large volumes of unneeded Class II milk in
Texas and Oklahoma orders, where there are
competing cooperatives and nonmember pro-
ducers, for the purpose of driving down
the orders uniform prices. Their goal is
to increase the spread between member and
non-member prices, forcing these producers
to join MPI or handlers of their milk to
increase their pay prices, and thereby

increase their ability to exact substantial
premiums on Class I milk.

Further, U.S.D.A was fully cognizant of exactly how
certain order provisions facilitated, and in fact

encouraged, pool loading:

"Certain provisions of the South Texas,
North Texas and Oklahoma Metropolitan orders,
originally intended to facilitate the handling
of the markets' necessary reserve supplies,
permit the pooling of a cooperative's plant
without the necessity of shipping milk to other
pool plants. Using this provision in conjunction
with the liberal diversion provisions of the
orders (which also were developed to handle
efficiently reserve milk supplies), the coopera-
tives' ability to associate milk with the orders
is essentially unlimited.
position in which they can literally set the
Thus, they are in a
orders' uniform prices to nonmember producers at
little or no cost to themselves and, in conjunc-
tion with their reblending privilege under the
Act, can dictate the spread between member and
nonmember prices. Obviously, the orders were not
intended for this purpose.

21/

A follow-up memorandum dated August 14, 1970, 22/ noted also, "The motives of the cooperatives are quite apparent

21/ U.S.D.A. memo from Roy W. Lennarton to Richard E. Lyng. "Activities of Regional Cooperatives under Federal Milk Orders," June 8, 1970, p. 3, reproduced in U.S.D.A. Pressure Pooling Study, pp. 00057-59.

22/ U.S.D.A. Pressure Pooling Study, p. 00054.

to the industry irrespective of their public claims to

the contrary.

In fact, they privately admit to their

real objectives to others in the industry."

That pool loading was not merely efficient, rational movement and accounting of milk is clearly demonstrated by AMPI's pool loading experience in South Texas. Pool loading activities cost AMPI on average about $25,000/month over several years. 23/ Clearly, that cooperative was not seeking to maximize its profits unless the future benefit of reduced competition was expected.

"Reblending" refers to the process by which a regional cooperative can take the proceeds from raw milk sales in all federal orders in which it participates and return payments to all its members in proportions not reflecting the actual revenue received from the sale of a member's milk in his own market. The permission for cooperatives to reblend is specifically granted by the statute. 24/

Reblending is used for cross-subsidization purposes and as such plays a critical role in the ability of a regional cooperative to pool load successfully. In order

23/ P. Eisenstadt, et al., Appendix 5.23, p. 395, et seq. See also id. p. 435 n. 135 where a cooperative official indicated that pool loading was accomplished by merely changing a computer program: no milk was moved.

24/ 7 U.S.C. $ 608c (5) (F).

for independent producers to be coaxed into the cooperative, cooperative members must receive higher net returns on their milk than nonmembers receive. Otherwise, nonmembers would not be attracted to the cooperative. Unless the cooperative transfers funds from other operations to pay local members a price greater than the depressed blend price, the local members will be equally affected by the pool loading. They, too, would only receive the depressed blend price. Sometimes the cooperative need not "rob Peter to

pay Paul." When the cooperative is taking advantage of the point of diversion pricing provision for diverted milk, the authority to reblend enables the cooperative to pay its local members more than the local reblend price solely out of proceeds for milk pooled on the targeted order.

The way these provisions interact is described in the
"Statement of Consideration" to the U.S.D.A. order suspending
several federal milk order provisions:

The situation in March, 1971 is an example
of how this is accomplished. Some distant
milk supplies thus pooled in the Oklahoma market
were produced and normally utilized for manu-
facture in central Wisconsin. The Oklahoma
f.o.b. market blend price of $5.62 per hundred-
weight is the price for that milk at which the
cooperative is given credit in the Oklahoma pool.
The Chicago blend price in the central Wisconsin
area for milk being delivered to Chicago, and
which can be considered a competitive price in
that area, was $5.07 per hundredweight. If this

88-934-77 - pt. 1 - 53

milk had actually been shipped to Oklahoma the cost of shipment would have more than offset this difference of 55 cents. But the milk was not actually shipped: therefore, the cooperative did not have this cost. The cooperative, under the terms of the Act, is not required to pay the minimum price to its members and needed to pay only approximately the competitive price in the central Wisconsin area. Therefore, it had the advantage of approximately all of the 55 cents difference in price. The pooling of this milk and other distant milk reduced the Oklahoma blend price in March 1971 about 45 cents per hundredweight. The producer who was not a member of the cooperative received this announced price ($5.62 per hundredweight) exclusive of any premium which his handler might have paid him. The cooperative, on the other hand, paid its member producers delivering directly to Oklahoma more than $5.62, and this was accomplished without additional cost to the cooperative. The exact amount is difficult to determine because the cooperative pays on a base and excess plan. 25/ This situation represents one of the greatest advantages a cooperative can gain from its reblending privileges.

In the absence of "point of diversion" pricing, reblending becomes necessary for a cooperative to effectively pool load. The only difference is that the total profit of the cooperative is not necessarily increased by pool loading: it is simply redistributed in favor of those member producers in target pool areas. This is easier to do when the cooperative is collecting over-order

25/ Federal Register, Vol 36, No. 107 (June 3, 1971), p. 10776, reproduced in U.S.D.A. Pressure Pooling Study, p. 13-14.

premiums in other markets where it has greater control.

Or, where the opportunity costs in another order are

lower than the blend price in the loaded order, the

cooperative will realize increased income to subsidize
The Department of Agriculture was

its pool loading.
well aware of the cooperative's practices:

"Their

own members will not lose through this (pool loading) activity because they will continue to reblend the proceeds from their sales in all markets, as cooperatives are privileged to do under the Act." 26/ The elimination of the reblending privilege would have fairly immediate effects on the prevalence and success of pool loading. However, no known efforts were made to propose remedial changes in the reblending provision.

D. Block Voting

"Block voting" is a process by which a cooperative is entitled to cast the votes for its members as a block in matters pertaining to federal milk orders. 27/ The issuance of a milk marketing order requires a determination by the Secretary of Agriculture that the issuance of the

26/ Lennartson Memorandum, June 8, 1970, supra n. 21, p. 2, contained in U.S.D.A. Pressure Pooling Study, p. 57. The specific provision was placed in the statute in 1935, but the legislative history offers no explanation of how the provision would contribute to the goals of the Act.

27/ 7 U.S.C. $ 608c (12). Votes on the institution of a Class I base plan are the only exception to this practice. 7 U.S.C. S 608c (5) (B).