether you want to go into the city of Philadelphia or 15 the city of D.C., there's not a whole lot of difference 16 there. The biggest difference is with York. I mean, 17 obviously York's closer. 18 Q. It's a relatively less urban center, correct? 19 A. Yes. 20 Q. Okay. So we both live around that area, there's 21 other people in the room who live around that area, and I 22 must say I'm struggling some in comparing Frederick and 23 Baltimore to Laurel. 24 Even if it's only 28 miles from Baltimore to the 25 plant in Laurel, those are very difficult miles to drive, 26 are they not? 27 A. That whole 95 is difficult to drive. 28 Q. I mean, if you have to go down those 28 miles from 8429 1 Baltimore to D.C. to Laurel, you are either going to have 2 to go down Interstate 95 or you are going to go down the 3 Baltimore/Washington Parkway, correct? 4 A. Right. That's correct. 5 Q. And there aren't many times a day that's a great 6 stretch of road, is it? 7 A. That's why our trucks unload at 3:00 in the 8 morning. 9 Q. And, similarly, if you are coming from Frederick, 10 Maryland -- I happened to look before I got up here -- you 11 know, this morning those 51 miles were more like an hour 12 and 20 minutes from Frederick to Laurel, correct? 13 A. That's correct. Yeah, I have done that. 14 Q. So it may be just 55 miles from Frederick to 15 Laurel, but, again, those are 55 really heavily travelled 16 miles, correct? 17 A. You mean Landover, not Laurel. 18 Q. I'm sorry, I'm sorry, Frederick to Landover. 19 A. Okay. Yeah. 20 Q. I'm sorry, yes. Thank you. 21 A. Uh-huh. 22 Q. That's correct. Yes? 23 A. Yes. What I was looking at was, I understand 24 bringing in the raw milk, but, you know, in my role, I 25 also have to look at the customer's view, packaged milk. 26 And the packaged milk from all those three locations, all 27 compete for the same market. And so, you know, part of my 28 job in sales with my customers is to try to meet my 8430 1 customer needs. And so that's -- that's a big part of my 2 job, or I don't have a customer. 3 So, you know, if I look at -- that's why I'm 4 looking at it from that direction as well. I mean, I 5 can't just look at it from one perspective. I have to 6 look at it from the other perspective, too. 7 Q. I understand that. And listen, I appreciate a 8 customer-centric perspective. 9 But I come back to my question from earlier, which 10 is that by necessarily maintaining those price 11 relationships between Philadelphia, Baltimore, and D.C., 12 and Frederick, aren't you creating an issue farther north 13 and west where by definition you can't be maintaining the 14 price relationship? At some point you can't. Isn't that 15 correct? 16 A. No, I don't think so. I think we did a pretty 17 good job at, as we moved west, at really feathering in, 18 you know, the cost and the location of the milk. I mean, 19 even York itself has gotten a lot harder to get around 20 anymore these days, and I live 70 miles from York. So 21 it -- not even that far, probably 40 miles away from 22 York -- so it's a lot harder to get around York these 23 days. I mean, everything has sprawled out. It's a lot 24 more difficult. 25 Q. But relatively it's harder in D.C., Baltimore, and 26 Philadelphia than it is in York, isn't it? 27 A. Yes. 28 Q. So similarly, let's now turn to what's proposed 8431 1 for Lynchburg, Virginia, and Newport News. 2 Where does Newport News get its milk? 3 A. They both -- both Lynchburg, Virginia, and Newport 4 News get their milk from the same location, which is that 5 Harrisonburg area is where they get their milk from, 6 Harrisonburg, Virginia, area, which is kind of right down 7 off of 81. 8 Now, both of these plants, too, I'll just -- and 9 you probably already know this, but just to remind you, 10 that Newport News -- I get the opportunity, I'll put it 11 that way, of -- or Maryland and Virginia gets the 12 opportunity of living in two state orders, in addition to 13 Federal Orders, and so we get the opportunity to be in 14 Pennsylvania Milk Marketing Board and we get the 15 opportunity to be in the Virginia Milk Commission. 16 And half of Newport News is regulated -- or half 17 the Newport News, yes, is -- the milk going in there is 18 regulated under the Virginia Milk Commission, meaning that 19 half of the sales out of Newport News are in Virginia Milk 20 Commission area. So if you just look at that milk alone, 21 that's much higher than the Federal Order milk as far as 22 cost goes. So -- and Lynchburg is probably almost 50% 23 regulated by the Virginia Milk Commission. 24 So even though they are Federal Order plants 25 because of the -- they meet the qualification on their 26 sales, they are still very highly regulated by the 27 Virginia Milk Commission. 28 Q. Which, of course, could be voted out tomorrow, 8432 1 correct? 2 A. We have been saying that for 40 years, Chip. 3 Q. I understand that. 4 But what -- what role should the existence of that 5 have with respect to setting Class I differentials by 6 USDA? 7 A. I'm just saying it adds another dynamic to those 8 plants, but it doesn't have any role specifically in 9 Class I differentials. 10 Q. Okay. So wouldn't it be fair to say that 11 Harrisonburg, Virginia, and the Shenandoah Valley is an 12 easier drive to Lynchburg than it is to Newport News? 13 A. Well, I would say in the year 2000 it was the same 14 way; wouldn't you say? 15 Q. I -- 16 A. I mean, they wanted to keep the differentials the 17 same in the year 2000. 18 Q. Well, maybe the model said that then but -- 19 A. I don't know. 20 Q. -- but I guess the question is, we're looking at 21 what the model results are today, and you are going to 22 keep -- you are going to raise both, but essentially raise 23 Lynchburg more, Lynchburg is a proprietary plant, right? 24 A. Yes. 25 Q. And Newport News is your plant, correct? 26 A. That's correct. 27 Q. And regardless of whether anybody talked about it 28 in your meetings, your proposal is to end up with the 8433 1 plant in Lynchburg owned by a proprietary operator to be 2 the same as Newport News, correct? 3 A. Yes. 4 Q. Okay. I guess one thing I would say that's 5 different from 2000 is, hasn't the traffic increased in 6 the peninsula of Newport News even more since 2000? 7 A. Well, traffic in Lynchburg has increased, too. 8 THE COURT: Answer his question before you add on. 9 THE WITNESS: Okay. Okay. 10 THE COURT: So would you ask it again? 11 THE WITNESS: I would assume so. I mean, I -- I 12 don't make that drive a lot. 13 BY MR. ENGLISH: 14 Q. Well, you don't make that drive a lot because it's 15 not a lot of fun, is it? 16 A. No, it's -- I just don't get over there. 17 Q. Well, it's hard to get in and out of the 18 peninsula, isn't it? 19 A. I don't know. I don't get over there, so I can't 20 tell you. 21 Q. I was going to say since 1860, even Civil War 22 generals had trouble getting out of Newport News, right? 23 I am struggling with this principle of, we're 24 going to keep the relationship the same, and you look at 25 Lynchburg over in South Central Virginia, and you look at 26 Newport News in Southeast Virginia, and I just can't 27 conceive of the cost for serving those two markets as 28 being the same. 8434 1 A. Those -- those two markets serve -- 2 geographically, serve the same market. 3 Now, there used to be two more plants, right? 4 There was Richmond and then there was Portsmouth south of 5 Newport News. There was two more plants over there. 6 They've closed down since -- both of those have closed 7 down. They were all in the same price range, you know. 8 So I guess my -- my thought is that, again, 9 trying -- and if you look at the map, we flattened out 10 that -- just like I said earlier, we flattened out that -- 11 once you got into kind of the mid to southern -- more like 12 Southern Virginia and Northern North Carolina, you will 13 see that whole -- that whole area is flat. It's not just 14 Virginia, it's -- it's that North Carolina area as well. 15 I mean, they all kind of go together. 16 So that starts at Lynchburg as you go north to 17 south, and goes over to Newport News, and it comes down to 18 the center of all of North Carolina, and in that little 19 bit of South Carolina, and it just kind of flattens there 20 a little bit because of what I have already shared, 21 because of where the milk lies. 22 And so that's -- that's when we looked at that. 23 That's kind of what we came away with. And so we feel 24 like it's -- it's very reasonable to -- to maintain that 25 relationship there. 26 Q. So with those two plants -- Richmond was one of 27 them. 28 Where was the other one you said? 8435 1 A. Portsmouth. 2 Q. Portsmouth. So the two plants in Richmond and 3 Portsmouth. By definition, the fact that those two plants 4 are gone since the model was run the last time in 1997 5 would have been taken into consideration by the model, 6 correct? 7 A. Say that again? 8 Q. The fact that those plants no longer exist would 9 be accounted for in the model, correct? 10 A. Yes. 11 Q. Okay. And that would suggest that there may be 12 less milk in raw form needs to be moved down to the 13 peninsula, correct? Because there's only one plant now, 14 correct? 15 A. Yeah, there's less milk. 16 Q. In raw form. 17 A. Right. 18 Q. But packaged milk, more milk needs to move, 19 correct? 20 A. Yes. 21 Q. Wouldn't it make sense to encourage that packaged 22 milk to move by saying, for plants that are moving it in 23 from, say, Lynchburg will have a difference between 24 Lynchburg and Newport News to help make sure that milk 25 moves in packaged form? 26 A. I see your argument. And I guess we'll have to 27 ultimately let the Department decide. But I -- you know, 28 we look at them as the same -- the same area, just like 8436 1 they were back in 2000. 2 Q. So let me come back -- so I guess the other thing 3 is, when you say you flattened it, by definition, if you 4 have raised Lynchburg higher than the model and you have 5 taken the triangle in North Carolina down from the model, 6 haven't you impacted the competitive relationship between 7 Lynchburg and North Carolina? 8 A. Well, we raised them both the same amount, $1.80, 9 right? 10 Q. But by doing so, you haven't encouraged milk from 11 Lynchburg to move south, have you? 12 A. I haven't encouraged -- I'm not sure I -- 13 Q. Well, by definition, if the model said one thing, 14 which is that Lynchburg should be lower than North 15 Carolina, and you have instead said, we're going to take 16 them both up by $1.80, to the extent the model was 17 suggesting, hey, look, we need milk from Lynchburg to move 18 south, you have taken away that incentive, correct? 19 A. Well, I guess the milk -- I don't -- I don't know 20 that there needs to be an incentive there, I guess, to 21 move that milk, a different incentive than what there 22 already is in the model, I guess -- or in the National 23 Milk proposal. Because, as I said earlier, when you get 24 to that Lynchburg to North Carolina, that middle of North 25 Carolina is where all the milk is. It's -- it's -- that's 26 the second group of milk. So you have a group of milk up 27 in Harrisonburg, and then you have a second group of milk 28 that's south of Lynchburg to the middle of North Carolina. 8437 1 Q. And notwithstanding -- 2 A. And that's where that milk goes. It's always gone 3 there. 4 Q. But notwithstanding all of that, you have to move 5 milk from Chambersburg, Pennsylvania, to North Carolina, 6 correct? 7 A. Yes. 8 Q. So given your preserving price relationship 9 arguments, why not preserve the price relationship that 10 Kroger in Winchester, Kentucky, has selling south and 11 east? Instead, you -- National Milk proposes taking 12 Kroger up $2.00 in Winchester, Kentucky, and the plants in 13 High Point up $1.60, correct? 14 A. I don't know about -- I didn't -- I wasn't in 15 charge of -- of that. I wasn't in that group of 16 Winchester, Kentucky, so I can't comment on that. 17 Q. Doesn't that go to my point that -- if somebody at 18 National Milk's proposed Winchester, Kentucky, for 19 $2.00 -- 20 (Court Reporter clarification.) 21 BY MR. ENGLISH: 22 Q. Assume for a moment National Milk's Proposal 19 23 proposes moving Winchester, Kentucky up by $2.00 a 24 hundredweight -- 25 A. Okay. 26 Q. -- which is where the Kroger plant is located -- 27 THE COURT: Which is what? 28 BY MR. ENGLISH: 8438 1 Q. -- where the Kroger plant is located, and at the 2 same time, because you are reducing prices in North 3 Carolina, you are taking that up less than $2.00, I think 4 it's $1.60 at High Point; is that right? 5 A. In North Carolina? 6 Q. Yes. 7 A. North Carolina we -- it was either $1.80 to 8 2 bucks. 9 Q. Okay. So $1.80. It's $1.80. 10 A. Yeah. 11 Q. Nonetheless, you are taking Kroger Winchester -- 12 National Milk's proposing taking Kroger Winchester up more 13 than High Point. 14 Isn't that an example where you have not preserved 15 the price relationship somewhere? 16 A. Well, again, I can't comment on -- on the 17 Winchester, Kentucky. I don't know enough of that area to 18 be able to comment on it. 19 Q. I guess that may be my ultimate question is, did 20 any of the groups get together afterward and say, oh, 21 look, we better consult about this because down in North 22 Carolina we used price relationship, but we didn't do that 23 in Winchester, Kentucky, and, therefore, we have created a 24 problem? 25 A. Did we have groups that got together and talked to 26 each other? Yeah. But did we talk about your specific? 27 I don't -- I don't know. I wasn't in all the discussions. 28 You know, we -- we -- you know, like, for us, our furthest 8439 1 western plant is Asheville that we serve in North 2 Carolina. You know, I think Jeff already testified, I 3 don't know the geography, but like Asheville, for example, 4 the reason it didn't go up higher -- or it went up 5 higher -- let's see, what do I want to say here? Let me 6 get my right numbers here. 7 The model had it 5.70, and we went -- we went up 8 there, but not as much as the model, but went up more than 9 say, like -- we didn't keep it the same as the middle of 10 North Carolina is the geography. It's a lot harder to get 11 to Asheville. You have got to go, you know, up -- I have 12 made that drive many times -- and it's just not an easy 13 drive. It's not easy to get haulers that want to go up 14 there. 15 And so that's why we felt like -- and it's a 16 little -- just a little south. If you look at the map, 17 it's just a little south of the High Point and 18 Winston-Salem plants, and so, you know, those two reasons 19 is why we -- why we -- we kept some dollars there and 20 didn't -- and didn't take the full -- didn't reduce it as 21 much as we had reduced the others on the increase. 22 Q. So you agree it's harder to get to Asheville, 23 correct? 24 A. Yeah. 25 Q. And, therefore, you made a slight adjustment to 26 the current price relationship, correct? 27 A. Yeah. And I don't know if that's -- that might be 28 the reason for Winchester, Kentucky, or not. I don't 8440 1 know. I have never been there. I don't know. 2 Q. But you did make an adjustment -- or you made a 3 lesser adjustment to Asheville because of considering the 4 difficulty in driving in Asheville, correct? 5 A. Uh-huh. 6 THE COURT: That was a yes? 7 THE WITNESS: Yes. I'm sorry. 8 BY MR. ENGLISH: 9 Q. But when it came to Lynchburg versus Newport News, 10 you did not make an adjustment because of the difficulty 11 of getting to Newport News, did you? 12 A. It's not a difficulty. The road's straight. The 13 road is flat. It's a timing issue. 14 Q. Well, isn't that a cost? Timing issue a cost? 15 A. Well, we have been doing it for such a long time. 16 Again, we just, we start receiving at 2, 3 o'clock in the 17 morning. It's not a topography issue. 18 Q. I understand. It's a traffic issue, correct? 19 A. They have traffic issues even in Asheville, too. 20 Q. But it's also a distance issue because it's 21 farther from Harrisburg to Newport News than it is to 22 Lynchburg, isn't it? Fewer miles to Lynchburg from 23 Harrisburg? 24 A. From Harrisburg to Lynchburg? 25 Q. Yes, than it is to Newport. 26 A. Yes. But not from Lancaster to Newport News. We 27 don't take Harrisburg milk to Newport News, we take 28 Lancaster milk to Newport News. 8441 1 Q. I thought you testified earlier that both Newport 2 News and Lynchburg get their milk from the same location, 3 Harrisonburg. 4 A. Harrisonburg, Virginia. 5 Q. Yeah, Harrisonburg. I'm sorry, I meant 6 Harrisonburg. 7 A. Oh, oh, oh. I thought you meant Harrisburg -- 8 Q. I may have misspoke. I apologize. Harrisonburg. 9 A. Yes. 10 Q. It's a shorter distance from Harrisonburg to 11 Lynchburg than it is from Harrisonburg to Newport News, 12 correct? 13 A. Yes. 14 Q. And both those plants get the milk from that 15 location, correct? 16 A. Yes. 17 MR. ENGLISH: Thank you. I have no further 18 questions. 19 THE COURT: Mr. Miltner. 20 CROSS-EXAMINATION 21 BY MR. MILTNER: 22 Q. Good morning, Mr. John. 23 A. Good morning. 24 Q. My name is Ryan Miltner. I represent Select Milk 25 Producers. 26 I'm going to do my best not to re-plow ground that 27 Mr. English covered. Bear with me as I perhaps pause 28 between points here. 8442 1 So if I could summarize your testimony, you have 2 spent a lot of time discussing how competitive 3 relationships were managed as National Milk developed a 4 Class I price surface. 5 Is that a fair summary? 6 A. That's fair. 7 Q. And part of that consideration is the distance 8 between plants and milk supplies. 9 Is that also accurate? 10 A. That's fair, yes. 11 Q. You also, in your testimony, provided some 12 information about hauling costs. I have heard kicked 13 around this rule of thumb for our current economic 14 situation that perhaps $5.00 a loaded mile is a fair 15 hauling rate on a per hundredweight basis. 16 Is that -- is that consistent with your experience 17 at Maryland and Virginia? 18 A. That would be consistent with -- and that would be 19 a loaded mile? 20 Q. Yes. 21 A. Yes. So that would be as you move longer 22 distances and have a -- what I'll call a -- we call them 23 one-stop load where the farm produces enough milk to make 24 a whole tractor-trailer load, and you are running long 25 distance, I would agree with that. 26 Short distances, it's like anything, you have more 27 farms to make a load. Usually in our 28 Pennsylvania/Maryland area, you have more farms to make a 8443 1 load, and so you have more fixed costs and you are running 2 shorter miles, so you can't flatten out your fixed cost as 3 much. So that number would be higher. 4 Q. Okay. But as a -- perhaps as a lowest hauling 5 rate, $5.00 per loaded mile would be a good base rate? 6 A. Yes. 7 Q. So if we had 500 hundredweights on a full tanker, 8 it's about a penny per hundredweight per mile, or more -- 9 A. Yes. 10 Q. -- to move milk? 11 A. Yes. 12 Q. And so as you presented several different price 13 relationships, and Mr. English went through a number of 14 them with you, I wanted to look at some of those, and the 15 haul rates in particular, or the haul cost. 16 A. Okay. 17 Q. If I look at Landover to Frederick with a 55-mile 18 distance between them, if the model was showing a $0.35 19 difference between those two points, and it were at least 20 a penny a mile to move milk, that spread that the model 21 encompassed would not cover the haul cost between those 22 two points, would it? 23 A. That's correct. 24 Q. And if I look at Philadelphia to York, that's 25 about 100 miles between those two points, correct? 26 A. Yeah. I think that's about right. 27 Q. And so if the model is showing $0.20 between them, 28 again, that -- the haul is not reflected in that spread, 8444 1 is it? 2 A. That's correct. 3 Q. And we have two more that I wanted to look at, 4 Mount Crawford, Virginia, to Verona, again, 15 miles 5 between the two and $0.10 in the model. 6 Again, does the transportation cost get 7 encompassed in that spread, in your opinion? 8 A. Right. Yeah. And I would agree that -- that -- 9 and that's I guess my other argument was, is that trying 10 to maintain, that's where I -- I'm trying to balance two 11 things between haul costs and customer needs and 12 customers, what they -- what their market is, what they 13 serve. 14 Q. And then the last one, the Lynchburg to Newport 15 News, there's 200 miles between those two points roughly, 16 correct? 17 A. That's correct. 18 Q. And the model had $0.50 -- I believe $0.50 spread 19 between those two points, correct? 20 A. You said Lynchburg, right? 21 Q. Yes. 22 A. Yes. 23 Q. Okay. So 200 miles and a $0.50 spread. 24 Again, same as the other three city pairings or 25 four county pairings, the haul cost exceeds the spread for 26 the model output, correct? 27 A. That's correct. 28 Q. Now, Mr. English also asked you some questions 8445 1 about what is encompassed in the model, and we have plenty 2 of testimony from the folks that developed the model that 3 explained that in greater detail, so I don't want to 4 belabor that. 5 But in addition to the distance between points, 6 the model takes into account where the milk is located, 7 correct? 8 A. Yes. 9 Q. And it takes into account where the plants are 10 located, correct? 11 A. Yes. 12 Q. But does the model, to your knowledge, take into 13 account where the milk is affiliated in terms of whether 14 it's cooperative, affiliated, or independent milk? 15 A. No, it does not. 16 Q. And as far as the plants go, does it take into 17 account who is supplying those plants under a contractual 18 arrangement? 19 A. No, it does not. 20 Q. So the model is taking into account multiple 21 factors -- or let me rephrase that. 22 There are business realities that your cooperative 23 experiences that are not encompassed in the model, 24 correct? 25 A. That's correct. I mean, one very easy one for me 26 is schools. So schools start up in August/September, and 27 they let out May/June. The model doesn't do anything with 28 schools. And you might have a 10, 15% increase in 8446 1 production at the plant that the model doesn't -- it -- 2 you know, seasonality, things like that, the model does 3 not take that into consideration. 4 Q. You also testified about certain customers' 5 specifications that Maryland and Virginia has to consider 6 when supplying milk, correct? 7 A. Correct. 8 Q. The model doesn't take into account any of those 9 specific demands when it establishes these price 10 relationships, does it? 11 A. That's correct. That's correct. 12 Q. Now, as a cooperative -- and I don't think 13 Maryland and Virginia is unique in this respect -- you 14 have a network of milk supply to optimize, don't you? 15 A. That's correct. Yeah. 16 Q. You also have a series or a number of contractual 17 relationships with your own customers that you have to 18 manage, correct? 19 A. That's correct. 20 Q. Now, if you could explain for us just briefly what 21 that entails in terms of matching up your milk supply with 22 your plants and what the geography of those relationships 23 entail. 24 A. So plants, you mean both the plants that we own 25 and plants that -- third-party customers that I supply? 26 Q. Yes, please. 27 A. Okay. So we serve mostly Class I plants or fluid 28 plants. They may do a little Class II work, but it's 8447 1 mostly Class I plants. So we don't supply -- very little 2 to the cheese market, and if they are, they are very small 3 facilities. 4 So other than that, other than -- and I just 5 wanted to back up to give a broader scope of it -- other 6 than servicing those Class I plants, we balance all the 7 milk at our two ingredient plants, which I have talked 8 about earlier. So there's really -- if I divide our 9 customers into two pieces, two specific types of 10 customers, one is traditional HTST, high temperature short 11 time customers, and the second one is ultra-pasteurized 12 customers. So we have those two type of customers. 13 So many of the HTST plants don't take -- don't run 14 seven days a week, so that's one of the challenges. 15 They -- they will -- they -- some of them run five days a 16 week, some will run six days a week, but very few of them 17 run seven days a week, which means there's a challenge 18 on -- they don't take the same amount of loads every 19 single day of the week. Many of them also take more 20 volume on Wednesday -- let's say Tuesday, Wednesday, 21 Thursday, and less on a Friday, Saturday, Sunday, so 22 there's that balancing. 23 Then if we move over to the ultra-pasteurized 24 plants, all the ultra-pasteurized plants that we serve 25 also run non-milk beverages. So we not only have to 26 balance that plant from a milk standpoint and what they -- 27 what their orders are, but if they have a major customer 28 that -- that's a non-milk customer that comes to them and 8448 1 says, you must run, you know, this run for me, we'll have 2 changes in the middle of the week sometimes. It's just -- 3 it's more balancing. I have often thought that 4 ultra-pasteurized would be less balancing, but in our case 5 it's actually been more balancing that we have had to do. 6 So does that kind of answer your question? 7 Q. It does, and let me delve into a little further. 8 I mean, Maryland and Virginia has competitors when 9 it comes to the procurement of milk from the farm, doesn't 10 it? 11 A. Absolutely, yeah. 12 Q. Okay. And who are some of those competitors that 13 you have in the areas where you operate? 14 A. Well, I'd say the -- the major competitors are 15 going to be, obviously, DFA and Land O'Lakes, and then we 16 have -- there's many smaller cooperatives and independents 17 on top of that. 18 Q. Now, each of those entities competing with 19 Maryland and Virginia for milk procurement, are those same 20 entities competing with Maryland and Virginia to supply 21 plants and customers? 22 A. That's true. 23 Q. So is it the case that Maryland and Virginia might 24 have a contract to supply a fluid plant, but the closest 25 farms to that plant would be obligated to provide their 26 milk to one of your competitors because they are a member 27 of another cooperative? 28 A. That is true. That is true. 8449 1 Q. And in that case, would the milk that is closest 2 to the plant necessarily be delivered to the plant? 3 A. Not necessarily. 4 Q. Some cases it would be, correct? There would be 5 an arrangement to -- to optimize some efficiencies, but -- 6 A. Yes. And I'll give you another example that 7 complicates things a little more. 8 As I -- as I -- one of my examples about the 9 Virginia Milk Commission. The Virginia Milk Commission 10 assigns whose milk goes into whose plant. And so, for 11 example, most of the Virginia Milk Commission milk that 12 goes into Newport News is not our milk, it's somebody 13 else's milk that owns Virginia base, so that creates more 14 complication. 15 Q. And is that -- is that reality reflected in the 16 model, to your knowledge? 17 A. No. No. 18 Q. You also talked about daily and weekly balancing 19 of plants just a minute ago. To your knowledge, is the 20 daily fluctuation demand from individual plants 21 encompassed in the model? 22 A. No. 23 Q. Does Maryland and Virginia use receiving credits 24 or other tools to help offset those costs? 25 A. We do in some areas. Some areas the competitive 26 nature doesn't allow us to do that. 27 Q. You mentioned the competitive nature, and that 28 kind of, I think, is going to help tie up my questioning 8450 1 here. 2 If I look at the end of your statement, it's the 3 first paragraph on page 7 in the second sentence, and it 4 reads: "Namely, that the Class I differentials needed to 5 increase to cover the additional costs of servicing fluid 6 milk markets and to maintain current price relationships 7 between fluid milk markets to avoid, as much as possible, 8 unnecessary or unwarranted changes in competitive 9 relationships." 10 You have two different concepts in there, as I 11 read that. You talk about current price relationships and 12 competitive relationships. 13 Now, when you refer to current price 14 relationships, you are talking about the differentials 15 that are in the current Class I surface, correct? 16 A. Correct. 17 Q. So that comes from regulation as it stands today, 18 correct? 19 A. Correct. 20 Q. But when you talk about competitive relationships, 21 those are the results of the business decisions and 22 economic realities that Maryland and Virginia faces, isn't 23 it? 24 A. Yes. 25 Q. Those competitive relationships have to do with 26 who your customers are, correct? 27 A. Correct. 28 Q. To a lesser extent, who your members are, correct? 8451 1 A. Correct. 2 Q. And it is those realities that -- that in Maryland 3 and Virginia's opinion, and National Milk's, require 4 deviation from the model as a straight output? 5 A. That's correct. That's correct. 6 MR. MILTNER: I think that's all I have. Thank 7 you very much. 8 THE WITNESS: Thank you. 9 THE COURT: Dr. Cryan. 10 DR. CRYAN: Thank you, Your Honor. 11 CROSS-EXAMINATION 12 BY DR. CRYAN: 13 Q. I'm Roger Cryan with the American Farm Bureau 14 Federation. I want to follow up a little bit on some of 15 the things Mr. Miltner was talking about regarding the 16 limitations of the model with respect to the local 17 circumstances. 18 Do you understand the model assumes -- 19 essentially, it's an engineering solution, a one -- like 20 one -- one giant hand directing all milk to be sent in all 21 the most efficient channels possible to minimize the cost 22 of shipping; is that right? 23 A. That's correct. Yeah. 24 Q. So it doesn't really account for competition. We 25 believe in competition in this country. 26 A. Right. 27 Q. And this is -- this is a solution of one company 28 ran everything and somehow managed to be efficient. 8452 1 But this doesn't account for competition, right? 2 A. That's correct. 3 Q. And it's typical for nearby competing plants not 4 to allocate their market according to where the most 5 efficient, you know, movement of milk is, but to compete 6 within a larger market; is that correct? 7 A. Yes, that's correct. 8 Q. And so those -- those markets naturally overlap. 9 A. Yes. 10 Q. And that -- would you say that's fundamentally why 11 so many of the analyses presented in defense of this -- of 12 these adjustments are trying to align milk markets where 13 there's -- where there's a substantial competition, a 14 substantial overlapping competition? 15 A. Yeah, that's what we tried to do based on our 16 years of experience. 17 Q. Okay. And that reflects a difference between the 18 actual competitive market and the sort of efficient 19 engineering allocation of the model. 20 A. Yes. 21 Q. Okay. And would you agree that essentially -- 22 this is to restate just one more time -- the model 23 essentially represents the absolute minimal, the absolute 24 minimum differential among locations that would be 25 required in the most efficient way to -- to move milk 26 across the country? 27 A. Yeah. 28 Q. Okay. Which is -- which is going to be a 8453 1 principle that would necessarily be a bit lower than -- a 2 bit less expensive than, you know, the actual messy world? 3 A. Yes. Yes. Absolutely. 4 Q. Okay. 5 DR. CRYAN: That's it. That's all I've got. 6 Thank you very much. Thank you. 7 CROSS-EXAMINATION 8 BY MR. LAMERS: 9 Q. Good morning, Mr. John. 10 A. Good morning. 11 Q. Mark Lamers representing Lamers Dairy. We have a 12 small fluid milk plant in Wisconsin. Just a couple of 13 quick questions. 14 A. Sure. 15 Q. I'm not real familiar with the model, not being 16 present for all the testimony that was here, but do you 17 know with the suggested Class I differentials, was that 18 reconciled with the actual costs associated? Is that how 19 that number was arrived? 20 A. The -- the -- 21 Q. Dollars generated in the pool. 22 A. Are you talking about the model, the -- how the 23 model was -- the spatial model was developed? 24 Q. Yes. National Milk Producers' proposal for 25 increasing Class I differential, were those 26 differentials -- they generate a certain amount of money 27 into the pool, correct? 28 A. Yes. 8454 1 Q. And was that dollar amount reconciled with the 2 costs associated with serving in the Class I market? 3 A. I would say that -- that -- I don't -- I don't 4 know the answer directly to your question. What I would 5 say is that -- that the -- and I don't know if I'm not 6 understanding your question -- but what I'd say the model 7 reflected, what Roger was just saying earlier, is it tried 8 to reflect the -- in a perfect world, the movement of 9 milk -- or anything, I guess, it could be anything 10 really -- but in this case, the movement of milk from, you 11 know, supply points to destination points. 12 Q. Okay. In looking back at your Table 2, I did some 13 quick math. 14 A. Okay. 15 Q. And looking at the roundtrip, 171 miles, with the 16 difference in cost on that, if my math is correct, it 17 looks like about $0.46 a hundredweight. 18 A. That would be correct. 19 Q. And then for Northeast Order 1, they have a 20 proposed increase of $1.76? 21 A. Yes. 22 Q. Okay. So looking at those numbers for the amount 23 of Class I milk in the pool for Federal Order 1, when you 24 take out that $0.46, that leaves about $1.30 for any 25 additional costs? 26 A. Yes. 27 Q. And my question was, that $1.30 generates about 28 $8 million into the pool. 8455 1 Is that number ever reconciled when composing 2 these Class I differentials, as to that's the actual cost 3 of what it takes to service that market? 4 A. So I can't speak to, you know, everybody else, 5 but, you know, as my discussion with Nicole earlier, and 6 as I have shared with others about our increased costs to 7 serve Class I, that, to me, is both in what I'll call 8 Grade A plus milk to the Class I market, and then also 9 supplying -- or also balancing, the extra balancing needs, 10 would easily make up that difference, if that's what you 11 are asking about making up that difference between the 12 40-some cents and the, say, $1.65. 13 Q. Yeah. I guess I have a hard time personally 14 reconciling that number in my mind, operating a fluid 15 plant like I do, that that amount of money would be 16 justified for this. 17 A. It is -- I will agree with you, it's big dollars. 18 It's hard to imagine, but when we sit down and look at the 19 actual, do the actual math on what it costs to balance, 20 what it costs to service customers, the -- you know, all 21 the costs have gone up. The extra testing, the extra 22 manpower that we have to have in order to serve Class I. 23 Let alone, and I didn't even get into all the 24 sustainability efforts today that are just a requirement 25 to serve. And that's probably not just Class I, that's 26 probably everywhere, but in our case, we serve Class I. 27 Just the requirement, you know, you have to be FARM 28 certified. And that's not just animal care now, it's 8456 1 employee welfare, it is environmental care, it's, you 2 know, what's your greenhouse gas emissions, and how are 3 you going to reduce that and become net zero. I mean, 4 it's on and on, all those things like that. And I didn't 5 even get into all that, adds a ton of cost to servicing 6 the marketplace. 7 Q. And that all should fall back on the Class I 8 consumer? 9 A. Well, should it fall on the dairy farmer? I mean, 10 I don't think it should fall on -- I don't think it should 11 all fall on the dairy farmer. That's what I'm here to 12 testify about. 13 Q. Well, just one other question. You had mentioned 14 earlier two plants closing. 15 Do you know if they were cooperative-owned plants 16 or proprietary plants? 17 A. They were both proprietary-owned plants. 18 Q. Thank you. 19 A. Uh-huh. 20 THE COURT: Thank you, Mr. Lamers. 21 Mr. Rosenbaum. 22 CROSS-EXAMINATION 23 BY MR. ROSENBAUM: 24 Q. Steve Rosenbaum for the International Dairy Foods 25 Association. 26 Just to follow up on the questioning there. You 27 mentioned the FARM program, correct? 28 A. Yes. 8457 1 Q. That's a program that relates to animal care and 2 things of that nature, correct? 3 A. That's one aspect. It now has three modules to 4 it. 5 Q. And -- but there's -- that -- that's not a 6 Class I-oriented program, correct? 7 A. No, it's not. And I said that. It's not. 8 It's -- you know, in our market, because that's what we 9 serve, it is. But, yes. 10 Q. I mean, you are pretty unique in that respect, 11 correct? That you are serving such a large portion of 12 Class I milk, correct? 13 A. Probably, yeah. 14 Q. It'd be irrational for the USDA to accept your 15 particular unique circumstance as the philosophy that 16 should be adopted nationwide; is that fair? 17 A. I have been told I have been unique before. 18 Q. Well, do you agree with my statement? 19 A. Yes. 20 Q. Okay. 21 MR. ROSENBAUM: That's all I have. Thank you. 22 THE COURT: Are there other questions before we 23 take a break and then we'll come back to the Agricultural 24 Marketing Service? 25 All right. So when we return, we'll go with the 26 Agricultural Marketing Service questions. Please be back, 27 ready to go at 11:15. 28 We go off record at 11:00. 8458 1 (An off-the-record discussion took place.) 2 THE COURT: Let's go back on record. 3 We're back on record. It's 11:16. 4 Questions for the witness from the Agricultural 5 Marketing Service? 6 CROSS-EXAMINATION 7 BY MS. TAYLOR: 8 Q. Good morning. 9 A. Good morning. 10 Q. Okay. I want to start on page 3. And I just want 11 to ask just a few -- I want to make sure everything's 12 crystal clear on the record. 13 In the middle of that first big paragraph you have 14 a sentence that says, "In the face of enormous 15 transportation cost increases, that means the mechanism to 16 attract milk from supply points has become less 17 effective." 18 And I just want to make sure you are clear on -- 19 on the record, of what you were referring to as "the 20 mechanism." 21 A. Okay. The mechanism would be the Class I 22 differential. 23 Q. Okay. 24 A. Yes. 25 Q. And then in the second paragraph there you are 26 talking about your internal hauling subsidy to cover these 27 additional transportation costs. 28 I was wondering if you could talk a little bit 8459 1 more about how that works for Maryland and Virginia? 2 A. Sure. So -- so with each month we have to look at 3 what we deduct off of our members. I mean, that's right 4 on their statement. Most of the times it does not cover 5 the full cost of moving that milk, because it's in arrears 6 of what -- we project what we think is going to happen in 7 the month and -- but the month never goes the way we 8 figure it's going to go. And so we always have extra 9 costs afterwards, and so that becomes an additional cost 10 that we basically spread that over all of our membership 11 as a -- as a -- call it a subsidy, that additional cost 12 out of there. It's not -- not their regular hauling rate, 13 per se, but it becomes a cost that had to -- had to be 14 paid to move that milk in that given month. 15 Q. Right. 16 So just so we're clear, then, your members have a 17 hauling rate that they are charged? 18 A. Yes. 19 Q. And that is what you are saying could change 20 monthly? 21 A. No, that -- that's -- that stays. 22 Q. So that's flat? 23 A. Yeah. 24 Q. In addition, there's a hauling -- 25 A. We call it a subsidy. 26 Q. -- subsidy or -- 27 A. Of what actually -- what -- you know, like, for 28 example, we never know if we're going to move -- in my 8460 1 conversation with Chip, we never know when we're going to 2 move the milk from Franklin County to North Carolina, for 3 example. And that cost has to be -- any cost that isn't 4 recovered through the differentials or through 5 transportation credits, for example, there's always 6 additional cost left over. That is not part of, say, the 7 local haul rate that a producer pays, so that has to be -- 8 that has to be paid somehow. 9 Q. And that's a deduct off the checks -- 10 A. Yes. 11 Q. -- to the members? 12 A. Yes. 13 Q. And is that rate -- is that spread evenly? 14 A. Yes. 15 Q. On a hundredweight basis? 16 A. Yes. 17 Q. On your Table 1, the three routes -- yeah, the 18 three routes you picked as examples, how did you pick 19 these routes? 20 A. Well, first of all, we wanted to make sure that -- 21 and I hope I'm getting to the answer to your question -- 22 but, first of all, we wanted to make sure we had routes 23 that were around in 2008 and also around in 2023 so we 24 could look at the same routes. We wanted to keep it as 25 consistent as possible so that we were actually comparing 26 apples to apples. 27 We looked at kind of a traditional route. I can 28 honestly say that that -- that Federal Order 1 to Federal 8461 1 Order 5 is moving milk from Franklin County, Pennsylvania, 2 to -- to North Carolina, since we talked about that so 3 much. 4 And the Federal Order 1 to Federal Order 1 is 5 basically just -- where it's a route that's been around 6 for a long time and it's well-established. 7 Q. Okay. And the mileage on these, are they 8 representative of the typical miles per load in those -- 9 A. Yes. 10 Q. -- those routes? 11 A. Especially -- the Federal Order 1, that's, you 12 know, a route to the -- from the farm to a plant is going 13 to be -- if you just take half of that, the distance is 14 going to be right around 85 miles. That's normal for us. 15 We don't have -- we don't have -- some of our largest 16 volume is moving milk into Maryland out of Pennsylvania, 17 so that's what, you know, drives some of that up, and then 18 moving it from West Pennsylvania to Eastern Pennsylvania, 19 that drives that miles up a little bit. 20 The -- one of the things I didn't do that I 21 probably could have done on the Federal Order 5 to Federal 22 Order 5, which is, again, looking at 303 roundtrip, or say 23 150 one way, I could have looked at, okay, how -- you 24 know, what was that average local haul, say, back in 2008 25 compared to what the average local haul is today? I know 26 it's more because there's less farms and there's less 27 plants. So the farm, the milk that's left has to travel 28 further. And I -- you know, that would have been a good 8462 1 analysis to look at, I just didn't do that, but I know 2 that to be true. 3 Q. And you talked about how the costs are included, 4 both assembly and destination costs. 5 And so I think it's -- it's typical in these 6 orders, but I want to make sure it's clear, that these 7 routes have multiple -- all of them probably have multiple 8 stops in the route. It's not a one farm -- 9 A. With the exception of the middle scenario there, 10 which is -- 11 Q. That is one farm? 12 A. Yeah, that would be one farm. 13 Q. Okay. And does Maryland and Virginia own its own 14 fleet of trucks? 15 A. No. 16 Q. No. 17 So -- so when you talked about increasing the 18 average load size -- 19 A. Yes. 20 Q. -- that's increasing what's allowed on the road, 21 but then it's up to the hauler to make sure they have a 22 truck that would be -- 23 A. Absolutely. Yes. So that's not an easy task -- 24 (Court Reporter clarification.) 25 THE WITNESS: So is it my turn? 26 BY MS. TAYLOR: 27 Q. I think so. 28 A. Okay. Sorry about that. 8463 1 So, yes, we have about 30, 32 contract milk 2 haulers, and we do not own our trucks or trailers. So 3 this is all a negotiation to try to get them to buy larger 4 trailers and to, you know, move milk more efficiently and 5 that type of thing. It's -- you know, it's a little 6 harder convincing somebody sometimes to buy brand new when 7 they have got a fully depreciated trailer that works just 8 as well, you know. And so I'd like to -- probably if we 9 had our own trailers, we would have that even better than 10 that, but we -- we don't. So... 11 Q. Okay. All right. Turning to page 5. In your 12 bottom example of Landover and Frederick. I think the 13 model results came back that there would be $0.35 14 difference between the two locations where currently 15 there's only a $0.10 difference. And you talk in that 16 last sentence on the page that the $0.35 difference would 17 create an artificial competitive advantage of one 18 processor over another. 19 And I was wondering if you could expand on what 20 you mean by "artificial competitive advantage." 21 A. Sure. I guess I go back to my economic classes 22 but -- when I say that. So $0.35 per hundredweight is, 23 what, 2.5, maybe $0.03 per gallon difference, and if they 24 are competing for the same marketplace, and they are, 25 the -- we're using the Federal Order -- I'll just say it 26 that way. If this would get adopted, if the model would 27 get adopted as the Federal Order price, we would be using 28 the Federal Order as a vehicle to create a competitive 8464 1 advantage for one processor over another and -- that -- 2 that are currently serving the same marketplace. And to 3 me, that creates an artificial market that -- that gives 4 somebody an advantage over another, I guess that's what I 5 was getting at when I said that. 6 Q. And when you say "artificial" -- excuse me, they 7 compete in the same marketplace, you are talking about on 8 the sales side? 9 A. Yes. Yes. 10 Q. So we have talked a lot about the milk shed side. 11 I just want to -- 12 A. Yes. I'm sorry. I'm talking about the sales 13 side. 14 Q. Okay. Let's see. On your last page -- well, two 15 questions. 16 One, there was some discussion of the 17 transportation credit provisions down in the Southeast 18 area. And I have asked questions of other witnesses on 19 that, but I wanted to ask another question that I don't 20 think that's come up. 21 The way it's set up, current ones, and the way 22 that the proposed ones, I have no idea if they would be -- 23 continue to be recommended or adopted, but let's say if 24 they are, but as proposed, do they net out any 25 differential gain? Does it account for the fact that 26 there's maybe a gain in differentials in moving some of 27 that milk? 28 A. So as I've looked at it, and looking at 8465 1 especially, again, using our example of Franklin County to 2 North Carolina, or you could even look at it from 3 Lancaster to North Carolina, with the new differentials, 4 because in the math equation, to do a transportation 5 credit calculation you have to subtract off the difference 6 between the differentials, the differential at the supply 7 point and the differential at the destination point. And 8 by increasing the curve and making a greater difference in 9 dollar amount between the differential at the supply and 10 the destination, which is what National Milk's proposal 11 is, that actually lowers the transportation credit. 12 So they -- they kind of, I don't know what the 13 right terminology is there, but it does -- it does, I 14 think, take that into consideration. So... 15 Q. Thank you. 16 A. Uh-huh. 17 Q. And then just a big picture thing. As I have read 18 your testimony and heard the cross and look at, you know, 19 particularly the guiding principles that you listed on the 20 last page, right? What I think I heard was, generally 21 right now milk is going where it needs to go? 22 A. Yes. 23 Q. But that's not because necessarily all the costs 24 are covered through the Federal Order program? 25 A. That's correct. 26 Q. And so your principle was to -- or the National 27 Milk principle, as you understood it, is to increase the 28 differentials to reflect some of that additional cost in 8466 1 your mind? 2 A. Yes. 3 Q. And -- and to the best extent possible, maintain 4 these current pricing relationships, but that wasn't -- 5 I'm trying to think of the word. You used the caveat, "as 6 much as possible." 7 A. Yes. 8 Q. I guess that's what I'm trying to point out. So 9 generally things are working, but you did need to tweak 10 some things in that. 11 And what I heard -- because there was some cross 12 on it, too -- was, yes, milk is going where it needs to 13 go, but that doesn't mean it's doing it because the 14 Federal Order differentials are making that happen? 15 A. That's right. That's right. 16 Q. Okay. 17 A. It helps to have a good year like 2022 in milk 18 prices, but to -- because of the subsidy that I was 19 talking about earlier. It makes the subsidy seem smaller, 20 but it's really not, you know, as we know. 21 Q. Okay. 22 MS. TAYLOR: That's it for AMS. Thank you. 23 THE WITNESS: Thank you. 24 THE COURT: Mr. John, was there anything else that 25 you wanted to clarify or expand on so that there's a good 26 understanding of what you presented with today's 27 testimony? 28 THE WITNESS: Not at this time. 8467 1 THE COURT: Thank you so much. 2 Ms. Hancock. 3 MS. HANCOCK: Thank you, Your Honor. 4 REDIRECT EXAMINATION 5 BY MS. HANCOCK: 6 Q. Mr. John, just a couple of brief follow-ups. 7 We talked earlier about the costs in -- of the -- 8 procuring milk related to the additional requirements 9 beyond the Grade A standards. 10 A. Yes. 11 Q. And then we talked about balance, also the work 12 that you do in balancing the milk that you have. And I 13 forgot to ask you about the costs that were associated 14 with balancing that milk. 15 Did you calculate that by any chance? 16 A. Yes. Yes, we did. We said that that was another 17 $0.60. 18 Q. Okay. On top of the other costs that we have 19 already discussed? 20 A. Yes. So if you add the two, the two Grade A plus 21 and the extra balancing, we would say that those added 22 together would be a minimum of $1.20. 23 Q. Okay. And can you just give me some understanding 24 about what is included in that $0.60 cost? 25 A. On the balancing side? 26 Q. On the balancing side. 27 A. So, again, you have your normal -- you have your 28 normal balancing -- what we call normal, maybe it's not 8468 1 normal to anybody else -- but you have seasonal balancing 2 with schools. And schools are not just, you know, in 3 season. You also have, then, holidays, and the push and 4 pull on the flow of milk that that creates in the 5 holidays. 6 You also have, as I have stated earlier, you have 7 different differences in the days of the week. You will 8 have a higher draw, especially on a Tuesday, Wednesday, 9 Thursday, than you would over the weekend. You have 10 Class I plants that don't receive milk evenly all seven 11 days of the week. 12 And then, as I shared earlier with 13 ultra-pasteurized plants that we serve, and we serve quite 14 a few, they are all -- they all have nondairy in their 15 plants, and that creates additional challenges as they 16 deal with those customers. Some can be very demanding, 17 and that can -- that can change pretty much on a weekly 18 basis with us, where maybe they take 20 loads a day this 19 week, and next week they are down to 15 loads a day, and 20 just because of the requirements that nondairy customers 21 put on them. 22 Q. Okay. Thank you for that. 23 And then one more follow-up. You -- in talking 24 with Mr. English, you were talking about price alignments 25 and looking to create some relativities as you were 26 looking at the map. And he asked you if that was the 27 definition of orderly marketing, and I think that you 28 responded that yes, that -- that was. 8469 1 Do you recall that? 2 A. Yes. 3 Q. I'm just wondering if you could elaborate on that 4 a little bit. Because what I'm trying to figure out is, 5 are you saying that -- that that is the only way in which 6 you believe that an orderly market condition could occur 7 is if you created the same alignments that currently exist 8 with -- with whatever is being proposed to the USDA now? 9 A. No. No. And I think you have to look at -- you 10 have to look at the -- you know, the whole picture, not 11 just one aspect of it. 12 And, again, like I was sharing earlier, if we look 13 at the -- specifically with differentials, if you look at 14 the increase in differentials in Federal Order 1, our 15 group was right in the $1.60 or $1.65 to $1.70 range 16 pretty much. And when we went down to Order 5, we tried 17 to keep that range of increase about the same again, so 18 that we didn't have too much of a big gap between, really, 19 the Federal Order 1 area and the Federal Order 5 area, 20 creating some kind of a weird market situation. So that's 21 why we -- the group worked on trying to keep that in that 22 $1.80 to $2.00 range. 23 So that's another aspect to try and keep things -- 24 trying to keep that increase, you know, reasonable between 25 what I'll call between geographical regions. So that's -- 26 that's outside of even looking from a customer standpoint 27 and all that. 28 So there's other aspects that went into it to try 8470 1 to keep things as orderly as we possibly could. So... 2 Q. Okay. Thank you for that clarification. 3 MS. HANCOCK: Your Honor, at this time we would 4 move to admit Exhibit 359 into evidence. 5 THE COURT: Is there any objection? 6 There is none. Exhibit 359, also marked as 7 NMPF-41, is admitted into evidence. 8 (Thereafter, Exhibit Number 359 was received 9 into evidence.) 10 THE COURT: Thank you so much, Mr. John. You may 11 step down. 12 A document's being distributed. Let's go off 13 record. 14 (An off-the-record discussion took place.) 15 THE COURT: Let's go back on record. 16 We're back on record at 11:39. 17 MS. HANCOCK: Thank you, Your Honor. We have 18 Skylar Ryll as our next witness. 19 THE COURT: Thank you. 20 MS. HANCOCK: And we have -- I believe that we 21 have six exhibits that we'll mark in support of her 22 testimony, the first one being Exhibit NMPF-42. 23 THE COURT: 42, so that will be Exhibit 360. 24 (Thereafter, Exhibit Number 360 was marked 25 for identification.) 26 MS. HANCOCK: And then we have Exhibit 42A, 27 National Milk Producers Federation-42A. 28 THE COURT: All right. That will be 361, 8471 1 Exhibit 361. 2 (Thereafter, Exhibit Number 361 was marked 3 for identification.) 4 MS. HANCOCK: Then we have Exhibit NMPF-42B, like 5 boy. That's Exhibit 362? 6 THE COURT: Yes. 7 (Thereafter, Exhibit Number 362 was marked 8 for identification.) 9 MS. HANCOCK: Exhibit NMPF-42C, like cat, we'll do 10 363. 11 THE COURT: Yes. 12 (Thereafter, Exhibit Number 363 was marked 13 for identification.) 14 MS. HANCOCK: Exhibit NMPF-42D, as in David, we'll 15 do Exhibit 364. 16 (Thereafter, Exhibit Number 364 was marked 17 for identification.) 18 MS. HANCOCK: And then finally, Exhibit NMPF-42E, 19 as in Edward, we'll do Exhibit 365. 20 (Thereafter, Exhibit Number 365 was marked 21 for identification.) 22 THE COURT: All right. Good. 23 Would you state and spell your name? 24 THE WITNESS: Skylar Ryll, S-K-Y-L-A-R, R-Y-L-L. 25 THE COURT: Have you previously testified in this 26 proceeding? 27 THE WITNESS: No. 28 THE COURT: I'd like to swear you in. 8472 1 SKYLAR RYLL, 2 Being first duly sworn, was examined and 3 testified as follows: 4 DIRECT EXAMINATION 5 BY MS. HANCOCK: 6 Q. Good morning, Ms. Ryll. Did you prepare exhibit 7 NMPF-42 that we have marked as Exhibit 360 as your written 8 testimony that you are prepared to give today? 9 A. I did. 10 Q. And then we have marked your attachments for -- as 11 Exhibits 361, 362, 363, 364, and 365. 12 You will be talking about those exhibits 13 throughout the course of your testimony; is that right? 14 A. Correct. 15 Q. Would you provide your statement in Exhibit 360, 16 please. 17 THE COURT: But before you begin, let's go off 18 record just a moment. 19 (An off-the-record discussion took place.) 20 THE COURT: We're back on record at 11:42, and I 21 have before me the documents that were just identified and 22 marked. 23 And you may proceed. 24 THE WITNESS: Thank you for having me today and 25 having this hearing. I am Skylar Ryll, the assistant vice 26 president of milk marketing operations for Dairy Farmers 27 of America's Northeast area based in East Syracuse, New 28 York, and have been employed with the cooperative for over 8473 1 13 years. 2 During this time I have been focused on milk 3 marketing, transportation, analytics, and overall 4 operations of DFA in two specific geographic regions: The 5 Western area covering California and Nevada, and the 6 Northeast area covering 13 states from Maryland to Maine. 7 I earned my bachelor of science from Cornell 8 University, majoring in animal science with a focus on 9 agribusiness, and I also hold a master of business 10 administration from Syracuse University. Prior to college 11 I showed registered dairy cattle around New England and 12 worked on a dairy farm in New Hampshire. 13 DFA is a global milk marketing cooperative that 14 includes membership and operations within the Northeast 15 region of the United States. 16 MS. HANCOCK: I'm going to interrupt just a 17 moment. If you just would read just a little bit slower 18 just so -- 19 THE WITNESS: Sorry. 20 MS. HANCOCK: -- we can make sure we save our 21 court reporter. 22 THE COURT: And also, would you just twist the mic 23 a little -- no, the base of it a little, so it's pointed 24 more toward where your mouth is. I think that would be 25 perfect. 26 THE WITNESS: During 2022, DFA had 2,437 27 farmer-owners within its Northeast area and marketed 28 approximately 12.3 billion pounds annually, with the 8474 1 majority pooled on Federal Order 1. Roughly 20% of our 2 farmer-owner milk is picked up and delivered across the 3 region by DFA's transportation fleet, DFA Northeast 4 Logistics. Additionally, DFA owns and operates 14 dairy 5 manufacturing facilities within the Northeast area that 6 receive raw milk to make a variety of products, including, 7 but not limited to, HTST and ESL fluid milk, and milk 8 products, cream, condensed skim, nonfat dry milk, and 9 whole milk powder. 10 The facilities operate as pool distributing 11 plants, pool supply unit plants, pool supply system 12 plants, and partially-regulated plants within Federal 13 Order 1. This facility count does not include DFA's 14 facilities located in Sharpsville and New Wilmington, 15 Pennsylvania, as they are outside of DFA's Northeast area 16 which does not include the western portion of 17 Pennsylvania, as it is part of DFA's Mideast Area. 18 Additionally, there are several other plants that operate 19 within the Northeast that do not receive raw milk but do 20 receive milk components to make coffee beverages, ice 21 cream, and specialty concentrates. 22 Today I am testifying in support of Proposal 19 as 23 submitted by NMPF as included in the hearing announcement. 24 The proposal requests updates to the Class I differential 25 pricing surface based upon changing dynamics relative to 26 the increased cost of hauling milk, location changes of 27 farms and fluid milk processing, and overall increases in 28 cost of production. 8475 1 My colleague, Jeff Sims, provided a recap of the 2 process that was used to determine the appropriate Class I 3 differentials to include within the proposal. The process 4 utilized work done by Dr. Mark Stephenson and Dr. Chuck 5 Nicholson from the University of Wisconsin, assessing milk 6 from supply points to processing plants and then moving 7 finished dairy products to demand points known as the 8 USDSS model. This work was then assessed by many national 9 and regional milk marketing experts from around the 10 country, like me, who then applied practical knowledge 11 about milk movements to determine the ultimate 12 differentials that were proposed. 13 In the following testimony I will provide 14 additional commentary about how the Northeast region of 15 stakeholders determined the appropriate differentials 16 within our region and share key contributing factors that 17 signify an adjustment is necessary. 18 The Northeast stakeholders is comprised of 19 representatives from Agri-Mark Dairy Cooperative, DFA, 20 Land O'Lakes, Inc., Maryland and Virginia Milk Producers 21 Cooperative Association, Inc., and Upstate Niagara 22 Cooperative, Inc. 23 In addition to my own testimony, other milk 24 marketing experts from some of these cooperatives will be 25 providing testimony supporting the proposal for specific 26 regions in milk movements within the Northeast. 27 Additional testimony supporting the Northeast region will 28 be provided by Scott Werme from Agri-Mark Dairy 8476 1 Cooperative and Mike John from Maryland and Virginia, who 2 you just heard from. 3 Many dynamics have impacted the need to update the 4 Class I differential pricing surface across the country, 5 and the changes within the Northeastern states provide 6 some clear examples of these systemic shifts within the 7 industry since 2000. 8 Milk production has changed across all states 9 within the Northeast since 2000. States that represent 10 the Northeast are the states of Connecticut, Delaware, 11 Maine, Maryland, Massachusetts, New Hampshire, New Jersey, 12 New York, Pennsylvania, Rhode Island, Vermont, and 13 Virginia. According to the USDA, all but one of the 14 states within the Northeast decreased milk production from 15 2000 to 2022, as shown in Table 1 and Map 1. 16 The decreases seen across the 11 states of 17 Connecticut, Delaware, Maine, Maryland, Massachusetts, New 18 Hampshire, New Jersey, Pennsylvania, Rhode Island, 19 Vermont, and Virginia amounted to 3.043 billion pounds per 20 year of milk from 2000 to 2022. Growth in milk production 21 in New York more than compensated for the combined loss in 22 these states with growth of 3.739 billion pounds per year 23 from 2000 to 2022. Overall milk production grew by 24 696 million pounds, or 2.2%, from 2000 to 2022, led by the 25 growth within the state of New York. 26 It is important to note that along with 27 significant changes in milk production across the 28 Northeast states, there was also a transformation in the 8477 1 resident population in each state impacting the number of 2 potential dairy consumers and changing the landscape for 3 how farm milk and processed packaged milk is moved to meet 4 consumer demand. 5 Total resident population across the area grew by 6 almost 6.1 million people, or 9.1%, from 2000 to 2022, as 7 seen in Table 2 below. The states with the most 8 population growth from 2000 to 2022 were Maryland, New 9 Jersey, Pennsylvania, and Virginia. These four states 10 correlate with some of the highest milk production 11 declines seen within the Northeast region with declines of 12 509 million pounds, 157 million pounds, 1,207 million 13 pounds, and 476 million pounds, respectively. This 14 indicates that milk production is decreasing in regions 15 where the resident population is increasing in the 16 Northeast. 17 In addition to the noted changes in resident 18 population, it's also important to look at how the per 19 capita consumption of milk beverages, along with milk 20 production, has changed by Northeastern states. The U.S. 21 per capita sales of fluid milk products averaged 22 approximately 197 pounds in the year 2000. By the year 23 2022, this volume decreased 67 pounds to approximately 24 30 pounds per person. 25 THE COURT: Let me stop you there. Approximately 26 what? 27 THE WITNESS: 130 pounds per person. 28 THE COURT: All right. And while I have you 8478 1 stopped, above, the three sentences -- or two sentences 2 that you just read on page 5 is Table 2. Would you just 3 tell us what table that is by its title and its source? 4 THE WITNESS: So the Table 2 is Resident 5 Population in Northeast States, and the source is the 6 United States Census Bureau. 7 THE COURT: Thank you. You may resume. 8 THE WITNESS: These figures were calculated by 9 dividing the sum of the total -- or the monthly total 10 fluid milk products from the USDA AMS' estimated fluid 11 milk sales page by the sum of U.S. Census Bureau resident 12 population for each U.S. state and Washington D.C. for the 13 years 2000 and 2022. 14 Although there has been an overall decline in 15 consumption per person, some states have seen a rapid 16 increase in the percentage of milk that needs to be 17 brought in from out of state to meet consumer demand for 18 milk beverage due to changes in resident population and 19 milk production. This has resulted in increased 20 transportation costs to bring milk supplies to these milk 21 deficit regions for processing, and ultimately for 22 consumer consumption. 23 To show these trends, DFA has estimated the total 24 pounds of milk beverage required to meet demand per state 25 by taking the state population multiplied by the 26 calculated national per capita milk beverage demand, as 27 state level data is not currently available for milk 28 beverage demand. After milk beverage demand by state has 8479 1 been estimated, it is then divided by the state milk 2 production to determine the beverage demand compared to 3 milk production. 4 Table 3 demonstrates these calculations for 2000 5 and 2022 in the Northeastern states and included in 6 Appendix 1 is a complete listing of the states in which 7 this calculation was performed. The data shows how the 8 percentage of beverage demand in each state has changed 9 relative to milk production. 10 As you can see, during both 2000 and 2022, the 11 five Northeast states of Rhode Island, New Jersey, 12 Massachusetts, Delaware, and Connecticut required more 13 milk for consumer demand than is produced within the 14 state, making them milk deficit states. However, four of 15 these five states saw rapid increases in their reliance on 16 out-of-state milk production to satisfy estimated consumer 17 demand from 2000 to 2022. In fact, most Northeast states 18 increased their beverage demand compared to milk 19 production percentage from 2000 to 2022. And by looking 20 at the full list within Appendix 1, some of the states 21 within the Northeast are some of the most milk deficit 22 states in the U.S., matching or exceeding the deficit of 23 most of the Southeastern states. 24 Along with shifts in milk production and resident 25 population within the Northeast, changes in the 26 manufacturing footprint for both Class I and manufacturing 27 classes of milk from 2000 to 2022 have also occurred. 28 When comparing the Federal Order 1 monthly statistical 8480 1 report for the months of December 2001 and December 2022, 2 the number of pool distributing plants operating within 3 Federal Order 1 decreased from the total of 63 to 49 due 4 to industry consolidation and plant closures. 5 Additionally, there has been a shift in the geographic 6 region in which milk has been processed. This can be seen 7 by reviewing Federal Order 1 data representing receipts of 8 producer milk by plant location differential at which 9 priced. 10 Below, in Table 4, is data derived from the same 11 Federal Order 1 monthly statistical reports as noted above 12 for the months of December 2001 and December 2022, and it 13 shows the milk processed within each differential range by 14 class. The data demonstrates a significant decrease in 15 Class I milk processed within the $3.00 and above zones. 16 The decrease, amounting to approximately 284 million 17 pounds of milk from December 2001 to December 2022, can 18 mostly be attributed to the loss of production capacity in 19 the representative zones, along with decreases in Class I 20 utilization as a percentage of the market total. 21 Examples of lost Class I production capacity 22 within the $3.00 and above zones include the closures of 23 Sunnydale Farms in Brooklyn, New York, during 2005; Tuscan 24 Dairy in Union, New Jersey, during 2005; Farmland Dairies 25 in Wallington, New Jersey, during 2013; Elmhurst Dairy in 26 Jamaica, New York, during 2001 -- or, sorry, excuse me -- 27 2016; and Readington Farms in Whitehouse, New Jersey, 28 during 2022. 8481 1 THE COURT: Now, that's Whitehouse Station? 2 THE WITNESS: Correct. 3 THE COURT: And would you spell Readington? 4 THE WITNESS: R-E-A-D-I-N-G-T-O-N. 5 THE COURT: Thank you. 6 THE WITNESS: These areas are representative of 7 generally more urban areas along the eastern side of the 8 Northeast region. 9 Along with the changes in the locations in which 10 Class I milk is processed, there have also been some 11 significant changes in volumes and regions where other 12 manufacturing classes of milk are processed. When looking 13 at Class II demand across Federal Order 1 in December of 14 2001, processing volumes are relatively evenly distributed 15 across all the zones within the order. When looking at 16 the same utilization during December 2022, not only has 17 the overall demand for Class II milk increased in the 18 region, but there has also been a considerable increase of 19 volume processed within the $2.55 and below zones, 20 increasing by approximately 175 million pounds from 21 December 2001 to December 2022. 22 Additionally, growth in Class III volumes in 23 Federal Order 1 from December 2001 to December 2022, 24 increasing by approximately 48 million pounds, is 25 apparent. The growth has primarily attributed -- was 26 primarily attributed to regions in zones $2.70 and below 27 representing fewer urban areas in the Northeast geography. 28 It is evident there have been significant changes 8482 1 in the way milk must be moved within the Northeast region 2 to service the demand within each zone. As the relative 3 volume of Class I processing has decreased in the $3.00 4 and above zones, but with some demand still existing 5 within those zones, and as growth in Class II and III has 6 primarily been in $2.70 and below zones -- 7 THE COURT: So $2.70 and below zones. 8 THE WITNESS: Yep. 9 THE COURT: Okay. 10 THE WITNESS: -- local milk supplies are being 11 utilized to fulfill Class II and III demand, while Class I 12 milk supplies must travel further today at a higher cost 13 per mile than before. 14 Though it is likely there is less mileage 15 associated with servicing plants where the primary growth 16 has occurred for Class II and III due to proximity to milk 17 supply, there has been higher costs associated with 18 transportation than there were in 2000 for a variety of 19 reasons. 20 In summary, the Northeast milk market has changed 21 in significant ways since 2000. Any changes with the 22 Class I price surface should be taking the changes that 23 have been explained with milk production, resident 24 population, and the manufacturing footprint into 25 consideration. 26 THE COURT: Ms. Ryll, let me interrupt you for 27 just a moment. You have just completed page 8, and it's 28 12 noon. 8483 1 Do we break for lunch now or do we let her keep 2 working? 3 So Mr. English would prefer to we go to 12:30, if 4 possible. Would that work with everyone? 5 Ms. Ryll, this is a remarkable production, and you 6 are presenting it beautifully, so they want another half 7 hour. You may proceed. 8 THE WITNESS: Thank you. I appreciate that. All 9 right. 10 As a cooperative with investment in hauling assets 11 since 2002, DFA has tracked costs associated with 12 maintaining a fleet for the purpose of transporting raw 13 milk from the farm to the processing location. These 14 costs include the purchase of physical assets, including 15 trucks, trailers, and tires, as well as the cost 16 associated with labor, insurance, and fuel. 17 Table 5 shows the hauling costs that DFA has 18 experienced since 2002. When looking at DFA specific 19 transportation assets located in the New England region 20 since 2003, the cost to purchase a day cab truck has 21 increased $84,287, or 104%, and the cost to purchase a 22 7500-gallon, two-compartment trailer has increased 23 $112,286 per trailer, or 224%. 24 THE COURT: So what is that dollar amount per 25 trailer? 26 THE WITNESS: $112,586. 27 THE COURT: Thank you. 28 THE WITNESS: To maintain an adequate pool of 8484 1 drivers and to keep up with changes in minimum wage across 2 the country, labor rates have needed to increase roughly 3 $17.50 per hour, or 104%, since 2005. 4 THE COURT: What percent? 5 THE WITNESS: 140. Thank you. 6 THE COURT: Thank you. 7 THE WITNESS: Additionally, the equipment has 8 escalated in price, and insurance companies have assessed 9 the industry -- industry's risk differently. The cost to 10 insure a fleet has also increased dramatically. This cost 11 has increased approximately 39% from 2005 to 2023. 12 Lastly, fuel cost remains a key contributor to the 13 cost associated with the transportation fleet. From 2002 14 to 2022, the yearly average price per gallon of fuel in 15 the New England and Central Atlantic regions in which DFA 16 operates in have increased by $3.87 and $3.95 per gallon, 17 respectively. 18 In addition to costs associated with owning and 19 managing a fleet, to manage -- and managing a fleet to 20 transport milk from the farm to the processing plant, 21 there are other factors that contribute to increased 22 costs. 23 One factor, as highlighted within Farm Credit 24 East's February 2023 publication titled "Challenges in 25 Northeast Milk Transportation," is weight limits between 26 states. Today, there are not consistent laws within the 27 Northeast states that allow for the same weights to be 28 carried on trucks and trailers. As the report cites, 8485 1 truck technology has significantly improved in recent 2 years and today's trucks can safely carry more weight than 3 in the past. 4 However, many laws have not kept pace with these 5 improvements. With some Northeast states not allowing for 6 heavier loads to take advantage of the new technology with 7 or without a permit, efficiency of milk movement across 8 the region is impacted. As many loads travel across state 9 lines, not being able to take advantage of increased 10 weight capacities decreases efficiencies in the supply 11 chain and increases costs. 12 All of these factors lead to an increased cost per 13 hundredweight paid by dairy farmers in the region to 14 transport milk from the farm to the processing location. 15 According to a 2000 dairy farm management business summary 16 of New York State from Cornell University, the average 17 cost of hauling and co-op dues charged across 74 farms in 18 New York State was $0.59 per hundredweight in 2000. 19 15 years later, the same publication refreshed their data 20 for the year 2015 with 132 farms in New York State, and 21 the average cost of hauling and co-op dues increased to 22 $0.80 per hundredweight. This represented a 35% increase. 23 The 2021 Dairy Farm Business Summary published by 24 Farm Credit East stated that the average trucking 25 marketing cost per hundredweight was $1.29 per 26 hundredweight across all farms within the summary. 27 Assuming these costs from 2000 to 2001 correlate with 28 similar factors included -- 8486 1 THE COURT: Let me stop you and have you start 2 that sentence again, please. 3 THE WITNESS: Assuming these costs from 2000 to 4 2021 correlate with similar factors included, this would 5 represent an average increase in costs of $0.70 per 6 hundredweight in transportation costs paid by dairy 7 farmers in the Northeast region. 8 THE COURT: Now, we're on page 10, and we have 9 completed two-thirds of that page. I'm going to stop and 10 take us off record just for two minutes to stretch. 11 So we're off record at 12:07. 12 (An off-the-record discussion took place.) 13 THE COURT: Let's go back on record. 14 We're back on record at 12:09. We're now 15 beginning a new category near the bottom of page 10. 16 THE WITNESS: All the factors stated previously 17 impacted how the Northeast working group established the 18 proposed Class I differential pricing surface within our 19 region. To begin the process, the group utilized the 20 University of Wisconsin model and took the average of the 21 model's output for May and October 2021 to smooth any 22 variability in the model's results that would have 23 represented high transportation costs for a specific month 24 or changes in supply and consumption between the spring 25 and fall months. 26 When using the average between the two outputs, 27 the average increase in differential values across the 28 Northeast was $1.78 per hundredweight compared to the 8487 1 current Class I differentials. The next step in the 2 process was to compare the average values from the model 3 to the current county differentials to see any counties 4 that needed to be adjusted from the model average based on 5 the anchor city of Winchester, Virginia, actual milk 6 movements, historical zone differences, or any potential 7 for disorderly marketing based on current or future plant 8 locations. 9 An anchor city refers to a city that was selected 10 during the initial process, as described by Jeff Sims, to 11 establish the relative level from which regional subgroups 12 could branch out and discuss increasing or decreasing the 13 USDSS-generated Class I differential values using 14 knowledge of local challenges and specifics. The 15 Northeast working group used the closest in proximity 16 anchor city, Winchester, Virginia, as the model average 17 value of $4.50 per hundredweight, for the county in which 18 it is located, Frederick County, Virginia, which is $1.70 19 higher than the current differential of $2.80 per 20 hundredweight, to determine the proposed differentials for 21 the remainder of the region. 22 By utilizing Winchester, Virginia, as the anchor 23 city, the Northeast working group moved through the 24 remainder of the region by looking at historical 25 differential relationships from the anchor city, along 26 with how the model's results related in the surrounding 27 counties to the anchor city. 28 Ultimately, the group proposed differentials for 8488 1 all counties within our region that were very much in line 2 with the May and October '21 model average, resulting in 3 an average differential higher than the model suggested by 4 $0.01 per hundredweight. Only 24 out of 274 counties 5 within our proposal for the Northeast represented values 6 higher than the October 2021 model, which included higher 7 costs than May 2021. This variance is primarily due to 8 historical milk movements in these counties, and most will 9 be explained in further detail within this testimony and 10 within others that are providing additional supporting 11 testimony. 12 For context surrounding why Winchester, Virginia, 13 was important to use as an anchor city, and how its values 14 are then used as a basis for the remainder of the 15 Northeast region, it is important to understand the city's 16 relationship with the Southeast Milk markets and then with 17 the Northeast milk markets. 18 Winchester, Virginia, represents the southern edge 19 of the Northeast milk marketing area and abuts to the 20 Southern milk marketing areas. Because of its proximity 21 to both areas, it is important for the milk that is being 22 delivered to Winchester, Virginia, to be priced 23 appropriately as to not give an advantage or disadvantage 24 to one order or another. 25 If values have not -- had not been competitive for 26 deliveries into Winchester, Virginia, compared to further 27 south delivery points, milk could deliver direct to 28 Federal Order 5 plants from Federal Order 1 to gain higher 8489 1 differentials and potentially leave Federal Order 1 plants 2 unfilled, resulting in disorderly milk marketing. 3 This practical application of making Winchester, 4 Virginia, relatively comparable to the Southeast region is 5 then extrapolated to the remainder of the Northeast to 6 ensure that Federal Order 1 milk -- Federal Order 1 milk 7 maintains deliveries in the Federal Order 1 plants to 8 support the infrastructure investments within the region 9 without providing a disproportionate advantage to move 10 milk to other Federal Orders. 11 Below, within Table 6, are select counties 12 throughout the Northeast region that have important 13 manufacturing facilities that operate within Federal 14 Order 1 and/or surrounding orders. When looking at the 15 data within the table for these select 49 counties, the 16 average difference between the proposed differentials and 17 the average of the study is approximately $0.03 per 18 hundredweight. This signifies that the proposed 19 differentials align very well with the average of the 20 University of Wisconsin's model. 21 THE COURT: Now, you have just completed page 12. 22 THE WITNESS: Yep. 23 THE COURT: Tell me what's on page 13. 24 THE WITNESS: So page 13 is Table 6 with the 25 proposed differentials compared to the study results for 26 select counties within the Northeast regions. So 27 essentially it's a comparison of the current differentials 28 with the study results, our proposed differentials, and 8490 1 then the difference between the proposals and the 2 averages. 3 THE COURT: Thank you. 4 THE WITNESS: And then on the next page is Map 2, 5 which represents the differentials that were proposed for 6 the entire Northeast region, including those that were 7 representative of in Table 6. So Map 2 is just a picture, 8 if you will, of those differentials on Table 6, plus 9 surrounding counties. 10 There were some instances where the group chose to 11 utilize their expertise on milk movements and historical 12 relationships with milk sheds to smooth out county 13 differentials to reduce negative impacts to dairy farmers 14 in Class I processing facilities. This would also help 15 prevent disorderly milk marketing and support meeting 16 Class I demand on a routine basis. 17 Some of the these instances include, but are not 18 limited to: The differentials within the state of Maine, 19 including the county containing Class I processing 20 facilities, Cumberland County; certain portions of 21 Maryland; certain portions of New Jersey; certain portions 22 of New York, including counties comprising the western, 23 central, and northern portions of the state; certain 24 portions of Pennsylvania; and certain portions of Vermont. 25 Within our proposal there are specific regions 26 within New York that move away from the current 27 differential pattern, including in Western and Central New 28 York. In general, the proposal suggests flatter 8491 1 differentials in Western New York and more alignment with 2 Western Pennsylvania differentials. This proposal adjusts 3 the differentials for changes in manufacturing assets, 4 Class I utilization, and milk movement dynamics in the 5 region that have occurred since 2000. 6 At the time of Federal Order Reform, the New York 7 counties of Erie and Genesee had significant manufacturing 8 plant capacity with some Class I facilities that serviced 9 the Buffalo and Rochester markets. Since then, there's 10 been significant expansion in Class I processing in both 11 counties with more expansion that has been recently 12 announced by Empire State Development in Genesee County. 13 Some of this expansion can be seen in Table 4 above, which 14 demonstrates the changes in Class I receipts by plant 15 location differential. In a class whose pounds continue 16 to decline in Federal Order 1, Table 4 shows an increase 17 of close to 50 million pounds per month of Class I milk 18 being pooled at location differentials of $2.35 and below, 19 which would primarily include the New York counties of 20 Erie and Genesee. 21 In addition to the Class I investment that has 22 already occurred in Western New York, a recent 23 announcement by New York State's Governor Hochul announced 24 plans for a new 5-million-pounds-per-day dairy beverage 25 facility with some assumed Class I production in Monroe 26 County, New York, to be completed in the coming years. 27 This plant is reportedly the largest in the Northeast and 28 will impact the demand for milk significantly in the 8492 1 coming years. 2 The Western New York marketplace has attracted 3 other manufacturing investments with more to be completed 4 soon. Since 2000, there has been Class II investment in 5 Genesee County. There is also a significant expansion in 6 Class III manufacturing underway just south of there in 7 Cattaraugus County in the coming year. 8 THE COURT: Would you spell Cattaraugus, please? 9 THE WITNESS: Sure can. C-A-T-T-A-R-A-U-G-U-S. 10 The Cattaraugus County manufacturing facility will 11 replace assets that are currently operating within 12 Allegany County, and according to the press release, the 13 new facility will double the milk consumption of the 14 existing plant. 15 Although these counties are next to each other and 16 the facilities will be less than 20 miles apart, in 17 today's differential structure, the counties would fall in 18 different zones. Within our proposal, Allegany and 19 Cattaraugus Counties have been requested to be at the same 20 zone differential due to this transition and ultimately be 21 at the same level as the remainder of Western New York and 22 Western Pennsylvania under the new proposed flattened 23 structure. This aligns considering that the milk supply 24 region for both delivery points will be the same, if not 25 extended, given the size and scope of the new Cattaraugus 26 County facility. 27 Regardless of the outcome of this hearing, it is 28 requested that a modification be made to align 8493 1 differentials between Allegany and Cattaraugus County to 2 reduce any disorderly marketing of milk within Western New 3 York that would negatively impact farms. 4 THE COURT: May I interrupt? We're on page 16, 5 and I'm looking at the top of the page. I see two 6 different spellings for Allegany. There's an H in the one 7 you most recently read, and I don't see it earlier on at 8 the top of the page. 9 THE WITNESS: I'm not sure of the proper spelling. 10 THE COURT: Okay. I think it's got an H, but I 11 don't -- I'm getting nods yes. An H does belong in there. 12 So the most recent word you read is correctly spelled. 13 Okay. Good. Thank you. 14 So now you are going on to a new paragraph. You 15 may proceed. 16 THE WITNESS: The way that the milk supply moves 17 to facilitate the demand within Western New York has 18 changed as the demand has changed. Previously, milk had 19 traditionally moved from east to west to fill demand 20 across New York State. Today, due to the investments in 21 milk supply/demand dynamics, milk is moving different 22 directions in Western New York to fill demand. While some 23 is staying local or making those same west-to-east 24 movements to fill demand in Central New York, on any given 25 day, milk is also moving from more eastern counties, for 26 example, Livingston and Ontario, to fill demand in Genesee 27 and Erie Counties. 28 Additionally, milk moves routinely north to south 8494 1 from the Western New York counties of Cattaraugus, 2 Chautauqua, Allegany, Steuben, and Wyoming to fill demand 3 in Western Pennsylvania. These milk movements indicate 4 that milk sheds are overlapping from multiple different 5 demand points for Western New York produced milk. Thus, a 6 flattened zone differential structure would create less 7 challenges when moving milk to meet demand. 8 It is important to take into consideration all of 9 these factors when looking at the Class I and producer 10 price surface in Western New York. Under Federal Order 11 Reform, it was necessary to have a lower price in the 12 Buffalo region (Erie County) to remain competitive with 13 Class I plants in Western Pennsylvania that had a lower 14 price. As Western Pennsylvania's differentials increase 15 with the current proposal, it makes sense to create a 16 flatter, common $4.00 zone in all Western New York and 17 Western Pennsylvania. This also eliminates the difference 18 between the Buffalo region (Erie County) and Rochester 19 (Monroe County) markets. This creates a level playing 20 field from milk costs from the common supply area moving 21 in different directions. 22 Another item for consideration surrounding the 23 Western New York differentials and the request to flatten 24 them compared to Western Pennsylvania is the need to align 25 blend prices. Due to the overlapping milk sheds competing 26 for farm milk between these two regions, alignment is 27 necessary to not cause uneconomic milk movement in unequal 28 raw product cost for processors. This is a difficult job 8495 1 to do when taking into consideration the different Federal 2 Orders, 1 and 33, and the differing utilizations in 3 pricing. Today, plants in Western Pennsylvania are in the 4 $2.10 zone, but further east in Western New York the 5 current differential reaches as high as $2.30. 6 Historically, the uniform price difference 7 between -- when comparing the producer price 8 differentials, PPDs, has shown that over time the PPDs 9 have often been higher in Order 33. This is due to a 10 variety of factors, including higher average Class I 11 utilization in that order and relative values of Class II, 12 III, and IV prices. The difference between the Federal 13 Order 1 and Federal Order 33 uniform blends at a $2 zone 14 has averaged a negative $0.21 per hundredweight over the 15 period between 2010 and July 2023. 16 To underscore the need for a flattened zone and 17 aligned blend prices between Order 1 and Order 33, milk 18 from Western New York counties is already servicing 19 Order 33, as demonstrated in the maps included in USDA 20 Exhibit 58 for Federal Order 1 and Federal Order 33. 21 There is potential for misalignment between the 22 orders if Western New York's final differentials relative 23 to Western Pennsylvania's are lower than the proposed. 24 The working group gave careful consideration to blend 25 price alignment between Western Pennsylvania and Western 26 New York in an effort to not impact current market 27 dynamics between handlers and producers who face different 28 pooling access and producer prices between the orders. 8496 1 The milk marketed in the non-Federal Order area between 2 Order 1 and Order 33 has acted as a buffer, but state 3 regulation, whether by New York or Pennsylvania, is very 4 limited in the ability to solve potential misalignment. 5 Therefore, concern must be to provide pricing which does 6 not exacerbate the situation. 7 Moving east from Western New York to Central New 8 York, Onondaga and Madison Counties have been proposed at 9 $0.20 higher than the average model results and $0.20 10 higher than the flattened zone in Western New York. 11 THE COURT: May I interrupt? Would you spell 12 Onondaga. 13 THE WITNESS: Sure can. O-N-O-N-D-A-G-A. 14 THE COURT: Thank you. 15 THE WITNESS: Yeah. 16 This is to enhance the current relationship that 17 these counties have with Suffolk County, Massachusetts, as 18 well as other regions of New York. Currently, there is a 19 $0.75 spread between the counties, while in the proposal 20 there would be a $0.90 spread. The cost to transport from 21 Central New York to other regions, including New England 22 and New Jersey, continues to escalate and the proposal 23 reflects this increased cost. It was important to ensure 24 that sufficient zone is available to ensure these milk 25 movements going forward to fulfill demand with adequate 26 supply. 27 Another item relative to Central New York is a 28 relationship between Oneida and Madison Counties. The 8497 1 average model result suggested two different differentials 2 for these two counties, while the proposal requests these 3 counties to maintain the same differential as they have 4 today. Within these counties there are three primary 5 manufacturing facilities: One, a pool distributing plant; 6 one, a pool supply unit plant; and one, a pool supply 7 plant. Two of the three facilities are operated by the 8 same organization and are often looked at as a unit for 9 milk marketing purposes. As such, it would create 10 disorderly marketing if these plants were separated by 11 zones, as they are utilizing milk from the same supply 12 areas, and milk is often swapped between the two to 13 maintain an adequate operating supply. 14 Moving south from New York, the proposed 15 differentials for the state of New Jersey address some 16 transportation-related challenges associated with 17 servicing the New Jersey market. As demonstrated within 18 Table 3 above, New Jersey largely relies on out-of-state 19 milk production to fulfill consumer demand and typically 20 brings in milk supplies from surrounding regions like New 21 York and Pennsylvania to meet that need. 22 To transport milk into New Jersey from surrounding 23 states, there are cost factors that must be taken into 24 consideration. These factors include additional bridge 25 tolls when exiting the state and returning to New York or 26 Pennsylvania and decreased payload of trailers. An 27 example of a toll for a five-axle trailer crossing from 28 Burlington, New Jersey, to Bristol, Pennsylvania, is $30 8498 1 per trip, or approximately $0.06 per hundredweight on a 2 50,000-pound load of milk. 3 In addition to the tolls, there is a reduced 4 payload capacity of trailers traveling into New Jersey by 5 at least 15,000 pounds due to road weight restrictions 6 within the state. The reduction in payload reduces 7 overall efficiencies for hauling companies and, therefore, 8 increases costs while delivering into New Jersey. 9 Today, milk movement from Lancaster County, 10 Pennsylvania, to Philadelphia County, Pennsylvania, 11 maintain the same zone differential as milk movements from 12 Lancaster County, Pennsylvania, to Burlington County, New 13 Jersey. However, as just described, there is additional 14 costs to service the New Jersey destination. 15 To acknowledge the cost factors at play to service 16 New Jersey from Southeast Pennsylvania, the working group 17 built in a $0.10 per hundredweight difference between 18 Southeastern Pennsylvania counties compared to Southern 19 New Jersey, instead of maintaining the same spread as the 20 current differentials. 21 To provide further detail and perspective on some 22 of the other regions previously mentioned, representatives 23 from Agri-Mark Dairy Cooperative and Maryland and Virginia 24 Milk Producers Cooperative Association will provide 25 testimony with further detail on specific reasons for 26 these movements away from the model results to better 27 align with the practical challenges of marketing milk in 28 the areas. Agri-Mark will provide specific testimony to 8499 1 the state of Maine, Northern Vermont, and Northern New 2 York. Additionally, Maryland and Virginia, which they 3 already provided, will provide testimony specific to 4 certain portions of Pennsylvania, Maryland, and how the 5 Northeast would work to align with the Mideast region to 6 smooth differentials where our regions intersected. 7 Thank you for your time today. 8 THE COURT: Wow. 9 THE WITNESS: That's how I feel. 10 THE COURT: That was magnificent. 11 THE WITNESS: Thank you. 12 THE COURT: Let me see what time it is. 13 And timing, does anyone object to our breaking for 14 lunch? 15 No. Please be back at 1:35. 16 We go off record at 12:33. 17 (Whereupon, the lunch recess was taken.) 18 19 ---o0o--- 20 21 22 23 24 25 26 27 28 8500 1 TUESDAY, NOVEMBER 28, 2023 - - AFTERNOON SESSION 2 THE COURT: Let's go back on record. 3 We're back on record at 1:35. 4 Ms. Hancock. 5 MS. HANCOCK: Thank you, Your Honor. 6 BY MS. HANCOCK: 7 Q. Ms. Ryll, if you would take a look at your 8 testimony in Exhibit 360, I want to make sure that we have 9 cross-referenced the additional exhibits that you have. 10 So if we could turn to page 7 of your testimony, 11 and you have a Table 4 there that references December of 12 2001 and December of 2022, Receipts of Producer Milk By 13 Plant Location Differential at which Priced. 14 Do you see that? 15 A. Correct. Yes. 16 Q. Does that correspond -- Table 4, does that 17 correspond to Exhibits 361 and 362? 18 A. It does. 19 Q. And so 361 and 362, that's the source of the data 20 that you used to create those tables? 21 A. Correct. 22 Q. If we turn to page -- turn to page 15. 23 You have a section here under that heading titled 24 "Western/Central New York and New Jersey changes," where 25 you talk about different changes in that -- in that 26 region. 27 Is that a fair characterization of that section? 28 A. Yes, it is. 8501 1 Q. And the first one that -- or one of the ones that 2 you have talked about begins about halfway into that 3 paragraph where you say, "Since then there's been 4 significant expansion in Class I processing in both 5 counties, with more expansion that's been recently 6 announced by Empire State Development in Genesee County." 7 Do you see that? 8 A. I do. 9 Q. And is that supported by what you have in 10 Exhibit 363? 11 A. Yes, it is. 12 Q. And then, in that same paragraph, if we go on, you 13 reference a recent announcement by New York State's 14 Governor -- how do you pronounce it? 15 A. Hochul. 16 Q. Hochul. Announced plans for a new 5 million 17 pounds per dairy (sic) beverage facility. 18 Is that what you have referenced in Exhibit 364? 19 A. It is. 20 Q. So 363 was the Hood expansion? 21 A. Correct. 22 Q. And 364, this is the Fairlife expansion? 23 A. Correct. 24 Q. Okay. And then if you go to the next paragraph, 25 you also talk about a Class III manufacturing facility 26 that's being expanded in Cattaraugus County? 27 A. Cattaraugus. 28 Q. Cattaraugus. 8502 1 Is that -- is that what you have included as 2 Exhibit 365 to your testimony? 3 A. That's correct. 4 Q. That's for Great Lakes Cheese? 5 A. Correct. 6 Q. And how many -- well, tell me about the fluid milk 7 markets that you supply. We talked about, with some other 8 witnesses, some of the -- of the quality standards that 9 were required by their customers. 10 Do you have similar experiences where for your 11 fluid milk that you also have quality standards that are 12 set by your consumers -- or your customers? 13 A. We do. 14 Q. And can you tell me what those are? 15 A. Most of them are focused around temperature and 16 PI, where they are looking for, I guess, higher standards 17 than what would be within the regular PMO standards. 18 Q. And Mr. John called them Grade A plus. 19 Is that how you refer to them as well? 20 A. Yes, that's one representation. I don't know if I 21 have ever put a term to it. But, yes. 22 Q. Okay. Is it fair to say that the quality 23 standards for temperature and PI are something in excess 24 of the PMO's Grade A standards? 25 A. Yes, I would agree with that. 26 Q. So -- and that's what your customers require in 27 order for you to sell them fluid milk? 28 A. Some of them do, correct. 8503 1 Q. Do you know what percentage of your fluid milk 2 customers require something in excess of Grade A? 3 A. I don't. 4 Q. Is it an increasing number with time? 5 A. I would say it's probably become more common 6 practice to have greater standards than the PMO would 7 suggest. So I don't know if it's increasing or 8 decreasing, but it's just more common. 9 Q. And does that then become the standard by which 10 you have to procure your milk from your dairy farmers? 11 A. It is definitely one of the standards that we're 12 looking for. 13 Q. Okay. And then does that come at a higher cost 14 for the dairy farmers to be able to produce at that higher 15 level as well? 16 A. It does. When you think about things like 17 temperature and PI, a lot of that is controllable with 18 on-farm items that require some investment on their side. 19 Q. And then I want to just maybe take a quick step 20 back. 21 When you first were involved in the process of 22 working on National Milk's proposal for its Class I price 23 differentials, what information did you receive initially? 24 A. So what I received initially was an Excel file 25 with both the May and October 2021 data and an average. 26 Q. All right. And then what did you do with that 27 information once you had the May and the October and the 28 average numbers that came out of the model? 8504 1 A. So we assessed how it looked compared to the 2 current differential structure and if there were any items 3 that we needed to address or look at differently based 4 upon our marketing knowledge. 5 Q. And did you notice anything that you felt like 6 needed to be addressed in your territory that you were 7 looking at? 8 A. Yes. So like I mentioned in the testimony, some 9 of the areas that we focused on that needed some 10 addressing or potential changes from what was the average 11 of May and October were areas like Western New York, 12 Northern Vermont, Maine, and then some other regions 13 including kind of New Jersey and Pennsylvania. 14 Q. And I think in your testimony you clarified 15 that -- and throughout that Western New York area, that 16 there were different -- currently into the current 17 differentials, that there are different prices that are 18 set? 19 A. That's correct. 20 Q. And -- and so what was the issue that you saw once 21 you were looking at the model results? 22 A. So in Western New York specifically, currently, 23 there is, I think it would be three differentials in 24 Western New York. As we looked at the model, it was 25 suggesting very small differences in those counties, let's 26 say $0.05 here or there, and it made sense as we were 27 thinking about how milk is moving in that region to align 28 on one differential, which is that $4 zone I spoke to. 8505 1 Q. Why did you think it made more sense to have that 2 be one differential as opposed to different differentials 3 in that territory? 4 A. Again, it was more focused on how we're moving 5 around milk today and how milk can be moving west to east 6 or east to west, north to south. And I think by having 7 one flattened differential structure, that allowed some 8 of -- maybe some other abilities to move around milk 9 without needing to focus so much on the differential piece 10 because things are moving -- so, like in a circle 11 sometimes. 12 Q. And we heard some testimony previously that the 13 model actually takes into account movements of milk. 14 Do you have any ideas why the model wasn't able to 15 capture the movement of milk that you needed to resolve 16 when you looked at those results? 17 A. Again, I think it did take into consideration some 18 of those. Again, some of the changes in the zones in 19 Western New York specifically were minor, right, 5 and 20 $0.10. I also think that the model didn't include some of 21 the new investment that's occurring there that needed to 22 be taken into consideration with the zones. 23 Q. Okay. And so when you were resolving that, I 24 think you said that you set that -- the area -- all at -- 25 is it $4.50? 26 A. Western New York would be $4.00. 27 Q. $4.00. 28 Was that an increase from the model or decrease 8506 1 from the model? 2 A. It would depend on county. So there are some 3 counties that would go up and some counties that would go 4 down. 5 Q. Okay. And you did that without regard to whether 6 it would provide an advantage or disadvantage to any of 7 the existing plants that are in that location? 8 A. That's correct. 9 Q. Just to be more pointed on that, did you hear or 10 did you participate in any work where it looked like 11 anyone on your committee or anybody in your working group 12 was making a proposal for a price differential that would 13 provide, for example, for you, DFA, a competitive 14 advantage over any of its competitors? 15 A. There was no conversation regarding any 16 competitive advantages for one or the other, whether it 17 was proprietary or cooperative. 18 Q. Okay. And so whether there were conversations or 19 not, did you observe any of the changes that made you feel 20 like someone was trying to stack the deck more favorable 21 to one -- one plant over another? 22 A. I did not. 23 Q. What about just compartmentalized a proprietary 24 plants versus cooperative plants, did it appear that 25 anybody was trying to provide any competitive advantage or 26 a competitive disadvantage to one group over another? 27 A. It did not appear that way, no. 28 Q. Okay. Was your efforts focused on just the 8507 1 ability to move milk and incentivize it to go in the 2 correct direction? 3 A. Correct. Yep, that's my primary duty on a daily 4 basis is to move milk around the Northeast region, and so 5 that was what our primary focus was on, is how milk is 6 moving and how it is landing from the farm to the 7 processor. 8 Q. Okay. Thank you very much. 9 MS. HANCOCK: Your Honor, at this time we would 10 make Ms. Ryll available for cross-examination. 11 THE COURT: Thank you, Ms. Hancock. 12 I want you to look at page 16 of Exhibit 360. On 13 the top line there is a reference to Allegany County, New 14 York. 15 THE WITNESS: Correct. 16 THE COURT: Now, with regard to only Allegany 17 County, New York, do you now believe that the spelling in 18 that top line is actually correct? 19 THE WITNESS: I do believe that. 20 THE COURT: There are lots of spellings of 21 Allegany. 22 THE WITNESS: As we have learned, yes. 23 THE COURT: Including within New York. 24 THE WITNESS: I think so, yes. 25 THE COURT: And this Allegany County, New York, is 26 spelled how? 27 THE WITNESS: It is spelled A-L-L-E-G-A-N-Y. 28 THE COURT: And you have spelled it that way twice 8508 1 in the paragraph that we're looking at, and then in the 2 last line -- next to the last line of the paragraph an H 3 got into the spelling. 4 THE WITNESS: It did. 5 THE COURT: It doesn't belong there. 6 THE WITNESS: Nope. 7 THE COURT: And then later on you again refer to 8 Allegany County, New York, with the proper spelling. 9 THE WITNESS: Correct. 10 THE COURT: Okay. Good. I was so confused. 11 THE WITNESS: There's a lot of Alleganys. 12 THE COURT: A lot of Alleganys, yes. And I wasn't 13 used to this one. 14 All right. Who would like to cross-examine? 15 Mr. English. 16 CROSS-EXAMINATION 17 BY MR. ENGLISH: 18 Q. Good afternoon, Ms. Ryll. 19 A. Hello. 20 Q. My name is Chip English. I represent the Milk 21 Innovation Group. You've probably heard that a couple of 22 times. 23 A. A couple. 24 THE COURT: And I need more volume on 25 Mr. English's mic. 26 MR. ENGLISH: Which is always unusual, but there 27 you go. 28 It would help if I had a copy of Exhibit 301 -- 8509 1 300 and 301 provided. 2 THE COURT: I have just what you need, 3 Mr. English. Shall I take these to the witness stand? 4 Because I have another one for me. 5 MR. ENGLISH: One of us. I can do it. 6 THE WITNESS: Thank you. 7 BY MR. ENGLISH: 8 Q. So as we get started, I just wanted to start with 9 something that puzzles me more than anything else, and I 10 want to try to see if we can clear it up. 11 THE COURT: Now, you are letting your voice drop. 12 BY MR. ENGLISH: 13 Q. See if we can clear it up. 14 Page 13, which is your Table 6, turn to that. 15 You were in the room I think earlier today when I 16 was having my conversation with Mr. John, correct? 17 A. Correct. 18 Q. And part of our conversation that I had with him 19 revolved around York County, correct? 20 A. Correct. 21 Q. And -- and he testified, I believe, that the 22 number for National Milk Producers Federation proposal was 23 $4.60, correct? Do you remember? 24 A. I don't remember that. 25 Q. So -- so you have $4.55 as a proposed differential 26 for York, Pennsylvania. 27 A. I do. 28 Q. Do you know if that's what actually National Milk 8510 1 submitted? 2 A. I haven't read that in detail, no. 3 Q. So if we go to Pennsylvania, and I'm looking at 4 Exhibit 301, and line 2278, which is York, and under 5 Column O, which is -- it says 4.60, correct? You want to 6 get there? 7 A. Can you say the line again? 8 Q. 2278. That's the row, not the line. I'm 9 instructed by someone who knows Excel better than I do. 10 It's called a row, 2278. She's listening online and will 11 beat me up later. 12 THE COURT: And we're in 301? 13 MR. ENGLISH: We're in Exhibit 301. 14 THE COURT: Thank you. 15 BY MR. ENGLISH: 16 Q. And I'm looking at 2278 for York, Pennsylvania, 17 and I see $4.60 proposed. 18 Do you see that? 19 A. I do. 20 Q. Okay. Do you know what -- what's the 21 difference -- I mean, is yours an error in the exhibit or 22 did you mean to propose 4.55? Which is the -- which is 23 the right answer? 24 A. I would take what -- what National Milk has 25 supported and supplied. However, we can look into it. I 26 don't know the answer for why they are different. 27 Q. So I will represent to you -- and you're welcome 28 to look -- that if you go back to 300 in the various time 8511 1 periods, March, May, and June, it was always 4.60. 2 A. Okay. 3 Q. I have seven more on that page, so I'm just 4 wondering -- I'm just wondering what the difference is. 5 So let's start from, in alphabetical order, Frederick, 6 Maryland. 7 A. Are you in 301? 8 Q. I'm actually -- I'm looking at -- okay. I'm 9 looking at your exhibit, page 13 to start with. I want to 10 compa- -- we'll start with that, and then we'll go to 301. 11 So I'm looking at Frederick, Maryland, where you 12 have listed $4.65 on your proposed differential, correct? 13 A. Correct. 14 Q. And if we go to Exhibit 301 and we look at 15 line 1171 -- sorry, Row 1171, do you see 4.60? 16 A. I do. 17 Q. Do you know what the difference is there? 18 A. I don't. 19 Q. Okay. If we go to Steuben, New York, which you 20 actually talked about in your testimony, on page 13, under 21 proposed differential you have listed $4.10; is that 22 correct? 23 A. It is correct. 24 Q. If you look at Row 1846, 1846, the row for 25 Steuben, New York, it's $4.00, correct? 26 A. Hold on. What was the row again? 27 Q. It's Row 1846. Is it $4.00? 28 A. Yes, it is. 8512 1 Q. Do you know the difference between your number on 2 the exhibit at $4.10 and the $4.00? 3 A. I do not. 4 Q. Is it the case again that you would adopt National 5 Milk's number as opposed to your number? 6 A. Yes. 7 Q. If we go to Berks County, Pennsylvania, page 13, 8 you have listed 4.45, correct? 9 A. That's correct. 10 Q. Go to Row 2217, Berks, do you see $4.50, correct? 11 A. That's correct. 12 Q. Do you know the reason for the difference? 13 A. I don't. 14 Q. Next county down, Cumberland, Pennsylvania, again, 15 $4.45 on page 13, correct? 16 A. Correct. 17 Q. If we look at Row 2232 on Exhibit 301, we're in 18 Cumberland, not Maryland, Cumberland, Pennsylvania. 19 Cumberland, Maryland, is located in another Allegany 20 County, spelled a different way. 21 THE COURT: Which row? 22 MR. ENGLISH: Row 2232 is Cumberland, 23 Pennsylvania. 24 BY MR. ENGLISH: 25 Q. And under Column O, I see $4.50, correct? 26 A. That's correct. 27 Q. And, again, do you know the different -- why 28 that's different from what you have in your exhibit? 8513 1 A. I don't. 2 Q. Go to Delaware, Pennsylvania -- I'm sorry, 3 Lancaster, Pennsylvania. 4 Lancaster, Pennsylvania, you have on page 13 of 5 your exhibit, $4.55, correct? 6 A. Correct. 7 Q. If we go to Row 2247 for Lancaster, Pennsylvania, 8 do you see $4.60? 9 A. I do. 10 Q. Do you know the difference? 11 A. No, I do not. 12 Q. If we go to Lycoming, Pennsylvania, page 13 -- 13 THE COURT: And would you spell that for us? 14 MR. ENGLISH: L-Y-C-O-M-I-N-G, Lycoming, 15 Pennsylvania, which is the next one down from Lancaster. 16 BY MR. ENGLISH: 17 Q. Do you see $4.25? 18 A. I do. 19 Q. If you go to Row 2247 -- 20 THE COURT: We just did that row. 21 MR. ENGLISH: I'm sorry. 2252. Thank you, Your 22 Honor. 23 BY MR. ENGLISH: 24 Q. Do you see $4.20? 25 A. I do. 26 Q. And finally, for Schuylkill -- which is 27 S-C-H-U-Y-K-I-L-L (sic) -- Schuylkill River, that's 28 Schuylkill County, Pennsylvania, on page 13, do you see 8514 1 4.45? 2 A. I do. 3 Q. And on Exhibit 301, you have to turn the page for 4 Row 2265, do you see $4.50? 5 A. I do. 6 Q. Do you know the difference there? 7 A. I don't. 8 Q. But for all of those, to the extent there is a 9 difference between your exhibit page 13 and the National 10 Milk proposal, you are not saying that they should be 11 different, they should be the National Milk proposal, 12 correct? 13 A. At this point I believe it should be the National 14 Milk proposal, correct. However, I think we can look into 15 it. 16 Q. Okay. All right. You are certainly welcome to do 17 that. 18 So you have -- I think you have told us who was 19 the red pencil crew for the Northeast. 20 Did you consult with Order 33 or Order 5 red 21 pencil crews in terms of when you got to the market 22 alignments? 23 A. There was consulting along the way as the, I think 24 folks in front of us, in front of me, would have 25 represented, that there was collaboration, once -- there 26 was maybe a regional approach, and then there was 27 collaboration when we thought we had our initial thoughts 28 and version in front of us, and then collaboration with 8515 1 the other orders. 2 Q. What principles did your red pencil group for 3 Northeast apply? 4 A. I think I would say that they were similar to 5 those that Mr. John provided, again, utilizing some of 6 those items relative to kind of current market dynamics, 7 how milk is being moved around, in which -- how they 8 connect with our current differential system and then how 9 it looked compared to the model results. 10 Q. A couple times in your testimony you refer to the 11 model average, but then at one point you do an analysis in 12 the number of counties in which you were -- I think you 13 said higher than the October. 14 What governed, the model average or October? 15 A. The model average was the basis for our analysis. 16 The reason for the comparison within my testimony was to 17 demonstrate the, I guess, relativity of our proposed 18 differentials compared to the higher price month to show 19 that there were only -- I think the -- like, I don't know 20 where the testimony -- 21 Q. You said 24 -- 22 A. -- 24 counties that were higher than October, was 23 just to represent that I think it was a modest 24 representation of how we went about it. There was modest 25 increases associated with our proposal. 26 Q. But you didn't do the same comparison for the 27 average, did you? 28 A. Not in my testimony, no. 8516 1 THE COURT: Not what? 2 THE WITNESS: Not in my testimony, no. 3 BY MR. ENGLISH: 4 Q. By definition, if October were higher than the 5 average, and you did an analysis of October, if you had 6 done the average, it probably would have been more than 7 24, correct? 8 A. I'm not sure. I didn't do that. 9 Q. To the extent you were looking at the October, 10 wouldn't that mean for minimum price purposes, leaving 11 aside the 24, that you are erring on the high side of 12 pricing, minimum pricing? 13 A. Can you repeat the question? 14 Q. To the extent you did a comparison as to October, 15 given the fact that in most months -- in most locations 16 October is higher than May, wouldn't that mean that for 17 minimum price purposes, your analysis errs on the high 18 side of pricing? 19 A. It -- I don't think that is what it would mean. 20 And nothing specific about our analysis would have gone 21 into that detail. 22 Q. So as I see it, as I read the testimony and see 23 everything National Milk's done, the anchor city for the 24 Northeast was Winchester, Virginia, correct? 25 A. That's correct. 26 Q. In other areas such as California, San Francisco 27 and Los Angeles are anchor cities. 28 Why isn't Boston an anchor city given its 8517 1 population size? 2 A. I was not apart of the task force that initiated 3 the anchor city profile, so I can't answer that question. 4 Q. Given your testimony about the change in 5 population and production in Massachusetts, wouldn't it 6 make sense to think of Boston as an anchor city and work 7 your way down, rather than from Winchester, Virginia, and 8 work your way up? 9 A. Again, I'm not certain of the thought process the 10 group task force did to create those anchor cities, and I 11 can't speak to it. 12 Q. Was there anybody on the group task force 13 representing the Northeast Order 1? 14 A. I'm not certain. 15 Q. So looking at your Table 3, on page 6, and you 16 have testified, and I agree, Massachusetts and Rhode 17 Island are up there near the top for beverage demand 18 compared to milk demand, correct? 19 A. Correct. 20 Q. So if we look at Maine, while milk production has 21 gone down some in Maine, the beverage demand for Maine was 22 38% in 2000 and it's 32% in 2022, correct? 23 A. That is correct. 24 Q. So wouldn't one expect the pricing to be higher in 25 Massachusetts there and not lower relative to Maine in 26 your changes to the model? 27 A. Can you repeat that question again? 28 Q. Do you agree that relative to the model, you 8518 1 propose lowering the price in Eastern Massachusetts, 2 Norfolk, Mass, according to your page 13, down $0.15 3 compared to the model, while at the same time you propose 4 increasing Cumberland, Maryland -- Cumberland, Maine, by 5 $0.35, correct? 6 A. That's correct. 7 Q. Okay. And looking at your own chart, the biggest 8 deviation you have for the whole Northeast is increasing 9 Cumberland, Maine, by $0.35, correct? 10 A. That's correct. 11 Q. What is the justification for proposing to 12 increase Maine by $0.35, and effectively $0.50 in terms of 13 the difference with Norfolk, Mass, given those differences 14 that we see in beverage demand on page 6 of your 15 testimony? 16 A. So for those of you familiar with Maine geography, 17 the county there, which is Cumberland County, would be 18 kind of the Portland, Maine, area. You have a unique 19 scenario in the state of Maine where you have got Class I 20 processors located in the Portland area, and because of 21 that, and because of its relationship to Boston, we didn't 22 want to, I guess, incentivize further milk to move past 23 that Portland geography by -- by giving a lesser zone 24 value to that Portland area. And I think my colleague 25 Mr. Werme will be testifying with some specifics on that 26 region. 27 Q. Well, you talked about it in your testimony. In 28 fact, it appears on page 5 -- or I'm sorry, one of the 8519 1 first ones you talk about a deviation, in your testimony. 2 You reference it. And you are the witness right now -- so 3 I apologize, I happen to be very familiar with the 4 geography. 5 A. It's a nice area. 6 Q. You may or may not have heard that, or known that, 7 since I spend my summers up there. 8 MR. ENGLISH: And so I would like to have a map 9 marked, Your Honor. It's been submitted as MIG-50. 10 THE COURT: Let's go off record while we 11 distribute. 12 (An off-the-record discussion took place.) 13 THE COURT: Let's go back on record. 14 I'm looking at the map that Mr. English has marked 15 MIG-50. I believe that next exhibit number is 16 Exhibit 366. 17 All right. I'm going to mark it Exhibit 366. 18 (Thereafter, Exhibit Number 366 was marked 19 for identification.) 20 MR. ENGLISH: Thank you, Your Honor. 21 BY MR. ENGLISH: 22 Q. And, Ms. Ryll, I realize you and I are familiar 23 with the geography, and others may have been there, but I 24 thought it might help to picture it. 25 So Cumberland County is in the southwest part of 26 Maine. It's the second county up from New Hampshire, 27 correct? 28 A. Correct. 8520 1 Q. And New Hampshire is a bare, like, 16 and a half 2 miles as you travel up from 95. 3 A. It's not a big state. 4 Q. Especially down near the coast, correct? 5 A. I think it's nine miles. But, yeah. 6 Q. So the milk in Maine is largely north and east of 7 Cumberland, correct, Cumberland County? 8 A. That's correct. 9 Q. And you just said that you don't want to 10 incentivize that milk to leave the state of Maine, is that 11 what you said, to go to Boston? 12 A. I may have said that, yes. I don't exactly know 13 my words. 14 Q. But it's close enough or -- what -- so I'll let 15 you restate it if you want to restate it. 16 What's the idea of taking the model numbers and 17 raising Cumberland up $0.35 and lowering in Norfolk, 18 Massachusetts -- which, by the way, I believe is where 19 there is a plant owned by DFA, correct, in Franklin, Mass? 20 A. Correct. 21 Q. So why is there a $0.50 per hundredweight swing, 22 raising Cumberland and lowering Norfolk? 23 A. So as part of the process, we have talked about 24 how we wanted to maintain some differential relationships 25 that we currently have within the Federal Order 26 differentials, and one of those areas would be this 27 specific location that you are talking about, is trying to 28 look at how we currently move milk, and what is working. 8521 1 And that is one region specifically that we wanted to 2 identify and maintain similar differentials as we have 3 today, meaning between Portland and Boston in your 4 example. 5 Q. But looking at page 6, in your tables -- Table 3, 6 wouldn't it make economic sense given the fact that 7 Massachusetts is, as you yourself said, one of the 8 greatest deficit states, its beverage demand compared to 9 milk production in 2022 is, you know, basically 482%, 10 almost five times the needs, correct, in Massachusetts? 11 A. That's correct. 12 Q. Whereas, Maine only needs 32%, correct? 13 A. That's correct. 14 Q. So wouldn't it make economic sense to say, wow, we 15 need to encourage milk, both raw and packaged form, to 16 make its way to the Boston market, and one way to do that 17 is to accept the model results and not switch it by $0.50? 18 A. I don't necessarily agree with that. And I think 19 that USDA can make the determination of what makes 20 economic sense. It is not my call. 21 Q. You are allowed to say what you need to say. 22 That's your right. 23 I'm just puzzling over modifications to the model, 24 which result in saying, okay, let's not move milk from 25 Maine, even though Maine has a 68% milk surplus. 26 Is there any manufacturing available in Maine, any 27 cheese manufacturing that you know of? 28 A. There is. 8522 1 Q. Small? Very small? 2 A. Depends on what you characterize as small. 3 Q. Does DFA have any cheese manufacturing up there? 4 A. No. 5 Q. Do you have any butter powder operations up there? 6 A. No. 7 Q. Do you know of any other cooperatives that have 8 cheese or butter powder plants in Maine? 9 A. Not to my knowledge. 10 Q. So looking now to page 11 of your testimony, and 11 the middle paragraph, which is the same paragraph that 12 referenced 24 counties being higher than the October 2021 13 model, you have a sentence that says, "This variance" -- 14 which I presume means the variance of 24 out of 274 15 counties -- 16 (Court Reporter clarification.) 17 MR. ENGLISH: 274 counties. 18 BY MR. ENGLISH: 19 Q. -- "is primarily due to historical milk movements 20 in these counties, and most of these will be explained in 21 further detail within this testimony and within others 22 that are providing additional supporting testimony." 23 What historical milk movements are you referring 24 to in that sentence relative to Maine and Eastern 25 Massachusetts? 26 A. I'd have to go back and look at what specific 27 counties these 24 are. I don't know that off the top of 28 my head. 8523 1 Q. Would it be safe to say that Cumberland, Maine, 2 with a $0.35 increase is clearly in that category? 3 A. I believe so, yes. 4 Q. So considering that, that Cumberland County, which 5 is where the city of Portland is located, is one of those, 6 what historical milk movements in and around that area 7 explain the need for a $0.35 increase over the model? 8 A. Again, you explained where the milk in Maine is 9 produced, which is generally northeast of Portland. The 10 historical milk movements are moving that milk from that 11 northeast portion of the state down to the southern 12 portion of the state. 13 Q. And isn't it the case -- I do not know about your 14 route dispositions, although I used to know Oakhurst very 15 well. 16 THE COURT: You're -- 17 MR. ENGLISH: Oakhurst. 18 THE COURT: You're not -- 19 MR. ENGLISH: I'm sorry. 20 THE COURT: -- your chin is lowered, which means 21 you are talking to your podium, not your microphone. 22 MR. ENGLISH: Or I could lower the microphone. 23 THE COURT: I think that will help. Thank you. 24 MR. ENGLISH: Thank you, Your Honor. 25 BY MR. ENGLISH: 26 Q. So there are two fluid milk processing facilities 27 in Cumberland in Portland, Maine, correct? 28 A. That's correct. 8524 1 Q. One is the Oakhurst facility owned by Dairy 2 Farmers of America located on Route 302, Forest Avenue, 3 correct? 4 A. I don't know their address, but I will agree that 5 I think it is on Forest Avenue. 6 Q. And the other facility is the HP Hood facility, 7 located very near the Hadlock Field baseball stadium, 8 correct? 9 A. Again, I don't know a specific location relative 10 to baseball fields. 11 Q. If HP Hood -- 12 THE COURT: You say very near what? 13 MR. ENGLISH: Hadlock, H-A-D-D-O-C-K (sic), 14 Hadlock Field. It's downtown Portland. It's where the 15 Portland Sea Dogs play, downtown Portland, Maine. 16 THE COURT: Thank you. 17 Did you say Sea Dogs? 18 MR. ENGLISH: Sea Dogs. 19 THE COURT: Thank you. 20 MR. ENGLISH: They are a Red Sox affiliate. 21 That's for a future witness. 22 BY MR. ENGLISH: 23 Q. If I were to tell you that the HP Hood witness 24 will later testify that they move packaged milk in 25 Cumberland down to Boston, would you have any reason to 26 disbelieve that information? 27 A. I don't have any knowledge of any packaged milk 28 movement in that region. 8525 1 Q. So let's turn to the model, sometimes known as the 2 USDSS model, sometimes known as the University of 3 Wisconsin model, correct? 4 A. Correct. 5 Q. And you have testified, as a number of other 6 witnesses have, about increases in costs of hauling, 7 correct? 8 A. Correct. 9 Q. Is that testimony to support the general need for 10 increasing Class I or is it to justify specific 11 differences when you made changes -- proposed changes in 12 National Milk Producers Federation 19 to the model 13 results? 14 A. The hauling data that was presented is to provide 15 a general overview of how costs have increased over the 16 last number of years. In this example it was from 2002, 17 2003, 2005, to current year, 2022 and 2023. 18 Q. I take that then to mean that it is in general 19 support of National Milk Producers 19, whether the model 20 or your actual proposal; is that correct? 21 A. Again, it's meant to support the recognition of 22 cost increases for our milk hauling. 23 Q. Does it play any role in your proposal to modify 24 the model results as to Cumberland County, Maine, by 25 raising it $0.35 over the model results? 26 A. It is just providing supporting information for 27 why we are requesting the change on the proposal. There 28 wasn't specific information relative to Cumberland County, 8526 1 Maine. 2 Q. And what about the plant that DFA owns in 3 Franklin, Massachusetts which is in Norfolk County, Mass? 4 A. What about it? 5 Q. Were the hauling costs used in any way to justify 6 the proposed difference between the model and the $0.15 7 reduction that National Milk proposes for that location? 8 A. Again, the costs were just to represent the 9 increased hauling costs associated with moving milk from 10 plant or from farm to plant, not specific for any one 11 location. 12 Q. And that if I kept going, you would say that would 13 be the answer for all my other questions, correct? 14 A. Yes, sir. 15 Q. Thank you. 16 Having looked at Exhibits 300 and 301, and I think 17 you may have been asked some questions by Ms. Hancock, but 18 have you seen these documents before they were submitted? 19 A. Actually, no, I haven't. 20 Q. Okay. Do you have any idea who the author is? 21 A. I don't. 22 Q. On Exhibit 300 there's a Column R that seems to 23 have some volumes of milk in some of the columns. 24 Do you have any idea where that information came 25 from? 26 A. I do not. 27 Q. Would you agree that one of the principle concepts 28 of Federal Order pooling of revenues revolves around the 8527 1 Class I differential supporting a reserve pool of milk to 2 service a variable fluid demand weekly and seasonally? 3 A. Could you restate that for me? 4 Q. Of course. 5 Would you agree that one of the principle concepts 6 between behind Federal Milk Order pooling revolves around 7 the Class I differential supporting a reserve pool of milk 8 to service variable fluid demand weekly and seasonally? 9 A. Yes. 10 Q. Do you know what percentage of reserve pool milk 11 is necessary to service the fluid milk market in Federal 12 Order 1? 13 A. I do not. 14 Q. Do you have any information based upon your 15 experience of what USDA considers to be a needed reserve 16 supply of milk? 17 A. I do not. 18 Q. Your data and testimony seems to suggest that 19 Class III production has grown in New York and expected to 20 increase; is that correct? 21 A. That's correct. 22 Q. I want to go back to page 7, Table 4, and you 23 indicated in answer to questions from Ms. Hancock that 24 derivation of this data was Exhibits 361 and 362, correct? 25 A. That's correct. 26 Q. It's an observation, you would agree, that between 27 December 2001 and December 2022, the total receipts from 28 producer milk in Class I have declined by over 215 million 8528 1 pounds, correct? 2 A. Say that again? 3 Q. If you look at Class I producer milk for the whole 4 market, it's declined from 910-plus million pounds to 693 5 and a half million pounds, correct? 6 A. That's correct. 7 Q. At the same time, total receipts have increased 8 from 2.077 billion to 2.255 billion, correct? 9 A. Correct. 10 THE COURT: 2-point -- 11 MR. ENGLISH: 255 -- 12 THE COURT: -- 254. 13 MR. ENGLISH: Well, but I was rounding, Your 14 Honor. 15 THE COURT: Oh. 16 MR. ENGLISH: The other ones I rounded down; this 17 one I rounded up. 18 THE COURT: Thank you. 19 And did you catch the question, the receipts went 20 up? 21 THE WITNESS: Yes, I did. 22 BY MR. ENGLISH: 23 Q. Now, my first question is: This is receipts of 24 producer milk, correct? 25 A. Correct. 26 Q. And that technical term would mean that it's not 27 all the milk in -- located in the area of Order 1, 28 correct? 8529 1 (Court Reporter clarification.) 2 MR. ENGLISH: It would not mean all milk located 3 and produced in counties represented under Order 1 -- 4 THE COURT: Wait, wait, wait, wait. It's the end 5 of your sentence we can't understand. So say it again, 6 but go slowly on the end of your sentence. 7 BY MR. ENGLISH: 8 Q. By definition, producer milk represents pooled 9 milk on the order, correct? 10 A. Producer milk represents -- 11 Q. Pooled milk on the order, correct? 12 A. I'm not certain of the definition regarding this. 13 Q. If you assume with me that the definition of 14 producer milk would mean milk pooled on the order in 15 December 2022, isn't it the case that there is more milk 16 produced in the territory represented by Order 1 than what 17 is represented on that table? 18 A. I don't know the answer to that. 19 Q. Okay. Would you agree that in the last 25 years, 20 Class III plants, especially new plants, but Class III 21 plants have largely leveled out the requests for raw milk, 22 both daily and seasonally? 23 A. To my knowledge, Class III plants operate of their 24 choosing, and can vary, and can be level. It depends on 25 the plant. 26 Q. Many of them now are what you would call full 27 supply plants, correct? 28 A. What's your definition of full supply plant? 8530 1 Q. They aren't accepting milk on a regular basis that 2 is being diverted from Class I? 3 A. Meaning -- 4 Q. They are not serving as balancing plants; would 5 you agree with that? 6 A. I think every plant operates differently, so I 7 don't think it would be fair to put them in one bucket 8 like that. 9 Q. Are there a number of plants, though, for 10 instance, some of these new plants or plants that are 11 replacing, that are basically not operating as balancing 12 plants? 13 THE COURT: Not operating -- 14 MR. ENGLISH: Not operating as balancing plants. 15 THE COURT: Thank you. 16 THE WITNESS: Again, every operator out there 17 makes decisions on how they are going to be operating 18 their plant. So it is up to them. 19 BY MR. ENGLISH: 20 Q. How long have you been associated with working on 21 Order 1? 22 A. I have been working in Federal Order 1 for almost 23 nine years. 24 Q. So going back at least that far, are you aware 25 there have been a steady series of requests made to relax 26 pooling requirements in Federal Order 1? 27 A. I am aware. 28 Q. Has the reluctance of Class III plants to take on 8531 1 additional seasonal milk led to raw milk dumping across 2 the Northeast? 3 A. I don't believe that to be true. 4 Q. Is there any difference in the increase of hauling 5 costs for raw milk servicing Class III plants than for 6 hauling costs servicing Class I plants? 7 A. As I have stated previously, hauling costs have 8 gone up across the board. In my testimony, I talk about 9 the relationship where milk has been moving in their 10 production regions compared to where Class I facilities 11 are located, and then you can throw in there Class II and 12 III and IV facilities are located. If you are looking at 13 the overall costs to service, if it's a longer haul, it is 14 going to cost you more money; if it is closer in to the 15 milk supply, it will be less than that longer haul was. 16 But in general, those hauling costs have increased. 17 Q. Whether the milk is going to Class III or Class I, 18 correct? 19 A. Yes. 20 Q. Isn't it by being on the pool that those Class III 21 plants are able to attract raw milk given those higher 22 hauling costs? 23 A. Can you repeat the question? 24 Q. I'll try to rephrase it. 25 You have agreed that hauling costs have gone up 26 for everybody, correct? 27 A. That's correct. 28 Q. Okay. Isn't it the case that the ability to draw 8532 1 money from the pool provides those Class III plants with 2 an ability to attract raw milk and effectively subsidize 3 that haul? 4 A. I'm not certain that a plant's ability to be on 5 the pool or not on the pool has a bearing on that 6 conversation. 7 Q. Doesn't your organization already require a 8 balancing charge for Class I deliveries? 9 A. Can you define what a balancing charge would be? 10 Q. A charge on the over-order premium to Class I 11 plants for taking milk other than on a seven-day delivery 12 basis. 13 A. And your question was? 14 Q. Doesn't DFA charge that kind of balancing cost to 15 your Class I customers? 16 A. We have a number of programs out there that we 17 would work with our customers or ourselves on depending on 18 what you are looking at, and anything can be included in 19 that. 20 Q. Is it not the case that one of those charges is a 21 balancing charge? 22 A. It is not -- we don't have anything called a 23 balancing charge. 24 Q. How is your over-order premium described? 25 A. My over-order premium? 26 Q. Yes. 27 A. Like others in the room, I think it would be 28 dependent upon what is required to service a customer. 8533 1 Q. Does that service of customer include balancing? 2 A. It could. 3 Q. Does that cost of service include the cost of 4 providing milk that meets those Class I processors who ask 5 for low temperature milk? 6 A. Again, it really varies depending on what's being 7 requested and who the plants associated with that are. 8 Q. If USDA grants your request for increased Class I 9 differentials, since that request is intended to cover 10 hauling and balancing, will you lower your over-order 11 premiums? 12 A. I don't think that's really a question that I can 13 answer today given I don't know what the outcome of the 14 hearing will be. 15 Q. Given that you have agreed there's been a steady 16 series of requests to relax pooling requirements to 17 Federal Order 1, why do we need increased Class I 18 differentials? 19 A. I think that given what we have presented 20 regarding increased costs to service markets, that comes 21 back to why we have determined an increase in Class I 22 differentials are needed. And it's not relative to the 23 pooling requirements in Federal Order 1. This would be a 24 national scope. 25 Q. Well, given the desire -- the fact that there's 26 been pooling requirements routinely reduced in Order 1, 27 and given what is on page 7 of your testimony about lower 28 Class I milk utilization in the face of higher receipts, 8534 1 isn't it the case that there's an adequate supply of milk 2 for fluid use in the Northeast? 3 A. Today there is adequate supply in the Northeast. 4 However, as we've discussed previously, things change 5 pretty -- I don't know if rapidly is the right word, but 6 as you can see, we have had significant changes from 2000 7 to 2023, and I would imagine we'll have more in the future 8 because changes come. So I cannot speculate, you know, in 9 answer to your question based upon that. 10 Q. Is the purpose of increasing your Class I 11 differentials designed to assist in getting milk to 12 Class I plants? 13 A. The purpose of Class I differentials is supposed 14 to reasonably reflect the cost of milk to that market in 15 addition to other items that we have talked about. 16 Q. Given the dropping Class I utilization and 17 increasing overall receipts, doesn't that additional 18 Class I money get spread out over large volumes of 19 non-Class I milk, which doesn't actually result in moving 20 milk to Class I? 21 A. I'm not sure that that's a fair representation of 22 that. 23 Q. If you increase the Class I differential by $1, 24 but only $0.25 of that ends up for the dairy farmer who is 25 shipping the milk to Class I, how much more incentive is 26 there for that producer to meet that given your higher 27 hauling cost testimony? 28 A. That's a great question. As we think about how 8535 1 those proceeds get distributed in Federal Order 1, you 2 know, I think we will -- I don't know what the right word 3 is. I think that -- that if -- in your example, the $0.25 4 assists with the cost for anybody to service a Class I 5 plant, as there are requirements within Federal Order 1 6 already to do so. 7 Q. But the other $0.75 doesn't actually do anything 8 for Class I, does it? 9 A. Where did the $0.75 go? 10 Q. I said the differential was $1 -- 11 A. Yeah. 12 Q. -- and $0.25 is, you know, the utilization, so 13 that's what's going to be added, and so the other $0.75, 14 as I said, is being spread out over non-Class I plants. 15 A. Okay. 16 Q. So -- so the Class I handler has paid an extra 17 dollar, the dairy farmer shipping to that plant has gotten 18 $0.25, the hauling costs have gone up, as you have 19 testified, far more than $0.25. Aren't we going to 20 continue failing the system? 21 A. I'm not certain of that. We'll have to see how it 22 plays out. 23 Q. So going to go back to page 13 of your testimony a 24 little bit. And I'm going to look at Rensselaer, 25 R-E-N-S-S-E-L-A-E-R, New York. 26 Rensselaer, New York, is near Albany, correct? 27 A. Correct. 28 Q. And that county has a plant in it owned by Dairy 8536 1 Farmers of America, correct? 2 A. Correct. 3 Q. And you have proposed taking that down by $0.05 4 from the model, correct? 5 A. That's correct. 6 Q. To the east, in Hampden, Massachusetts, where 7 HP Hood is located, you are increasing it by $0.05, 8 correct? 9 A. In Hampden, Massachusetts? 10 Q. Hampden, which is located in Hampden County, which 11 is in Southern Mass, the Agawam plant, HP Hood plant, 12 Agawam. 13 A. Uh-huh. 14 Q. Correct? 15 A. There is a plant there, yes. 16 Q. Okay. And -- and that plant, which is located -- 17 you know, the fourth one listed, Hampden, is actually at 18 $4.85, correct? So you have given yourself a $0.05 19 benefit for DFA's plant in Albany, correct? 20 A. I'm not looking at any benefits, winners or 21 losers, based upon who owns the facility. 22 Q. It's just a coincidence that your plant just to 23 the west in Rensselaer goes down, and your plant just in 24 east in Massachusetts goes down, and HP Hood doesn't, 25 correct? 26 A. It is what the group determined was the best fit 27 for our region for these differentials. 28 And I will note, if you look at Rensselaer, it 8537 1 aligns with similar facilities in its region, like Albany 2 County. 3 MR. ENGLISH: Let's do two more maps, Your Honor. 4 I'll do a New York map and a Massachusetts map. 5 THE COURT: All right. Tell me what the MIG 6 numbers on those are. 7 MR. ENGLISH: The Massachusetts one is MIG-51, and 8 the New York one is MIG-39. So I'm going to do New York 9 first. 10 THE COURT: So the New York one is MIG which? 11 MR. ENGLISH: 39. 12 THE COURT: 39? 13 MR. ENGLISH: It was posted earlier. 14 THE COURT: Okay. So the New York one, the 15 MIG-39, will get the next exhibit number. 16 MR. ENGLISH: Yes, Your Honor. 17 THE COURT: That will be 367. 18 (Thereafter, Exhibit Number 367 was marked 19 for identification.) 20 THE COURT: And the Massachusetts one, which is 21 the MIG-51, 5-1, will get 368. 22 (Thereafter, Exhibit Number 368 was marked 23 for identification.) 24 THE COURT: We'll go off record while you 25 distribute. 26 (An off-the-record discussion took place.) 27 THE COURT: Let's go back on record. 28 We're back on record at 2:44. 8538 1 Mr. English, I have marked as Exhibit 367, MIG-39; 2 as Exhibit 368, MIG-51; and as Exhibit 369, MIG-55. 3 (Thereafter, Exhibit Number 369 was marked 4 for identification.) 5 MR. ENGLISH: And for the record, Exhibit 367 is 6 marked as a county map of New York; Exhibit 368 marked as 7 a county map, along with some cities, in Massachusetts; 8 and Exhibit 369, prepared by MIG using the spreadsheets of 9 301 and also 300, that's Exhibit 369, MIG-55, Selected 10 FMMO 1 Northeast County Comparison.xlsx. 11 THE COURT: So how can we tell whether the data 12 came from 300 or 301? 13 MR. ENGLISH: Just a second, Your Honor, it may 14 all be 301. I think this one we did not include any 15 data -- no, I'm sorry. Yes, Proposed Class I -- so the 16 column that said "Proposed Class I March '23," Your 17 Honor -- 18 THE COURT: Yes. 19 MR. ENGLISH: -- is from Exhibit 300. Then there 20 was what was called "New Proposal May '23," that is the 21 last column, Column S. So one is Column O; one is 22 Column S from 300. And then "Proposal Number 19 23 June '23," that column is Exhibit 301. 24 THE COURT: Thank you. 25 Now, my hard copy doesn't actually show Column O, 26 so forth, but I have the category names. So I do see 27 "Proposed Class I March '23," and right next to it, "New 28 Proposal May '23." 8539 1 MR. ENGLISH: And I am prompted by a helpful 2 comment from Nicole Hancock that this document was 3 prepared for me over lunch, so -- or something like 4 that -- and there's a legend on the last page, so there's 5 a way of knowing if one looks at the legend. 6 THE COURT: Did everybody get the legend? 7 MR. ENGLISH: Is there a third page? 8 THE COURT: Okay. So I have page -- oh, I have 9 two page 2s and no page 3. 10 (Voice from the crowd saying something 11 undiscernible.) 12 THE COURT: All right, then. We're still on 13 record. 14 BY MR. ENGLISH: 15 Q. So now that we have the maps, Exhibit 367 shows 16 that Rensselaer County is on the eastern side of New York, 17 correct? 18 A. Correct. 19 Q. And Hampden County is two counties in from New 20 York in Massachusetts on Exhibit 368, correct? 21 A. Correct. 22 Q. If we look at Exhibit 369, and down the middle of 23 the page, Row 1807, in Delaware, New York, there's a 24 Saputo plant in Delaware County, correct? 25 A. Correct. 26 Q. And your model would take it up $0.05, correct? 27 A. Can you tell me which column I'm looking at? 28 Q. If you look at the difference, Proposal 19 minus 8540 1 the University of Wisconsin average, which is the fourth 2 column from the right of MIG-369 -- 3 A. Uh-huh. 4 Q. -- if you look at that line for Saputo, it's a 5 positive $0.05, correct? 6 A. Correct. On the sheet it is. 7 Q. And do you know if that's what you submitted? 8 A. I don't without doing a comparison. 9 Q. Do you have any reason to believe it's wrong? 10 A. I don't. 11 Q. If you look down three lines to HP Hood in 12 Batavia, Genesee, New York, do you see that that's also up 13 $0.05? 14 A. I do. 15 THE COURT: Mr. English, would you just spell 16 Batavia, please? 17 MR. ENGLISH: B-A-T-A-V-I-A. 18 THE COURT: Thank you. 19 BY MR. ENGLISH: 20 Q. And if we look down to the bottom of the page, 21 line -- Row 1839, King Brothers in Saratoga, New York, 22 that's also up $0.05 from the model, correct? 23 A. Correct. 24 Q. And if we look at Midland Farms in Albany, you 25 have left it at zero, correct? 26 A. What row was that? 27 Q. Row 1795, middle of the page. 28 A. It shows zero, correct. 8541 1 Q. Other than historical price relationships, what 2 justifies those numbers relative to the Rensselaer 3 facility that you propose taking down $0.05 from the 4 model? 5 A. So you are looking at the differences between the 6 model and what was proposed? 7 Q. Yes. 8 A. Well, within our proposal, those plants are all 9 within the same zone at 4.40. 10 Q. That's the current, correct? 11 A. That's the current, I'm sorry. 12 Q. What is the current? 13 A. The current differential with those plants? 14 Q. Yes. 15 A. I believe it to be 2.70. 16 Q. And so based upon the fact that it's currently 17 2.70, you are putting them all in the same at $4.00 now, 18 correct? 19 A. Not $4.00, I don't believe. $4.40. 20 Q. 4.40, I'm sorry. 4.40, correct? 21 A. Correct. 22 Q. At what point do the economics of moving milk 23 govern over this idea of price alignment? 24 A. Can you expand further? 25 Q. What is more important, price alignment or 26 recognizing the changes in the market as you have 27 described in your own testimony, where there's less milk 28 going in raw form to the cities, more going in the 8542 1 country, with all those kinds of changes in milk 2 production, reduced Class I usage, more milk, you know, 3 all of those circumstances? What is the rationale for 4 saying that price alignment counts over everything else? 5 A. I'm not certain that's exactly what's being said. 6 We are looking at all of those factors related to the 7 proposals, including price alignment, right? So if it's 8 regarding hauling costs to get it there, additional items 9 related to cost of production, we're -- we're aligning 10 similar geography plants with similar differentials as to 11 not disadvantage one or the other. 12 Q. Well, we have talked about Franklin, Mass, 13 relative to Maine. Let's also talk about relative to 14 Hood's plant in Agawam. 15 Looking at line item 1194 in Norfolk, Mass, where 16 DFA Garelick is located -- 17 THE COURT: And would you spell the name of that 18 plant? 19 MR. ENGLISH: G-A-R-E-L-I-C-K. 20 THE COURT: Thank you. 21 BY MR. ENGLISH: 22 Q. Again, as we discussed with Maine, you are 23 proposing reducing that from the model by $0.15, correct? 24 A. Which county are you looking at? 25 Q. I'm looking at Norfolk, Mass, where we have agreed 26 DFA has the Garelick plant in Franklin, Mass. 27 A. Correct. 28 Q. Okay. Is there any plant farther east than that 8543 1 in Massachusetts? 2 A. Not that I'm aware of. 3 Q. And so the question I'm asking is, what justifies, 4 given your testimony about the need for getting milk into 5 Massachusetts as a deficit jurisdiction, what justifies 6 deviating from the model down $0.15 for your own plant in 7 Norfolk, Mass, relative to Hood's plant in Hampden, Mass, 8 where no change is proposed to the model? 9 A. Again, as we were looking at this analysis and 10 what we were going to be proposing, there wasn't any, I 11 guess, discrimination amongst who owned the facilities, 12 whether it was HP Hood or DFA or another entity that's out 13 there that you have listed on this page. As we were 14 looking at differentials, we used a bit of that art that 15 we have talked about to make sure that there's alignment 16 among differentials that made sense from a practicality 17 standpoint and milk movement standpoint. 18 Q. If you are going to do that, and you are going to 19 lower -- okay, maybe it is a coincidence -- but your plant 20 in Rensselaer by $0.05, why not also lower Hood by $0.05 21 in Agawam? 22 A. Again, we did not look at it relative to ownership 23 of facilities. It was based upon all of the things I have 24 just discussed. 25 Q. So let's turn to New Jersey. 26 So your own testimony refers to the great joy that 27 all drivers have of paying tolls in and out of New Jersey, 28 correct? 8544 1 A. It is a great joy, yep. 2 Q. And the model doesn't take into consideration 3 tolls, does it? 4 A. I'm sorry? 5 Q. The model does not take into consideration road 6 tolls? 7 A. I don't believe so. 8 Q. You went out of your way to mention tolls, and yet 9 for the plants located in Burlington, New Jersey, the 10 Florence plant owned by DFA, you are proposing, you know, 11 going down $0.05 per hundredweight, correct? 12 A. That's currently what's proposed. 13 Q. Why wouldn't you, in consideration of all those 14 very high tolls, increase relative to the model? 15 A. My conversation on tolls was not necessarily to 16 look at this difference of the proposal and the average, 17 it was to align pricing between Pennsylvania and New 18 Jersey, as I spoke to within my testimony, that there is a 19 difference between delivering into the Philadelphia market 20 and the Southern New Jersey market. It was not 21 necessarily to discuss the changes from the proposal to 22 the average. 23 Q. But aren't those tolls relevant? 24 A. They are, and that's why they were discussed. 25 Q. Well, if they are discussed, how did you apply 26 them? 27 A. Well, if you look at the model, the average-of, 28 the model was already suggesting some higher pricing in 8545 1 that Southern New Jersey region. We combined regions and 2 differentials to align better and ensure there was that 3 difference between Southeast Pennsylvania and New Jersey. 4 That was already discussed. 5 And while you are at it, the Cumberland facility, 6 just the row below that, was increased $0.05. So there 7 was gives and takes along the way. 8 Q. I understand that. One might have expected it to 9 go up more than $0.05 given the tolls? 10 A. The model was already suggesting an increase, and 11 we aligned with that at a differential. 12 Q. Speaking of Southeastern Pennsylvania, Wawa, 13 proprietary operator, line 2233, located in Delaware, 14 Pennsylvania, which is -- if you are coming north on 15 Interstate 95, it is the first county into Pennsylvania, 16 correct? 17 A. I'll have to look at a map to identify that. 18 Q. But you have proposed increasing it from the model 19 by $0.10, correct? 20 A. That's correct. 21 Q. Okay. 22 THE COURT: So, Mr. English, I'm looking at this 23 Row 2233 on page 2 of Exhibit 369, and I'm curious. So 24 the name of the pool distributing and supply plant is 25 "Wawa, Media." 26 MR. ENGLISH: Media is the name of the city. 27 THE COURT: Oh, thank you. All right. 28 MR. ENGLISH: The county -- the county, of course, 8546 1 is what's actually shown in Federal Order statistics. 2 THE COURT: So the county is Delaware, 3 Pennsylvania? 4 MR. ENGLISH: Delaware, Pennsylvania. 5 THE COURT: Thank you. 6 MR. ENGLISH: It is the Wawa facility in 7 Southeastern Pennsylvania. 8 THE COURT: Thank you. 9 BY MR. ENGLISH: 10 Q. You don't incur the tolls getting across the 11 Delaware River into New Jersey for that facility, correct? 12 A. Not to my knowledge because it's in Pennsylvania. 13 Q. I have already heard from Mr. John, but you are 14 also testifying about it. Washington, Maryland, is 15 increased $0.10 per hundredweight. 16 Do you know why that's increased $0.10 per 17 hundredweight? 18 A. Washington, Maryland? 19 Q. Yes, the county of Washington, Maryland, why do 20 you propose increasing that $0.10 per hundredweight over 21 the model? 22 A. As Mr. John explained, there's a number of reasons 23 for changes in that region, and he has more than 24 adequately defined them. 25 Q. Okay. And I'm happy to rely -- if you have 26 anything different to say from Mr. John on the Maryland 27 and Northern Virginia kind of testimony. 28 A. I don't. 8547 1 Q. Okay. There's been a number of questions asked of 2 witnesses about Grade A. 3 Are you aware of any cheese processors in the 4 Northeast who accept Grade B milk? 5 A. I don't know. I don't have that knowledge. 6 Q. Does DFA have any Grade B milk in the Northeast? 7 A. Not to my knowledge. 8 MR. ENGLISH: Your Honor, at this time I move 9 admission of Exhibits 366, 367, 368, and 369. 10 And I thank you, Ms. Ryll, for your time and 11 testimony, and I am complete once a ruling is made on 12 those exhibits. 13 THE COURT: Excellent. Thank you. 14 Now, I know there will be other cross-examination, 15 but it's time for a break. So after the break I'll deal 16 with the admission of the exhibits. 17 And please be back and ready to go at 3:17. We go 18 off record at 3:03. 19 (Whereupon, a break was taken.) 20 THE COURT: Let's go back on record. 21 We're back on record at 3:21. 22 MR. ENGLISH: Your Honor, before you rule on 23 the -- if I may beg your indulgence, I'm always allowed to 24 come back up, but I thought I'd just try to clean 25 something up. And I think I made this mess myself, so let 26 me see if I can do something. 27 BY MR. ENGLISH: 28 Q. Going back to the issue of over-order charges, 8548 1 over-order premiums -- 2 THE COURT: You're not projecting. I'm sorry. Go 3 again. 4 MR. ENGLISH: I need a cough drop. 5 BY MR. ENGLISH: 6 Q. Going back to the issue of over-order charges, and 7 I think I sort of had it backwards, which was probably 8 what was confusing. 9 Once you have an over-order charge, is it true 10 that DFA then, to those entities that qualify, provides a 11 uniform or universal receiving credit? 12 A. We do, and to those that have them. 13 Q. Okay. And have -- have those credits because they 14 have taken milk on an even basis so that you don't incur 15 as much balancing cost, correct? 16 A. Milk doesn't necessarily need to be taken to have 17 those programs established evenly -- or milk doesn't need 18 to be taken evenly to have those programs established. 19 Q. But nonetheless, you do have programs that credit 20 against an otherwise charge if a plant does things to 21 assist you with what otherwise would be balancing, 22 correct? 23 A. Yes. And there could be a variety of forms of 24 that across the Northeast. 25 Q. Great. Thank you. I appreciate that. 26 MR. ENGLISH: Okay. Now I'm done, Your Honor, and 27 I would again move the admission of the maps, you know, 28 that I have, plus the chart. I think it is 366, 367, 368, 8549 1 and 369. 2 THE COURT: You are correct with no notes. 3 All right. Ms. Hancock, I would like to deal 4 first with your client's exhibits. Do you have any 5 objection to my determining now whether they can be 6 admitted into evidence? 7 MS. HANCOCK: Your Honor, my only objection is on 8 Exhibit 369. Again, it's not National Milk's document, it 9 is something that's been put together by MIG, and it 10 includes information about locations of plants. It does 11 cross-reference the others. But I don't have any 12 independent information about it. 13 So to the extent that we're just using it as 14 admitting it for purposes of reference and not for the 15 truth of what's in here, I think that's fine. But I don't 16 know that this witness can attest to the accuracy of the 17 information in here without verifying it. 18 THE COURT: Your response, Mr. English? 19 MR. ENGLISH: I'm for making things easy, so I 20 think it's still admissible if we have all the references 21 there. The one issue is Exhibit 52, which is the USDA 22 exhibit. 23 On the other hand, I'm not going to press the 24 point. So the author of this document will be testifying 25 at a later date. If it's preferable to put it on hold and 26 have it admitted at that time, as long as it can be 27 referred to by this -- you know, in this witness's 28 testimony, and perhaps in a future witness, I have -- I'm 8550 1 not going to stand on ceremony to admit it today. 2 THE COURT: All right. I, on the other hand, 3 don't want to neglect admitting it into evidence. I love 4 these -- this page 3 where you clearly reference where you 5 got the material. 6 So Ms. Hancock's reservations about the exhibit 7 are noted, and we'll see what comes of the future 8 evidence, but in the meantime, I am going to admit it into 9 evidence. 10 MR. ENGLISH: Thank you, Your Honor. 11 THE COURT: But let me start with -- and I know 12 that ordinarily, Ms. Hancock, your custom is to wait until 13 all cross-examination is completed before you move the 14 admission of these exhibits, but I would like to get 15 Ms. Ryll's exhibits dealt with first, before I go to 16 Mr. English's. 17 So I'm going to do them one at a time. 18 Is there any objection to the admission into 19 evidence of Exhibit 360, which is NMPF-42? 20 There is none. Exhibit 360 is admitted into 21 evidence. 22 (Thereafter, Exhibit Number 360 was received 23 into evidence.) 24 THE COURT: All right. Is there any objection -- 25 oops, sorry. So 361 I have lost. I have leaped to 362. 26 MS. HANCOCK: Your Honor, that is the 27 December 2001 Federal Milk Order Number 1, USDA document. 28 It looks like this (indicating). 8551 1 THE COURT: Well, I labeled that as that's 42A, 2 and I said that it was 362. 3 MS. HANCOCK: 362 is 46B. 4 THE COURT: Oh, so I have misnumbered them. 5 That's where I'm mistaken. All right. All right. 6 Is there any objection -- here, let me go back and 7 double-check this. Stay on record, I'm okay. 8 All right. Very good. 9 Is there any objection to the admission into 10 evidence of Exhibit 361, which is NMPF-42A? 11 There is none. Exhibit 361 is admitted into 12 evidence. 13 (Thereafter, Exhibit Number 361 was received 14 into evidence.) 15 THE COURT: Is there any objection to the 16 admission into evidence of 362, Exhibit 362, which is 17 NMPF-42B? 18 There is none. Exhibit 362 is admitted into 19 evidence. 20 (Thereafter, Exhibit Number 362 was received 21 into evidence.) 22 THE COURT: Is there any objection to the 23 admission into evidence of Exhibit 363, which is NMPF-42C? 24 There is none. Exhibit 363 is admitted into 25 evidence. 26 (Thereafter, Exhibit Number 363 was received 27 into evidence.) 28 THE COURT: Is there any objection to the 8552 1 admission into evidence of Exhibit 364, which is NMPF-42D? 2 There is none. Exhibit 364 is admitted into 3 evidence. 4 (Thereafter, Exhibit Number 364 was received 5 into evidence.) 6 THE COURT: Is there any objection to the 7 admission into evidence of Exhibit 365, which is NMPF-42E? 8 There is none. Exhibit 365 is admitted into 9 evidence. 10 (Thereafter, Exhibit Number 365 was received 11 into evidence.) 12 THE COURT: All right. Thank you, Ms. Hancock. 13 Now, turning to Mr. English's four exhibits. 14 Is there any objection to the admission into 15 evidence of Exhibit 367, which is MIG-39? 16 MR. ENGLISH: Your Honor, did you skip 366, which 17 is Maine? To your left. Sitting to your left, I think. 18 MR. HILL: MIG-50. 19 THE COURT: I did. Thank you very much. So let 20 me start with that one. 21 Is there any objection to the admission into 22 evidence of Exhibit 366, which is MIG-50? 23 There is none. Exhibit 366 is admitted into 24 evidence. 25 (Thereafter, Exhibit Number 366 was received 26 into evidence.) 27 THE COURT: Is there any objection to the 28 admission into evidence of Exhibit 367, which is MIG-39? 8553 1 There is none. Exhibit 367 is admitted into 2 evidence. 3 (Thereafter, Exhibit Number 367 was received 4 into evidence.) 5 THE COURT: Is there any objection to the 6 admission into evidence of Exhibit 368, which is MIG-51? 7 There is none. Exhibit 368 is admitted into 8 evidence. 9 (Thereafter, Exhibit Number 368 was received 10 into evidence.) 11 THE COURT: And there is already a concern about 12 the truth of the matters asserted in Exhibit 369, but 13 notwithstanding that concern, I do ask now if there's 14 anything further by way of objection to the admission into 15 evidence of Exhibit 369, which is labeled MIG-55? 16 There is none, no additional concern. So I do 17 admit, over that concern, into evidence, Exhibit 369. 18 (Thereafter, Exhibit Number 369 was received 19 into evidence.) 20 MR. ENGLISH: Thank you, Your Honor. 21 THE COURT: Thank you, Mr. English. 22 All right. Who next will cross-examine Ms. Ryll? 23 MR. MILTNER: Ryan Miltner representing Select 24 Milk Producers. 25 CROSS-EXAMINATION 26 BY MR. MILTNER: 27 Q. Good afternoon, Ms. Ryll. 28 A. Hello. 8554 1 Q. So I'd like to just jump right into a few pieces 2 of your testimony, Exhibit 360, and start off with a 3 question that might obviate the need for a bunch more. 4 A. Okay. 5 Q. If I take it and I look at, beginning on page 2, 6 the bottom of page 2 through page 7, is the entirety of 7 that section intended to be background? In other words, 8 is it -- is that section of your testimony justification 9 for adjusting the differentials without specifically 10 asking for any particular county to be adjusted? 11 A. The intent of that section, which I believe is the 12 overview of the Northeast milk market, that section and 13 then some sections beyond that, would be to just provide 14 flavor and context for the Northeast milk market and 15 dynamics that are at play there. 16 Q. Okay. 17 A. Yep. 18 Q. So could I take that one step further and say that 19 there's nothing in that part of your testimony that's 20 particularly applicable to any individual county or any 21 individual deviation from the model? 22 A. Correct. It's not anything specific to a county 23 or a differential. It would be more so, again, that 24 general milk market information. 25 Q. Great. Okay. 26 So now I'm looking at the bottom of page 8, and 27 it's the very last sentence there which reads, "Any 28 changes with the Class I price surface should be taking 8555 1 the changes that have been explained with milk production, 2 resident population, and the manufacturing footprint into 3 consideration." 4 Now, my understanding is that those particular 5 factors -- milk production, resident population, and the 6 manufacturing footprint -- those are some of the elements 7 that are included in the USDSS model. 8 Is that your understanding as well? 9 A. My understanding is that the model includes some 10 of those, correct. 11 Q. Okay. When you say it "includes some of those," 12 does it not include any of those factors that you have 13 listed? 14 A. I don't know. 15 Q. Okay. And I now want to ask about a statement on 16 page 11 in the final paragraph. It's in the middle of 17 that paragraph, and you are talking about deliveries into 18 Winchester, Virginia, and disorderly milk marketing 19 because of the fact that that area is a border between 20 Order 1 and Order 5. Okay? And I wonder if you could 21 explain a little more what type of disorderly marketing 22 you envision if the prices there are not aligned as you 23 have requested. 24 A. Sure. So from a Winchester, Virginia, standpoint, 25 like I talked about, it is sort of in the intersect of 26 Federal Order 1 and 5, and a point -- our southernmost 27 point when it comes to our region that I represent. 28 As I think about what this paragraph is trying to 8556 1 represent, it would just be to make sure that we are 2 aligning the price surface in an appropriate manner for 3 those deliveries into that southern region of our area, 4 and to not neglect the fact that that is important 5 delivery points and to not cross over them for potentially 6 a higher differential. So it was important to align 7 Winchester with not only the southern portion, but the 8 northern portion so that it was -- they're inequitable. 9 Q. Is the goal there to disincentivize milk from 10 moving from north to south to get into Order 5? 11 A. I don't think that there's any specific goal with 12 that alignment. It is just to ensure that any potential 13 disorderly marketing doesn't occur. 14 Q. Well, can you give us an example of what that type 15 of disorderly marketing might look like? 16 A. Like I mentioned before, it could be the potential 17 for milk to jump over that specific region and move 18 towards maybe different differentials or higher 19 differentials without, you know, that -- fulfilling a 20 demand point in Winchester. 21 Q. Is there insufficient milk there, in your 22 experience, to make sure that the plants in Winchester are 23 adequately served? 24 A. I'm uncertain of whether or not there is 25 sufficient supply. It -- like I mentioned, it is kind of 26 our southern area. 27 Q. Okay. So then if you could turn to page 14, 28 please. 8557 1 And the first sentence after the map reads: 2 "There were some instances where the group chose to 3 utilize their experience on milk movements and historical 4 relationships with milk sheds to smooth out county 5 differentials to reduce negative impacts to dairy farmers 6 and Class I processing facilities." 7 I was hoping that you could expand a little bit on 8 what you mean by "negative impacts to dairy farmers and 9 Class I processing facilities." 10 A. Sure. So as we were thinking through this and how 11 milk is moving, as we have discussed previously, those 12 milk movements are important to be represented in the 13 differential scheme. So anytime there is a potential 14 where the proposed differential or the -- excuse me -- the 15 average was different than maybe what we see from a 16 practical standpoint of how we move milk, we wanted to 17 ensure that there was some art behind it to also signify 18 kind of the practicality of the current milk movement. So 19 it was more intended to utilize the -- how we're currently 20 moving milk compared to what maybe the average was. So 21 that's -- I -- what that intention of that sentence is, is 22 to ensure that we're doing that. 23 Q. And I -- I thank you for the answer, and I 24 understand the goal I think in broad terms. And I was 25 wondering if in -- what you are talking about here 26 specifically, if you had examples of what some of those 27 negative impacts might be for both dairy farmers and 28 Class I plants that we might be able to refer to. 8558 1 A. I don't. 2 Q. Okay. If you would turn to page 17, please. 3 The paragraph in the middle of the page begins by 4 stating: There is potential for misalignment between the 5 orders if Western New York's final differentials relative 6 to Western Pennsylvania's are lower than those proposed, 7 I'll say. 8 What do you mean in that sentence by "potential 9 for misalignment between the orders"? 10 A. So that's really referring to the paragraph in 11 front of it that is speaking to some of the blend price 12 disparity between Order 1 and 33 today, some of it caused 13 by some difference in differentials with Western 14 Pennsylvania and Western New York. And so that sentence 15 is correlated closely to the paragraph above. 16 Q. In testimony yesterday, I don't recall if you were 17 here or not, but there was some -- the phrase "blend price 18 alignment" or something very similar to it was used. 19 What do you mean in your statement when you use 20 the term "blend price alignment"? 21 A. Where do I use "blend price alignment"? 22 Q. It is in the same paragraph: "The working group 23 gave careful consideration to blend price alignment." 24 A. Uh-huh. Again, that's that alignment between 25 Order 1 and 33. Again, today we have, as mentioned in the 26 previous paragraph, that disparity. So alignment would be 27 maybe a closer comparison between the two. 28 Q. When you use that term, does that include an 8559 1 instance where a differential slope between the base price 2 point and another point would cause depooling? 3 A. I'm not certain that that's what causes depooling. 4 Q. So at least in the context you are using this 5 phrase, "blend price alignment" is not related to 6 depooling? 7 A. Correct. 8 Q. Okay. If you continue on in that same sentence, 9 you state that the "consideration to blend price alignment 10 between Western Pennsylvania and Western New York is in an 11 effort to not impact current market dynamics between 12 handlers and producers who face different pooling access 13 and producer prices between the orders." 14 Again, when you use the phrase "current market 15 dynamics," what do you mean by that? 16 A. So I speak to some of that regarding just milk 17 movements and that geography of how we are moving milk 18 from Western New York to Western Pennsylvania, and those 19 are the general milk marketing dynamics that I'm speaking 20 to. 21 Q. Are there any particular competitive issues or 22 customer concerns that you mean to encompass with your 23 phrase "current market dynamics"? 24 A. I don't believe so, no. 25 Q. On page 18, in the first paragraph, you make 26 reference to -- and that's -- I'll just read the sentence: 27 "Two of the three facilities are operated by the same 28 organization and are often looked at as a unit for milk 8560 1 marketing purposes." 2 Which organization are you referring to? 3 A. HP Hood. 4 Q. Where you characterize those as a unit for milk 5 marketing purposes, is that Hood's characterization? 6 A. I'm not sure what their characterization would be. 7 Q. Is that -- is it DFA then that views it as a unit 8 for milk marketing purposes? 9 A. This example, yes. 10 Q. Okay. In the following paragraph you talked about 11 the tolls around New Jersey. Mr. English asked you some 12 questions about that. I have kind of a philosophical 13 question for you as a co-op. 14 A. Sure. 15 Q. If you -- if DFA is marketing that milk, and your 16 hauler, and therefore your members, have to bear that toll 17 expense, if you are asking for the differential to be 18 increased in order to offset those expenses, your members 19 don't receive the benefit, necessarily, of all of that 20 increased differential, do they? 21 A. Can you elaborate a little bit more? 22 Q. May be better if I just simplify it. 23 If the utilization in the order is say 50%, I know 24 it's lower but we'll just say 50%, and you are incurring a 25 $30 toll, okay? 26 A. Okay. 27 Q. But you have now increased the differential in 28 part to compensate for those toll expenses, your producers 8561 1 are only getting $15 of that toll back in theory, correct? 2 A. Wouldn't that be the producers in the order, not 3 necessarily DFA specific producers? 4 Q. Well, that's the thing. I mean, your producers, 5 in general -- let's -- let me think about your answer for 6 a second. Maybe I answered too quickly. 7 Yes, let's say -- no, let me rephrase my 8 theoretical there. 9 A. Okay. 10 Q. If all of the toll is captured in the 11 differential, and DFA has 50% of the milk in the order, 12 your members will get 50% of that toll refunded, correct? 13 A. If I'm following your math, which again, I know is 14 an example -- 15 Q. Yep. 16 A. -- right? I believe that would be accurate. 17 Q. So why, then, would you want to put the toll in 18 the differential as opposed to an over-order premium so 19 your members would be fully compensated? 20 A. So as we were looking at the differentials and the 21 model averages, I'm going to come back to those because 22 they did represent higher pricing into that area. So we 23 were not looking at it from a co-op specific or 24 proprietary or whoever else operates in the order, right? 25 We're signifying that there's increased costs in that 26 region, and it should be recognized through the mode in 27 which we are able to recognize it, which today is the 28 differentials. 8562 1 Q. So is your example of the toll then more intended 2 to provide evidence for the increased cost of hauling 3 rather than a specific justification for a change to New 4 Jersey? 5 A. It supports the notion and the averages that were 6 presented from the study of why there is increase in the 7 need in that Southern New Jersey area for a different 8 differential from Southern Pennsylvania, as I have 9 explained. 10 MR. MILTNER: I think that's the end of my 11 questions. Thank you. 12 THE WITNESS: Thank you. 13 THE COURT: Thank you, Mr. Miltner. Who next will 14 cross-examine the witness? Is there anyone else who 15 wishes to ask Ms. Ryll questions before I turn to the 16 Agricultural Marketing Service? 17 There is no one. The Agricultural Marketing 18 Service may question Ms. Ryll. 19 CROSS-EXAMINATION 20 BY MS. TAYLOR: 21 Q. Good afternoon. 22 A. Hi. 23 Q. Thanks for coming to testify. 24 A. Thanks for having me. 25 Q. Just a few questions. I want to -- let's see. I 26 want to not be repetitive. I want to turn to page 6 in 27 your charts, and so I just want to make sure it's clear 28 for the record, so when we go back when this hearing is 8563 1 over and try to process everything, we are reading these 2 charts right. 3 And so I'll start at Table 3, and if you could 4 just read a line, because I -- explain the numbers and 5 just pick a line. And I particularly want to make sure we 6 understand what the final column represents, so I think if 7 you do that, that would help. 8 A. Got it. Okay. 9 So I'm going to pick Maryland. So if you were to 10 look at the state of Maryland, and I'm looking at the year 11 2000. So Maryland, the population is -- again, this data 12 is coming from the census -- Maryland is represented by 13 5,311,000 residents. 14 The next column over is utilizing the per capita 15 milk beverage demand per person. So it is signifying that 16 on average in the U.S. folks have been drinking 197 pounds 17 of milk per year. 18 So then the next column over is looking at those 19 folks in Maryland and the average beverage demand that per 20 capita we have found through statistical information. 21 There it's saying -- it's multiplying those and it's 22 saying that based upon the information that we have, the 23 total milk beverage demand in the state of Maryland is 24 1,045,000 -- actually, it's not a million, that's in 25 millions. So would that be 1,045,000,000. 26 And then if you look across to the next column 27 which is milk production, so this is milk production, a 28 USDA statistic of how much in the year 2000 was produced 8564 1 on dairy farms in the state of Maryland. You are looking 2 at 1-point -- I'm going to round up -- 1.4 billion pounds 3 of milk in Maryland. 4 So when you compare those two numbers, the total 5 milk beverage demand in the milk production, so you take 6 1 billion divided by 1.4 billion -- again, I'm rounding 7 here -- you get that 77%. So it's signifying -- 8 THE COURT: Let me stop you. 9 THE WITNESS: Yep. 10 THE COURT: You said 1.4 billion. 11 THE WITNESS: Yes. 12 THE COURT: So that's not exactly right because 13 there's a zero in there. 14 THE WITNESS: Sorry, for that one I thought I said 15 1 million -- or 1 billion. 16 So the 1.045 billion pounds is the total milk 17 beverage demand, and that is then divided by the milk 18 production, which is 1.351 billion for the year. And so 19 it demonstrates that 77%, to the right, that their milk, 20 if you were to look at it apples to apples, 77% -- excuse 21 me, I'm doing the math here -- it's the beverage demand 22 compared to milk production. So in Maryland, for example, 23 they have more milk production compared to beverage 24 demand. So 77% of their milk production is utilized for 25 beverage demand in the state of Maryland. Theoretically, 26 right, in these charts, these math charts. 27 BY MS. TAYLOR: 28 Q. Okay. And I won't say conversely, but let's go to 8565 1 Rhode Island where it says 738%. That's telling me that 2 actually their beverage demand is 738% of their actual 3 milk production -- 4 A. Correct. 5 Q. -- so they need to import milk? 6 A. Correct. Yep. And I will say that I think 7 Mr. Gallagher from DFA will be here, and he can explain 8 some of these math tables later, because he is the -- he 9 helped create them. 10 Q. Okay. Thank you. 11 I want to turn to page 8. And a lot of this text 12 uses the data on the previous page about -- from Table 4 13 on producer milk receipts and what class they are used in 14 and in what zone they are used in. 15 And -- and so that talks about use of milk, your 16 data on the previous page, page 7. 17 A. Correct. 18 Q. But you have a sentence in here on page 8, and 19 it's the second to the last paragraph, it's a clause at 20 the end of the sentence, and I'll start, "Local milk 21 supplies are being utilized to fulfill Class II and III 22 demand, while Class I milk supplies must travel further 23 today at a higher cost per mile than before." 24 And I'm trying to -- I know there's been 25 discussion of that, but is there data in your testimony to 26 support that or is that based on your knowledge, you know, 27 working in that area? Because I didn't quite see the data 28 there. I could be missing it or it could be just based 8566 1 off your knowledge since you have worked in that area for 2 a long time. 3 A. I believe that was primarily driven off the 4 knowledge of working in that region and where milk is 5 produced compared to where it's delivering to today versus 6 where it was, say, ten years ago. 7 Q. And can you talk a little bit about that, then? 8 A. Sure. So I think in the testimony I'm reviewing 9 primarily Class II and III growth in certain zones and 10 regions. And as I look at production in those certain 11 regions, I think you can notice that there's -- from my 12 knowledge, that there would be growth in those counties 13 associated with those zone differentials from a production 14 standpoint. 15 So to me, looking at the data, it would signify 16 that that milk is being utilized for those locations, 17 those Class II and III locations. And then we're 18 therefore, moving milk -- continuing to move milk to the 19 Class I market, and as discussed, the higher costs 20 associated with that hold true. 21 Q. On page 9 at the bottom, here you are talking a 22 little bit about your Farm Credit East February 2023 23 publication that I believe is an additional exhibit, and 24 you mention how it talks about other factors that 25 contribute to increased costs in addition to the ones you 26 talked about since you own and manage, DFA owns and 27 manages a fleet. 28 And I was just curious if you would elaborate on 8567 1 what other costs -- assuming they are in the exhibit, but 2 since I haven't read that exhibit yet -- what other costs 3 are you talking about there? 4 A. So you are talking about what the Farm Credit is 5 talking about other costs? 6 Q. Yes. You talk about one factor, right? 7 A. Yeah. 8 Q. It goes on to say one factor is inconsistent truck 9 weights, volumes allowed on roads, et cetera. 10 But are there other costs besides that? 11 A. Yeah. So there are other costs that are discussed 12 beyond the road weight situation and local laws. Off the 13 top of my head I can't tell you exactly what they are. 14 Q. Okay. I did want to note, we were looking at your 15 Table 6 on page 13, and you went over that in detail with 16 Mr. English about there was a few differences between 17 what's in the table. But what we did notice, and I just 18 say this for people to look at, is I think your map 19 actually has the correct numbers, it's just the table that 20 might be different. 21 A. I think you are correct there. 22 THE COURT: So, Ms. Taylor, you are telling us 23 that if we use the numbers that are on page 14 on the map, 24 those may vary in a few instances from what we see in 25 Table 6? 26 MS. TAYLOR: Yes. But what's in Map 2 looks to be 27 consistent with what is in the actual proposal of National 28 Milk. And I just wanted to kind of note that for the 8568 1 record if people see differences. 2 THE COURT: Thank you. 3 BY MS. TAYLOR: 4 Q. I'm going to turn next to pages 15, going into 16. 5 So at the bottom, and here you are talking about 6 Western New York, and there was the manufacturing side of 7 things, the plant expansions that have happened over 8 there. And what I gather, and I just want to make sure 9 I'm hearing this correctly, is out there, some of the 10 adjusted -- adjustments you made were to align those 11 counties because of the impact that the surface has on 12 producer pay prices. 13 Would that be correct? 14 A. Yes. 15 Q. And then I did want to note, because you have at 16 the bottom of that first paragraph on page 16, and I don't 17 think it's been discussed, the last sentence: "Regardless 18 of the outcome of this hearing, it is requested that a 19 modification be made to align the differentials between 20 Allegany" -- and some other county I can't pronounce -- 21 A. Cattaraugus. 22 Q. -- "Cattaraugus Counties to reduce any disorderly 23 marketing of milk within Western New York that would 24 negatively impact farms." 25 So this is kind of a slight modification. I just 26 wanted to kind of inquire a little bit about that because 27 I don't think that's been discussed. 28 A. Sure. The scenario that's being discussed here is 8569 1 that there is a new plant being built in Cattaraugus 2 County, and that plant is designed to be the replacement 3 for a plant in Allegany County. And so if you look today 4 at where those counties sit from a differential 5 standpoint, they are different. And when you think about 6 where that milk supply comes from to feed those two 7 facilities or that one facility that is currently 8 operating, that same milk supply will be supplying the new 9 facility in Cattaraugus County. And so the intention 10 there is just to ensure that there's alignment because we 11 will still be utilizing from the same milk supply as one 12 is being closed and another opened. 13 Q. Okay. Is it -- am I to take it that the ownership 14 of the plant closing and the plant opening is the same? 15 A. Correct. Yes. 16 Q. Okay. So that's a modification on top of any 17 other differential regardless of where the Department 18 comes out, you would like to see those aligned? 19 A. That's correct. 20 Q. And just to close the circle, you talk about 21 aligning those would reduce any disorderly marketing of 22 milk within Western New York that would negatively impact 23 farms. 24 Could you just expand on what you are talking 25 about there? 26 A. Again, that's specific to those volumes where one 27 would be -- the new facility would be, I guess a term 28 would be back-zoning because you are reducing the 8570 1 differential at the new facility compared to -- 2 Q. Oh, that's the way it goes -- 3 A. -- the old facility. 4 Q. -- right now. 5 A. Correct. 6 Q. Okay. 7 A. Yep. 8 Q. I want to turn to page 17. 9 I think you talked to Mr. Miltner about this a 10 little bit, but I wanted to follow up on that second to -- 11 second paragraph down starting with "historically." And 12 this is -- you're talking about a line -- let me see if I 13 wrote here, for blend price alignment between Orders 1 and 14 33, and you talk about currently in the $2.00 zone it's 15 averaged a difference in blend of negative $0.21 per 16 hundredweight -- 17 A. Correct. 18 Q. -- over your time period. 19 Does that mean that in Order 33 is higher? 20 A. That's correct. Yep. 33 would be higher by $0.21 21 compared to Order 1. 22 Q. So I just want to make sure we're clear. 23 So to producers they would rather, under the 24 current arrangement, as what I read, service Order 33 25 where they can get a higher pay price than Order 1. Is 26 that what I'm -- should interpret? 27 A. That would be an interpretation, yes. 28 Q. And that's currently a problem? 8571 1 A. I'm not certain if it's a problem. I would say it 2 is a dynamic that's faced in Western New York and Western 3 Pennsylvania, that we need to -- we have looked at when it 4 comes to looking at that differential in that area, the 5 $4.00 zone, the flattened $4.00 zone. 6 Q. Is it a problem because then the plants in that 7 area can't get the milk they need because it wants to go 8 over to Order 33? 9 A. I think that -- again, I don't know if it would be 10 considered a problem. I think it was just looking at some 11 of the alignment and potential issues with how the 12 differentials are aligned today and how we're proposing 13 them. 14 So today, those differentials would cause that 15 Western New York milk to be moving backwards in zone if 16 it's facilitating movement. And in the current proposal, 17 they maintain the same one. So I think it would -- it's 18 not necessarily a problem, is not necessarily how I 19 would -- 20 Q. It's just that milk is moving against the zones? 21 A. Correct. Yes. 22 Q. Okay. Further down on the bottom of the page, I 23 think you did discuss this with Mr. Miltner and I missed 24 it, so my apologies. There's a sentence in that last 25 paragraph how you are talking about from the two counties 26 there in New York, you wanted to enhance the relationship 27 these counties have with Suffolk County, Massachusetts. 28 I just wanted you to expand on what you mean by 8572 1 "enhance the current relationship"? 2 A. Sure. That was meant to recognize the additional 3 cost compared to the $0.75 spread that there is today 4 between those counties and Suffolk County. It increases 5 by $0.15 to recognize that additional cost to service, 6 moving milk from Central New York to Suffolk County, or to 7 counties in that general geography. 8 Q. And that's an additional cost you think maybe the 9 model didn't account for? 10 A. That is -- yes. Yes. 11 Q. And what is -- what -- what kind of makes up that 12 additional cost? 13 A. Yeah. So some of it could be relative to hours of 14 service and at -- in drive time associated with moving 15 from kind of Central New York to Franklin is the example, 16 Suffolk County, Boston area. So hours of service, for 17 example, if drivers are having to lay over on their way 18 home will cost additional. Some other things that could 19 be included is you go over a mountain range, which would 20 be Berkshire, some would call them a hill, but I think 21 that some of those costs associated with that movement. 22 And in some cases there's permitting items relative to 23 states crossing over state borders that maybe are not 24 accounted for. 25 Q. Okay. Thank you. That's helpful. 26 And then on page 18, I hate to beat a dead horse, 27 but let's talk about the tolls again in New Jersey. 28 A. It's a nice subject. 8573 1 Q. You talk about how you built in $0.10 -- 2 additional $0.10 in New Jersey to account for that? 3 A. Yes. 4 Q. Just wondering kind of why $0.10? Where did that 5 number come from? 6 A. So I think -- I'm going to come back to the model 7 on this and what the average of May and October did. To 8 some degree it did actually provide that differential 9 without me putting it in there. I think it was more so 10 in -- that $0.10 is more so to ensure that we're 11 maintaining the spread between Southeast Pennsylvania and 12 Southern New Jersey. Again, the model was signifying that 13 it was an increased cost already, and we are just 14 providing some additional information to demonstrate the 15 need to keep that difference aligned. 16 Q. Okay. So I haven't looked at the model numbers on 17 those specific areas yet, but -- so what you are saying is 18 the model came out and did show an increase in -- increase 19 the slope between those areas, but there's additional 20 costs so National Milk has proposed an additional $0.10 on 21 the New Jersey side. 22 Am I understanding that correct? 23 A. I don't believe that -- I think -- I think the 24 $0.10 is the spread between the Southeast Pennsylvania and 25 Southern New Jersey. We didn't just plug in $0.10 on 26 that. It was, again, a demonstration based on what the 27 model was telling us needed to happen, and that's why 28 there is that difference. 8574 1 To make up some of it, I -- I provided detail on 2 the tolling, the toll information, the $0.06, and then the 3 weight variance sizes, the weight restrictions that we 4 have. 5 Q. Uh-huh. Okay. 6 MS. TAYLOR: I think that's it from AMS. Thank 7 you. 8 THE WITNESS: Thank you. 9 THE COURT: Are there any other questions before I 10 ask for redirect? 11 Mr. Rosenbaum. 12 CROSS-EXAMINATION 13 BY MR. ROSENBAUM: 14 Q. Steve Rosenbaum, International Dairy Foods 15 Association. 16 Following up on questions by USDA, if you could 17 turn to Table 4 on page 7 of Hearing Exhibit 360, that 18 table is comparing the zone in which milk was received in 19 December 2001 versus December 2022, correct? 20 A. Correct. 21 Q. The higher zones are associated with the higher 22 population, right? 23 A. Generally speaking. 24 Q. I mean, Boston and New York would be the highest 25 for example, correct? 26 A. Generally speaking, yes. 27 Q. Okay. And so what -- and of course in the end, 28 the milk has to get delivered in a package to the consumer 8575 1 at their grocery store, correct? 2 A. Sure. 3 Q. And so there's two legs of the journey: One is 4 the leg of the raw milk to the processing plant, and the 5 other is from the processing plant to the consumer, 6 correct? 7 A. Sure. Yes. 8 Q. And if I understand your table, what this is 9 showing is actually the processing has actually moved to 10 more rural areas closer to where the farms are between 11 2001 and 2020. 12 Is that a fair understanding? 13 A. For which class? 14 Q. Well, for all of them really. That is to say, 15 it's originally, in 2001, 17.7% of total receipts were 16 being received by a plant in the highest population area, 17 correct? Because they are the ones with the biggest 18 location differential, correct? 19 A. 17.7% was received in a 3.15 or above zone, 20 correct. 21 Q. And that would have been milk that was transported 22 to that processing facility in -- as raw milk, correct? 23 A. Correct. 24 Q. And whereas that's fallen to only 6.4% in 2020, 25 correct? 26 A. That's correct. There is some probably detail on 27 that surrounding farm location as well, right? 28 Q. Well, overall, I mean, the total amount, the total 8576 1 receipts is actually pretty similar between 2001. It's a 2 little over 2 billion, and in 2022 it's 2.2 billion, 3 correct? 4 A. Correct. 5 Q. But the -- the location at which the milk stops 6 being the responsibility of the producer and starts being 7 the responsibility of the processor, that is actually that 8 point is now in a more rural area, correct? 9 A. If we're assuming that any zones that are less 10 than the 3.15 would be considered rural, yes. 11 Q. Okay. Well, I'm assuming the two -- well, I mean, 12 for example, the 2.35 and below, which is the low zone, 13 whereas previously 19.1% of the milk was received there, 14 now it's 27.3%, correct? 15 A. Correct. 16 Q. And as I say, to take the other extreme, the 3.15 17 and above, which previously was 17.7% of total receipts, 18 that's fallen to 6.4%, correct? 19 A. Correct. 20 Q. Is it fair to say the burden of getting the milk 21 to the actual consumer, that's actually shifted more to 22 the processor over the last 20 years? 23 A. I'm not sure that's fair. 24 Q. Is it fair to say that, in fact, it's more 25 expensive generally to transport packaged milk than raw 26 milk? 27 A. I don't have knowledge of how expensive it is to 28 transport packaged milk. 8577 1 MR. ROSENBAUM: That's all I have. Thank you. 2 THE COURT: Ms. Hancock. 3 MS HANCOCK: Thank you, Your Honor. 4 REDIRECT EXAMINATION 5 BY MS. HANCOCK: 6 Q. Ms. Ryll, I just want to turn to page 13 of your 7 testimony in Exhibit 360. 8 I just want to -- I appreciate Ms. Taylor 9 commenting on the fact that the map on page 14 is correct. 10 I just want to make sure that as we finalize your 11 testimony into the record that we just correct those 12 items, because I know how hard you have worked on all 13 this, and I want it to be as perfect as you intended. 14 So I'm going to compare this with Exhibit 299, 15 which is actually National Milk's proposal. That's what 16 you had testified was actually the correct numbers to make 17 sure that we're using? 18 A. Correct. 19 Q. Okay. And so if we look at, on page 13, I'm on 20 Table 6 -- 21 MS. HANCOCK: And Your Honor, I would ask if, as 22 she confirms these, that we can correct the record copy 23 that's in the record as well. 24 THE COURT: All right. Great. So make sure we're 25 all on the same page. We're all looking at Exhibit 360, 26 and we're on page 13. And we will change those as we go. 27 MS. HANCOCK: Okay. And I believe there's eight 28 total. 8578 1 BY MS. HANCOCK: 2 Q. The first one being Frederick, Maryland, and your 3 proposed differential that you have noted in your chart on 4 Table 6 is 4.65, and that should be 4.60; is that right? 5 A. Correct. 6 Q. And the second one -- 7 THE COURT: Wait just a second. So then don't we 8 also have to change the $0.10 to $0.05? 9 MS. HANCOCK: That's correct, Your Honor. 10 THE COURT: Okay. So the final two columns 11 we'll -- in each case, we'll make an adjustment in the 12 next to the last column. We'll also make an adjustment in 13 the last column. Okay. 14 BY MS. HANCOCK: 15 Q. Okay. And the next one would be New York. 16 And your testimony in Table 6 has $4.10, and that 17 should be $4.00; is that right? 18 A. That's correct. 19 Q. And so that should be negative $0.05? 20 A. Correct. 21 THE COURT: So just put parentheses around it. 22 MS. HANCOCK: Very efficient. 23 BY MS. HANCOCK: 24 Q. And then if we go to the next one, if we're ready, 25 Berks, Pennsylvania. You have $4.45, and that should be 26 $4.50? 27 A. Correct. 28 Q. So that difference would be positive $0.05? 8579 1 A. Correct. 2 Q. And the next one would be Cumberland, 3 Pennsylvania. And similar we have $4.45, and the correct 4 number should be $4.50? 5 A. Correct. 6 Q. So that should be a positive $0.15? 7 A. Correct. 8 Q. And the next one would be Lancaster, Pennsylvania. 9 It has $4.55; it should be $4.60? 10 A. Correct. 11 Q. And that would be a positive $0.15 -- 12 A. Correct. 13 Q. -- difference? 14 The next one would be like Lycoming, Pennsylvania. 15 It has $4.25 currently; it should be $4.20? 16 A. Correct. 17 Q. And then that would be a negative $0.05 18 difference? 19 A. Correct. 20 Q. The next one would be Schuylkill, Pennsylvania? 21 A. It's a tough one. 22 Q. It is a little public quiz and my inability to 23 pronounce words. 24 It has currently $4.45, and it should be $4.50? 25 A. Correct. 26 Q. And so the difference would be a positive $0.15? 27 A. Correct. 28 Q. And then finally, York, Pennsylvania, has $4.55, 8580 1 that should be $4.60; the difference would be positive 2 $0.15? 3 A. Correct. 4 Q. Okay. 5 MS. HANCOCK: And, Your Honor, that is all I have 6 for Ms. Ryll. I appreciate the indulgence to get those 7 corrected in the record copy. 8 THE COURT: All right. Are you comfortable with 9 what you have done? Very good. Would you bring it to me 10 and let me compare it with what I did just to be sure in 11 case I got it wrong? Thank you. Don't leave. This is 12 going to be very short. 13 We agree. Thank you. I'm happy. 14 MS. HANCOCK: Okay. Good. Thank you. 15 Your Honor, that is all we have for Ms. Ryll. 16 THE COURT: All right. Thank you. I am very 17 impressed with your work. Thank you. 18 THE WITNESS: Thank you. 19 THE COURT: I think it was very helpful. I think 20 your cross-examination was very helpful. 21 THE WITNESS: Thank you. 22 MS. HANCOCK: Your Honor, our next witness is 23 Mr. Scott Werme. 24 THE COURT: We want to take a little break? A 25 little five minutes? 26 We're all good. We'll keep going. 27 MS. HANCOCK: Good afternoon, Mr. Werme. 28 Your Honor, everyone should be receiving Exhibit 8581 1 NMPF-43 that we'll mark as our next exhibit. 2 THE COURT: All right. Now, if I am caught up, I 3 do not want to misspeak, the next exhibit will be 370. 4 All right. So this will be Exhibit 370. 5 (Thereafter, Exhibit Number 370 was marked 6 for identification.) 7 THE COURT: And while that's being distributed, 8 would you please, Mr. Werme, in the witness stand, state 9 and spell your name. 10 THE WITNESS: Scott Werme, S-C-O-T-T, W-E-R-M-E. 11 THE COURT: So your last name ends in E? 12 THE WITNESS: Correct. 13 THE COURT: Thank you. 14 And have you previously testified in this 15 proceeding? 16 THE WITNESS: I have not. 17 THE COURT: All right. I'd like to swear you in. 18 SCOTT WERME, 19 Being first duly sworn, was examined and 20 testified as follows: 21 DIRECT EXAMINATION 22 BY MS. HANCOCK: 23 Q. Good afternoon, Mr. Werme. 24 Did you prepare Exhibit 370 in preparation for 25 your testimony today? 26 A. I did. 27 Q. Would you mind providing us with that testimony, 28 just being mindful of your reading speed for the court 8582 1 reporter. 2 A. I will. 3 Q. Thank you. 4 A. Thank you for the opportunity to testify. My name 5 is Scott Werme. I retired from Agri-Mark in 2021 after a 6 31-year career with the cooperative. During my career, I 7 held positions in nearly every corner of the cooperative, 8 starting as a field representative and moving to other 9 supervisory roles such as plant manager, plant accounting, 10 and hauling and transportation manager. My last position 11 was senior vice president of membership, a role that 12 included membership services and overseeing bulk fluid 13 sales of member milk to the region's milk processors. 14 Agri-Mark retained me post-retirement as a consultant to 15 assist with special projects and the transition of 16 leadership, where I have experience and expertise. 17 Agri-Mark, a dairy cooperative in the Northeast, 18 is owned and operated by over 550 dairy farm families 19 across New England and New York. Our members are pooled 20 in Federal Order 1. The cooperative has been marketing 21 milk for dairy farmers since 1916 and has headquarters in 22 Andover, Massachusetts, and Waitsfield, Vermont. Those 23 farm families supply more than 3.2 billion pounds of farm 24 fresh milk that we use to make our award winning Cabot 25 branded cheeses, dairy products, and ingredients. 26 Agri-Mark operates three cheese manufacturing 27 facilities located in Cabot, Vermont; Middlebury, Vermont; 28 and Chateaugay, New York. 8583 1 THE COURT: And would you spell Chateaugay for us. 2 THE WITNESS: C-H-A-T-E-A-U-G-A-Y. 3 THE COURT: Thank you. 4 THE WITNESS: These are pooled supply plants. The 5 cooperative manufactures and markets valuable whey 6 proteins around the world, produced at the Middlebury, 7 Vermont, facility. Agri-Mark also operates a butter 8 powder facility in West Springfield, Massachusetts, that 9 is a non-pooled supply plant. Additionally, Agri-Mark 10 supplies fresh fluid milk to the region's largest dairy 11 processors. 12 I am testifying today on behalf of Agri-Mark and 13 our 550 dairy farm families. I have been marketing milk 14 in the cooperative for seven years. I have considerable 15 experience in moving milk through the region and within 16 the confines of Federal Order 1. 17 Agri-Mark is in full support of National Milk 18 Producers Federation proposal for modernization of the 19 Federal Milk Marketing orders. More specifically, 20 Agri-Mark supports NMPF Proposal 19, update the Class I 21 differentials pricing surface throughout the United 22 States. 23 The current Class I pricing surface map was a 24 product of the Federal Order Reform process that concluded 25 with implantation of new or revised regulatory policies in 26 2000. NMPF's proposal to evaluate the Class I 27 differentials is critical to our overall efforts of FMMO 28 modernization. 8584 1 Since 2000, the dairy industry and landscape has 2 changed significantly. The number and location of farms 3 and fluid milk processors, consumer demand, and population 4 centers have all changed dramatically. Witnesses who have 5 preceded me have entered data into the hearing record to 6 support this. A driving factor for milk marketing over 7 the last 20 years is the enormous change in the cost of 8 transporting raw milk. 9 As others mentioned in previous testimony, the 10 NMPF proposal for Class I differentials has its foundation 11 in modeling results published by the University of 12 Wisconsin. The model's outputs using data from May '21 13 and October 2021 were averaged to reduce variability. As 14 has been discussed previously, individual cooperative 15 representatives were broken up by region to allow for more 16 detailed and specific conversations. 17 The Northeast working group was then tasked with 18 comparing the results of the model to see if estimated 19 milk values derived from the model were consistent with 20 actual milk movements and historical relationships. 21 Ultimately, the group was asked to determine if adoption 22 of the model's output would help to promote orderly milk 23 marketing given current or future plant locations. 24 In the Northeast region, most counties fell within 25 a reasonable relationship with the average of the model's 26 May 2021 and October 2021 outputs. Compared to current 27 Class I differentials, the model resulted in much higher 28 values at nearly all locations. Justifications for these 8585 1 increases were due to significant changes in the dairy 2 landscape over the past 20 years, and especially changes 3 in historical milk movements. 4 I will focus my testimony on the areas of the 5 Northeast in which I have expertise, in which the NMPF 6 proposed differentials differ significantly from the 7 output of the model, namely Maine, Northern Vermont, and 8 Northern New York. 9 Maine: The differentials generated by the model 10 were lower for Maine and Southeastern New Hampshire. 11 However, there are two Class I plants in Cumberland 12 County, Maine, that rely on local milk. If the model 13 results were adopted unchanged, the respective 14 differentials would have incentivized Maine milk to leave 15 the state for plants in Eastern Massachusetts; 16 additionally, the Southern New Hampshire milk would have 17 been incentivized to flow into western Massachusetts. To 18 prevent incentivizing counterintuitive milk movement, the 19 Northeast working group agreed to flatten the proposed 20 Class I differentials for the Maine zones to keep the 21 relationships consistent with the current Class I 22 differentials. The average increase for Class I 23 differentials in Maine was $0.23 per hundredweight above 24 the model output. 25 So, Your Honor, I would like to pause there for a 26 moment. The last time we were here, I don't know if 27 something was said by one of the folks testifying, and I 28 went back to double-check those numbers that I had entered 8586 1 as my testimony, and as it turns out, I used the 2 differentials for the area correctly, but took the 3 difference from the wrong column. I used the October 4 column rather than the average column. So I would like to 5 be able to correct those here today. 6 THE COURT: You are certainly welcome to. Now, 7 it's interesting, because the witness who just stepped off 8 the stand on purpose used the October data. 9 THE WITNESS: I caught that. 10 THE COURT: But you didn't intend to. 11 THE WITNESS: No, I did not intend to. 12 THE COURT: All right. 13 THE WITNESS: Okay. 14 THE COURT: So, yes, you will certainly -- now, 15 the easiest way for us to do this is as we dwell on every 16 change you want to make, we'll make it on the record copy. 17 THE WITNESS: Three changes. 18 THE COURT: Okay. 19 THE WITNESS: So the first one, Maine was -- I 20 wrote Maine was $0.23. It should be $0.39. 21 THE COURT: All right. So this is in your 22 paragraph on page 2 of Exhibit 370, also NMPF-43, in the 23 paragraph on Maine, the last full line, we are changing 24 $0.23 per hundredweight to what? 25 THE WITNESS: $0.39 per hundredweight. 26 THE COURT: $0.39 per hundredweight. Thank you. 27 THE WITNESS: Northern Vermont: In Vermont's 28 northernmost counties, the Northeast working group reduced 8587 1 the differentials by $0.35 per hundredweight from the 2 model's results. 3 That $0.35 should read $0.20. 4 THE COURT: 2-5. 5 THE WITNESS: 2-0. Sorry. $0.20. 6 THE COURT: $0.20, 2-0. All right. So we're 7 changing $0.35 per hundredweight to $0.20 per 8 hundredweight. 9 THE WITNESS: Correct. 10 THE COURT: 0.20 dollars per hundredweight. All 11 right. 12 THE WITNESS: In this region there are no 13 significant delivery points and none are expected in the 14 near future. Milk generally flows to Eastern 15 Massachusetts, Western Massachusetts, and Vermont points 16 further south. The lower differentials in Northern 17 Vermont provide more of a slope to incentivize milk 18 movement and better offset the cost of moving milk to 19 these locations. 20 Northern New York: In Northern New York, the 21 Northeast working group reduced differentials $0.30 per 22 hundredweight below the model's output. 23 That should read $0.15 per hundredweight. 24 THE COURT: All right. So on the first line under 25 "Northern New York" on page 2, we are putting $0.15? 26 THE WITNESS: 15. 27 THE COURT: 1-5. 28 THE WITNESS: 1-5. 8588 1 THE COURT: And striking the $0.30 per 2 hundredweight. 3 THE WITNESS: I apologize for this, but I'm glad I 4 caught it. 5 THE COURT: Yeah. Actually, you know, I'm sorry, 6 it's all good. But you specifically wanted to use the 7 October -- 8 THE WITNESS: The average. 9 THE COURT: Oh, the average rather than the 10 October? 11 THE WITNESS: Correct. 12 THE COURT: Understood. 13 THE WITNESS: This was especially necessary for 14 the significant supply in St. Lawrence and Jefferson 15 Counties. Milk from these counties needs to move east. 16 The lower differentials at the source counties increased 17 the slope needed to incentivize appropriate milk movements 18 to Northeastern New York and North and Central Vermont. 19 In summary, Class I differentials are outdated and 20 need modernization to reflect the changes in the dairy 21 industry since 2000. The University of Wisconsin model 22 provides a sound and logical basis for updating Class I 23 differentials. However, as noted above in the examples of 24 Maine, Northern Vermont, and Northern New York, 25 modifications from model results are necessary to preserve 26 actual milk movements and historic relationships and to 27 maintain orderly marketing of milk. 28 THE COURT: All right. 8589 1 Ms. Hancock. 2 MS. HANCOCK: Thank you, Your Honor, at this time 3 we would make Mr. Werme available for cross-examination. 4 THE COURT: Thank you. 5 Who will begin? 6 MS. BULGER: Good afternoon. 7 THE COURT: Good afternoon. 8 CROSS-EXAMINATION 9 BY MS. BULGER: 10 Q. Grace Bulger for Milk Innovation Group. 11 Thank you for your patience, Mr. Werme. I had a 12 lot of questions about the October or average difference, 13 so I was just rearranging a few things. 14 A. Okay. 15 MS. BULGER: But I do have a few exhibits that I 16 would like to ask to have in front of the witness. 17 THE COURT: Yes. Tell us which ones they are. 18 MS. BULGER: So -- and I apologize if I don't use 19 these -- because, like I said, thank you for sparing me 20 some questions. Exhibits 53, 58, 301, 366, 368, and 369. 21 THE COURT: Okay. I'll supply the 301, and you 22 may approach the witness with my extra copy of that one. 23 And he has a yardstick. 24 Also, I'm going to -- some of these don't need a 25 yardstick, but they still need a ruler. 26 THE WITNESS: Okay. Thank you. 27 THE COURT: Now, the others we're gathering, so 28 let's go off record for just a moment. 8590 1 (An off-the-record discussion took place.) 2 THE COURT: Let's go back on record. 3 We're back on record at 4:39. 4 Ms. Butcher (sic), you may proceed. 5 MS. BULGER: Thank you. 6 BY MS. BULGER: 7 Q. Good afternoon, Mr. Werme. 8 A. Good afternoon. 9 Q. So you say on page 1 of your testimony that 10 Agri-Mark operates three cheese manufacturing facilities: 11 Two in Vermont, one in New York, which were pool supply 12 plants, correct? And Agri-Mark also operates a butter 13 powder facility in Massachusetts which is a non-pool 14 supply plant, correct? 15 A. Correct. 16 Q. For each of those, can you tell me whether they 17 are full supply or balancing plants? 18 A. The one in West Springfield is a balancing plant. 19 The others are full supply, running either seven days a 20 week or -- the Cabot plant runs five or six days a week. 21 Q. Are these plants supplied only by 22 Agri-Mark-produced raw milk? 23 A. Yes. 24 Q. And Agri-Mark supplies raw milk to the region's 25 dairy processors, right? 26 A. It does. 27 Q. Who does Agri-Mark supply fresh fluid milk to? 28 A. Well, we supply a number of customers that are 8591 1 Class II, Class I, Class III. I don't think we supply any 2 Class IV plants. Occasionally we do, and they are pretty 3 much all over New England, in every state. 4 Q. So are all of those processors fully regulated on 5 Order 1? 6 A. I'm not sure about the smaller ones, but I would 7 say yes. The large ones are for sure. 8 Q. Are any of those processors partially regulated? 9 A. I don't know that. 10 Q. What portion of Agri-Mark's milk goes to 11 Agri-Mark's plants? 12 A. How about 75%. 13 Q. I have a few questions about your involvement in 14 working on the proposed differentials. 15 And so my first question is: What group were you 16 in? 17 A. Federal Order 1, Northeast. 18 Q. Who else was in your group? 19 A. There were folks from Virginia Upstate, DFA, and 20 Land O'Lakes, I believe. 21 Q. When did you begin working together? 22 A. I came into the process late actually. Our 23 economist, Catherine de Ronde, asked me, invited me to the 24 conversation probably, I don't know, halfway in, maybe. 25 Q. And what was your specific role? 26 A. Early on she just wanted me to sit in on the calls 27 to listen in and to sort of vet what was happening against 28 what I used to do for the cooperative, which was find 8592 1 homes for all the milk. 2 Q. So when you started working with this group, your 3 expectation was -- was your expectation more so to be 4 listening? 5 A. Yes. 6 Q. Yes? 7 And did you -- did you end up contributing more 8 directly? 9 A. Yes. But mainly on what I testified to today. 10 Q. So on page 2 of your testimony you say that the 11 Northeast working group was asked to determine if the 12 adoption of the model's output would help promote orderly 13 milk marketing given current or future plant locations. 14 A. Yes. 15 Q. How would you define orderly marketing? 16 A. I would define orderly marketing as how milk 17 really moves in a region. How it actually moves, where it 18 comes from, how we arrange hauling, and whether it moves 19 hopefully with the zones rather than against the zones. 20 Q. So you said "in a region." 21 What in your mind is needed in the Northeast to 22 promote orderly marketing? 23 A. I would say it's knowing where all the milk is, 24 knowing where -- and I can -- I'm really only speaking for 25 Agri-Mark on this, but knowing where all our milk is, how 26 many pounds is in each area of our co-op. We have hauling 27 areas that we break things up into so that we know where 28 the milk is, and to know what we have -- what we have set 8593 1 up for contracts for the following year and what our 2 plants -- what our individual plants take, and what they 3 need every day, and what our orders are that come in -- 4 typically in our business they come in -- well, in Federal 5 Order 1 they come in -- they start coming in on Thursdays 6 the orders come in. 7 Q. When you began your work, were you open to the 8 idea that the model output could be sufficient as is? 9 A. I don't know that I had an opinion on that early 10 on. 11 Q. Like I -- I read from your testimony that you were 12 asked to determine if the adoption of the model output 13 would help to promote orderly milk marketing. 14 Did you answer that question independently, if 15 adoption of the model's output, on its own, would help to 16 promote orderly milk marketing before making adjustments? 17 A. I would say that that -- I was -- that -- I came 18 to that opinion probably in one of the joint calls with 19 the -- with what we were tasked to do in looking at the 20 orders in the Northeast, looking at the differentials. 21 Q. Did the group consider that a threshold question 22 before making adjustments, whether on its own it -- 23 A. Could you kind of clarify that? 24 Q. I guess I'm asking if -- if the group was asked to 25 determine if the adoption of the model's output would help 26 to promote orderly milk marketing, before making any 27 adjustments, did the group have a conversation about just 28 the answer to that question with the model output on its 8594 1 own? 2 A. I think the group realized pretty early on that 3 there were areas in the model that we would need to look 4 at to improve the orderly milk marketing. 5 Q. And back to that quote one more time, "given 6 current or future plant locations," which future plant 7 locations are you referring to? 8 A. At the time we knew that -- Skylar talked about 9 earlier today -- that there was going to be a new large 10 Fairlife plant in New York, and Great Lakes Cheese was 11 going to build, or is in the process of building, a plant 12 that would actually double the intake of the plant that is 13 closing. 14 Q. And is that replacing an existing plant? 15 A. I believe it is. 16 Q. And now I want to point to page 1 of your 17 testimony. I apologize for jumping around a bit. 18 You say that the dairy industry and landscape has 19 changed significantly since 2000, and specifically you 20 refer to changes in the number and location of farms and 21 fluid milk processors, consumer demand, and population 22 centers. 23 So how for each of those three factors -- and I 24 can repeat them back to you if you need -- how have they 25 changed? 26 A. In terms of farms, I can only speak for us, of 27 course, but I would say back in 2000 we had over 2,000 28 farms. Now we're down to 550-ish. We're at 3.2 billion 8595 1 pounds of milk. I don't know what the number was in 2000, 2 but it was much less. It was probably 2.5 billion pounds 3 of milk, I would guess. There have been a lot of plant 4 closings. I know from my product accounting days in West 5 Springfield, kind of where a lot of milk came from at the 6 time, and where we bought cream from to run our butter 7 plant, and there's a lot of those plants that don't exist 8 anymore. 9 Q. And so talking about factors -- and, now, I'm 10 sorry, again, to jump to -- on page 2 of your testimony, 11 you say, "A driving factor for milk marketing over the 12 last 20 years is the enormous change in cost of 13 transporting milk"? 14 A. Uh-huh. 15 Q. A driving -- I wonder -- a driving factor towards 16 what? What do you mean by "a driving factor"? 17 A. The driving factor in the cost of moving milk. 18 The change in the cost of moving milk, even from when I 19 became more intimately involved in it in 2015 to when I 20 retired six years later, the cost of moving milk increased 21 quite dramatically. Haulers needed an increase. We were 22 losing haulers because they couldn't get paid enough, and 23 we had to constantly send out cost surveys to our haulers 24 to make sure that they were being paid correctly. And 25 they never went down. 26 THE COURT: The costs never went down? 27 THE WITNESS: The costs never went down. 28 BY MS. BULGER: 8596 1 Q. And are you familiar with the University of 2 Wisconsin model? 3 A. Since becoming part of this, yes. 4 Q. Do you agree that the University of Wisconsin 5 model factors in hauling costs to its output? 6 A. Yes. 7 Q. In your opinion, does the University of Wisconsin 8 model sufficiently take into account the various changes 9 that you have described? 10 A. I believe so. 11 Q. Okay. Thank you. 12 When -- I have a -- when selling its member milk, 13 has Agri-Mark ever negotiated an over-order premium? 14 A. When we sell milk to our customers, we're always 15 trying to negotiate an over-order premium. We call it a 16 service charge. 17 Q. So with the Class I plant? 18 A. Class I, II, III, wherever we sell it. We're 19 trying to get the most we can for it. 20 Q. So you're always trying to get the most you can. 21 How frequently do you negotiate them? 22 A. Well, there are certain customers we negotiate 23 contracts for once a year. Okay? And eventually it 24 settles. It usually settles in in some class-plus price, 25 and it depends on how much milk there is in the 26 marketplace. It's changed over the years. 27 And then there is -- there's customers that don't 28 want to negotiate a contract, they would rather buy it on 8597 1 a weekly basis. And so they call the different co-ops 2 around that can supply milk, and they try and get the best 3 price, and, of course, we try and get the most we can. 4 Q. If the Class I differentials that National Milk 5 has proposed are adopted, will that reduce Class I 6 premiums charged in the region that you are discussing? 7 A. I don't really know that for sure. 8 Q. Okay. So I had some questions about the 9 reductions in differentials or raising them from the 10 numbers, but after your corrections I don't have as many. 11 I do have -- so thank you. 12 I do have a general sort of question. In your 13 testimony, you -- when you talk about Vermont, you say 14 that the Northeast working group reduced differentials 15 by -- and you have corrected this -- to $0.20 -- 16 A. $0.20, yes. 17 Q. -- per hundredweight from the model results. 18 When for New York, you say, similarly, the 19 Northeast working group reduced differentials, and that's 20 been corrected to $0.15 -- 21 A. Correct. 22 Q. -- per hundredweight. 23 And for Maine, on page 2, you say the average 24 increase for Class I differentials in Maine was -- and you 25 have corrected that to $0.39 -- 26 A. Yes. 27 Q. -- per hundredweight above the model output. 28 And so I guess my overall question is, for Vermont 8598 1 and New York, it almost sounds like that is a standard 2 reduction that you made across the board versus Maine you 3 refer to an average number. 4 And so I just wanted to clarify -- 5 A. Oh. 6 Q. -- if you are talking about for Vermont's 7 northernmost counties? 8 A. Well, I actually averaged all of them. 9 Q. Okay. 10 A. Okay. I don't know whether it was consistently -- 11 I would have to look to see if it was consistently $0.15, 12 for example. But I -- I ended up redoing, subtracting 13 from the correct column, and then using the Excel average 14 function to get the average. 15 Q. I went through when I was looking at your 16 testimony and averaged the counties in Maine, and I came 17 up with $0.39, so I was -- that made me feel good about my 18 math when you corrected it to that. 19 A. Okay. 20 Q. One moment. 21 I would like to direct you to the portion of your 22 testimony where you are talking about Maine. That's what 23 I want to focus on. And that is MIG -- or Hearing 24 Exhibit 366 is the map of Maine. 25 A. Uh-huh. 26 Q. Perhaps more useful to me than you. 27 A. Actually I have my own. 28 Q. So you refer to two Class I plants in Cumberland 8599 1 County that rely on local milk in your testimony? 2 A. Yes. 3 Q. Which two plants are those? 4 A. Oakhurst and a Hood plant, both in Portland. 5 THE COURT: Oakhurst was the first one? 6 THE WITNESS: Yes, Oakhurst. 7 THE COURT: Thank you. 8 BY MS. BULGER: 9 Q. If I could point you to Hearing Exhibit 369, which 10 also says Exhibit MIG-55 in the corner. It's the smaller 11 spreadsheet. 12 A. Oh, 369. Yep. 13 Q. So near the top of page 1, let's see, in Row 1146? 14 A. Uh-huh. 15 Q. Looking at Cumberland County in Row 1146, the 16 model average was $4.50? 17 A. Yes. 18 Q. And NMPF is proposing a differential of $4.85, 19 correct? And that -- you can see that just on the same 20 spreadsheet as well? 21 A. Uh-huh. Yes. 22 Q. So that's a $0.35 increase from the model average, 23 correct? 24 A. Correct. 25 Q. And as we have discussed, the average increase 26 from the model average across Maine was $0.40, $0.39? 27 A. $0.39. 28 Q. So in comparison to other counties in Maine, 8600 1 National Milk proposed a smaller increase from the model 2 output for Cumberland County? 3 A. Yes. 4 Q. Why? 5 A. Because it was further south and it was closer to 6 where the end point of Maine is. And what we were more 7 actually looking at was where the milk was actually coming 8 from. Like, for example, Agri-Mark doesn't have much -- 9 many farms in those southern two counties. Most of the 10 milk is further north in Penobscot County, and Kennebec, 11 Somerset, and Piscataquis County. So that's where the 12 milk comes from, so that's where we took the biggest 13 changes from the model to flatten the entire -- the entire 14 part of the Maine where the milk is located. 15 THE COURT: Looking at Exhibit 366, would you tell 16 me these three counties again where the milk comes from? 17 THE WITNESS: Most of our milk comes from 18 Kennebec, Somerset, Penobscot, and Piscataquis. 19 THE COURT: So Kennebec is not very far north. 20 And would you spell that one? 21 THE WITNESS: Kennebec? 22 THE COURT: Yes. 23 THE WITNESS: K-E-N-N-E-B-E-C. 24 THE COURT: All right. And then the other three 25 you mentioned? 26 THE WITNESS: Somerset, Penobscot -- 27 THE COURT: And spell that one, please. 28 THE WITNESS: P-E-N-O-B-S-C-O-T. 8601 1 THE COURT: All right. And the last one? 2 THE WITNESS: Piscataquis. 3 THE COURT: And spell that one. 4 THE WITNESS: P-I-S-C-A-T-A-Q-U-I-S. 5 THE COURT: Thank you. 6 BY MS. BULGER: 7 Q. So on page 2 of your testimony, the third sentence 8 under when you are talking about Maine, you say that if 9 the model results were adopted unchanged, the respective 10 differentials would have incentivized Maine milk to leave 11 the state for plants in Eastern Massachusetts. 12 How much Maine milk leaves the state for plants in 13 Eastern Massachusetts under the current differentials? 14 A. I can tell you that the majority of our milk stays 15 in Maine right now. There's two or three loads a day that 16 leave the state. And we kind of wish they wouldn't, but 17 they do. 18 THE COURT: I hate to interrupt, but it's 19 5 o'clock, and I want to take just a few minutes to talk 20 about what we're going to do tomorrow. 21 And I want to know whether you would like to 22 collect your original exhibits to keep them overnight and 23 then give them back to the witness when he resumes. So if 24 you would come forward, and I would like the witness to 25 hand all of those, except 301, to the Agricultural 26 Marketing Service to keep, to return to you later, and 27 I'll take 301 because that one came from me. Thank you. 28 I'll allow this to stay at the witness stand. Thank you. 8602 1 So can you remember where you were? All right. 2 And whom shall I ask as to how we will proceed 3 tomorrow? Should I ask Ms. Hancock? 4 MS. TAYLOR: Once we do that, we would just like 5 to quickly put on two exhibits that we did get printed. 6 That will only take a minute. 7 THE COURT: Okay. Great. 8 Ms. Hancock, yesterday people said no way would 9 you use the time with the witnesses you had lined up. Oh, 10 ye of little faith. 11 Ms. Hancock, how would you like to proceed 12 tomorrow? 13 MS. HANCOCK: So, tomorrow, Your Honor, we will 14 finish Mr. Werme. And then in some order, although I 15 don't know if this is the order, we have Johnny Hiramoto, 16 Brent Butcher, Mike Hurting, John Kang. Dr. Cryan will go 17 on some point just to make sure that he is on and off. 18 THE COURT: Who did you say after Hurting? 19 MS. HANCOCK: John Kang, K-A-N-G. And then 20 Dr. Cryan. 21 THE COURT: Does anybody have any questions about 22 that? Did you hear? 23 Mr. English. 24 (Discussion had in the back of the room, not 25 reported.) 26 THE COURT: Very good. 27 Ms. Taylor, you have the floor. 28 MS. McMURTRAY: Yes, Your Honor. This is Michelle 8603 1 McMurtray. I am with the Office of the General Counsel at 2 USDA on behalf of the Agricultural Marketing Service. We 3 want to enter two exhibits that are just required by the 4 regulations just to make sure that they are on the record. 5 So the first one we have, I believe it's marked as 6 Exhibit 371, I believe is our next one, and it is the 7 Federal Register notice that just notices the reconvening 8 of the hearing. It is Federal Register Volume 88, number 9 213, published Monday, November 6th, 2023. Oh, and then 10 the page number is 76143. 11 (Thereafter, Exhibit Number 371 was marked 12 for identification.) 13 MS. McMURTRAY: And our second exhibit is the 14 press release that was posted on USDA's website. We have 15 it marked as Exhibit 372. 16 (Thereafter, Exhibit Number 372 was marked 17 for identification.) 18 MS. McMURTRAY: Once again, just required by 19 the regulations, making sure that notice of the hearing is 20 given to those who are interested. 21 So we would just -- we don't have any sponsors 22 just because they are required by the regulations, so we 23 would just ask that they be moved into part of the record. 24 And they are on the hearing website. We don't 25 have copies for everyone today, but they are there. 26 THE COURT: Yes. All right. 27 Is there any objection to the admission into 28 evidence of Exhibit 371, which is the Federal Register 8604 1 notice of our reconvened hearing that we began yesterday? 2 There are none. Exhibit 371 is admitted into 3 evidence. 4 (Thereafter, Exhibit Number 371 was received 5 into evidence.) 6 THE COURT: Does anyone object to the press 7 release that announced what was in that Federal Register 8 notice that has been marked as Exhibit 372? 9 There is no objection. Exhibit 372 is admitted 10 into evidence. 11 (Thereafter, Exhibit Number 372 was received 12 into evidence.) 13 THE COURT: All right. Is there anything further 14 before we end for the day? 15 There is not. We will be in recess until tomorrow 16 morning at 8:00 a.m., and we now go off record at 17 5:05 p.m. 18 (Whereupon, the proceedings were concluded.) 19 ---o0o--- 20 21 22 23 24 25 26 27 28 8605 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: January 4, 2024 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