Judge says USDA has authority to alter exemption

By MATEUSZ PERKOWSKI

Capital Press

A dairy farm that distributes its own milk has lost a legal challenge against a USDA policy that subjected it to federal milk pricing regulations.

GH Dairy of El Paso, Texas, claimed the agency violated federal law by altering an exemption that previously allowed such producer-handlers to operate outside the federal milk marketing order system, regardless of size.

An administrative judge with USDA has rejected the dairy's arguments, ruling that it was within the agency's authority to change the exemption.

Traditionally, producer-handlers who packaged and shipped only their own fluid milk were generally exempt from regional federal milk marketing orders, which seek to stabilize fluctuations in the dairy industry by regulating pricing.

In April 2010, however, the USDA decided to narrow that exemption across all marketing orders so that it only applied to dairies that shipped 3 million pounds or less of milk per month.

GH Dairy and other farms that produce and distribute more than 3 million pounds of milk per month opposed the new policy. Because they'd be subjected to the milk marketing order system, such producer-handlers would have to pay money into a fund aimed at equalizing prices for farmers.

GH Dairy filed a petition asking USDA to set aside the new policy, claiming that the agency had exceeded its statutory authority by making the change.

The company also claimed the agency's decision to alter the exemption was not based on substantial evidence of its necessity.

Administrative law Judge Victor Palmer disagreed with those conclusions.

Under federal law, such federal marketing orders only apply to milk "purchased from producers or associations of producers."

Since producer-handlers use their own milk and don't purchase it, GH Dairy argued the order shouldn't apply to them.

However, the judge said "purchased" must be construed broadly, to mean "acquired for marketing," according to U.S. Supreme Court precedent.

USDA also had enough evidence that the exemption was needed, the judge said.

The agency had found large producer-handlers could cause "disorderly market conditions" since they're not subject to the same rules as their regulated competitors.

A group of producer-handlers, the American Independent Dairy Alliance, had argued the exemption shouldn't be changed because they produce less than 1 percent of the milk sold in the U.S.

Milk should be subject to the free market rather than an "arcane system of regulation" that's no longer relevant, the group said.

The National Milk Producers Federation, which represents cooperatives, said the exemption should be narrowed to level the playing field for dairy manufacturers.

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