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Rule2023-18148

Dairy Donation Program

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Published

August 24, 2023

Effective

August 25, 2023

Issuing agencies

Agriculture DepartmentAgricultural Marketing Service

Abstract

This rule finalizes establishment of the Dairy Donation Program as required by the Consolidated Appropriations Act of 2021. Under the program, eligible dairy organizations that account to a Federal milk marketing order and incur a qualified expense related to certain dairy product donations may apply for and receive reimbursements for those donations. The program facilitates dairy product donations and minimizes food waste. The program works in tandem with the Milk Donation Reimbursement Program, and thus this rule also makes corresponding changes to those regulations.

Full Text

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<title>Federal Register, Volume 88 Issue 163 (Thursday, August 24, 2023)</title>
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[Federal Register Volume 88, Number 163 (Thursday, August 24, 2023)]
[Rules and Regulations]
[Pages 57861-57873]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-18148]

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Rules and Regulations
Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents.

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Federal Register / Vol. 88, No. 163 / Thursday, August 24, 2023 /
Rules and Regulations

[[Page 57861]]

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 1146 and 1147

[Doc. No. AMS-DA-21-0013]
RIN 0581-AE00

Dairy Donation Program

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule finalizes establishment of the Dairy Donation
Program as required by the Consolidated Appropriations Act of 2021.
Under the program, eligible dairy organizations that account to a
Federal milk marketing order and incur a qualified expense related to
certain dairy product donations may apply for and receive
reimbursements for those donations. The program facilitates dairy
product donations and minimizes food waste. The program works in tandem
with the Milk Donation Reimbursement Program, and thus this rule also
makes corresponding changes to those regulations.

DATES: This final rule is effective August 25, 2023.

FOR FURTHER INFORMATION CONTACT: Erin Taylor, Director, Order
Formulation and Enforcement, AMS Dairy Program, USDA; 1400 Independence
Avenue SW, Room 2524-S, Washington, DC 20250; telephone: (202) 720-
7311; email: <a href="/cdn-cgi/l/email-protection#8dc9c9ddcdf8fee9eca3eae2fb"><span class="__cf_email__" data-cfemail="bcf8f8ecfcc9cfd8dd92dbd3ca">[email&#160;protected]</span></a>; web address: <a href="http://www.ams.usda.gov/ddp">www.ams.usda.gov/ddp</a>.

SUPPLEMENTARY INFORMATION: Section 762 of the Consolidated
Appropriations Act of 2021 (CAA) (Pub. L. 116-260) authorizes the
Secretary of Agriculture (Secretary) to establish a program to
reimburse dairy organizations for donated dairy products to non-profit
organizations for distribution to recipient individuals and families.
The Secretary delegated authority to establish and administer this
program to the Agricultural Marketing Service (AMS). The program was
implemented on September 1, 2021, through an interim final rule (86 FR
48887). This rule finalizes and makes minor changes to the provisions
of the Dairy Donation Program (DDP) codified at 7 CFR part 1147.
Program provisions are intended to encourage the donation of dairy
products and to prevent and minimize food waste.
The DDP is an additional donation program that overlays existing
United States Department of Agriculture (``USDA'' or ``Department'')
dairy milk donation activities, such as the Milk Donation Reimbursement
Program (MDRP). The MDRP was established as part of the 2018 Farm Bill
to facilitate the donation of fluid milk products and avoid food waste.
The program was funded with $9 million in fiscal year 2019, and $5
million per fiscal year thereafter. DDP and MDRP are separate from USDA
purchase programs. These donation programs provide for reimbursement of
certain costs for donations made between two private entities. Food
purchases under USDA's The Emergency Food Assistance Program (TEFAP)
and Section 32 programs are made through a bid process where USDA
purchases the product and arranges for delivery to the distribution
point.
DDP and MDRP are separate and distinct from USDA's Dairy Margin
Coverage (which acts as a safety net program), indemnity and disaster
assistance programs, risk management tools through the public-private
partnership of the Federal Crop Insurance Program, or USDA purchases of
commodities, which may include dairy products depending on the market
conditions and demand from school lunch or nutrition programs.
This rule also makes corresponding minor changes to the MDRP
provisions (codified at 7 CFR part 1146) previously amended by the
interim final rule. In this rule, AMS is making minor changes to the
DDP information collection forms, which also apply to MDRP, to gain
administrative efficiencies and lessen the burden for entities
participating in the two programs. The form changes include adding
distribution center as an additional entity type and allowing for the
Dairy Donation and Distribution Plan to include multiple partnerships
per eligible dairy organization. These changes will be discussed in
more detail later in the rule.

Background

In 2020, the COVID-19 pandemic disrupted dairy supply chains and
displaced significant volumes of milk normally used in food service
channels. This led to milk being dumped or fed to animals across the
United States. AMS estimates that the volume of milk dumped due to
pandemic-related supply chain issues was almost triple what is
typically observed during normal market conditions.\1\ At the same
time, amidst surging unemployment and economic hardship nationwide, an
increasing number of individuals needed nutrient-dense foods such as
dairy products. Throughout 2020 and 2021, milk and dairy products were
included in food donations authorized under the Coronavirus Aid,
Relief, and Economic Security Act (CARES) and through the Commodity
Credit Corporation (CCC). In December 2020, Congress authorized an
additional $400 million until expended to establish the DDP, designed
to encourage the timely and efficient distribution of dairy products to
families and individuals while reducing food waste.
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\1\ USDA Federal Milk Marketing Order Statistics, Other Use
Volumes, March and April, 2015 through 2021.
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While the DDP was intended to assist in balancing the supply chain
during the pandemic recovery, it also provides the benefit of creating
an incentive to donate dairy products during the normal spring flush of
milk production. During normal marketing years (pre-pandemic), daily
milk production in the spring averaged 6 to 7 percent more than in the
lower production months of the fall.\2\ USDA's Economic Research
Service (ERS), using 2020 and 2021 food security data, estimates that
10.5 and 10.2 percent, respectively, of U.S. households were food
insecure.\3\ The United States remains in the midst of the recovery,
and even while employment is returning to normal levels, there
continues to be food insecurity. The persistent need for

[[Page 57862]]

nutrient-dense foods such as dairy products can be met, in part,
through donations encouraged by the DDP.
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\2\ USDA, National Agricultural Statistics Service, Monthly Milk
Production data, 2012 through 2020. <a href="https://usda.library.cornell.edu/concern/publications/h989r321c?locale=en">https://usda.library.cornell.edu/concern/publications/h989r321c?locale=en</a>.
\3\ Trends in U.S. Food Security, 2020 and 2021; Update for
October 18, 2022. <a href="https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/interactive-charts-and-highlights/#childtrends">https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/interactive-charts-and-highlights/#childtrends</a>, accessed August 23, 2021.
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An interim final rule was published in the Federal Register on
September 1, 2021 (86 FR 48887). Copies of the rule were made available
through the internet by the Department and the Office of the Federal
Register. The rule provided a 60-day comment period which ended
November 1, 2021. Four comments were received, which are discussed in
the applicable sections of this final rule. While all comments
supported the program, some requested consideration of changes to
specific program provisions.
The program was initially established through an interim final
rule, with regulations set to expire on September 1, 2023, unless
program provisions are finalized. Congress rescinded current program
funding through the Financial Responsibility Act of 2023,\4\ enacted on
June 3, 2023. However, this final rule completes the DDP rulemaking by
addressing relevant public comments, making minor administrative
changes to reduce burden on the industry, and removing the program's
sunset provision.
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\4\ Public Law 118-5.
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The following paragraphs give a general overview of how the DDP
operates. Detailed explanations of program provisions can be found
later in the Program Provisions section.

Who is eligible to participate?

Program eligibility continues to be open to eligible dairy
organizations (EDOs), defined as dairy farmers (either individually or
as part of a cooperative) or dairy processors that meet the following
conditions: (1) account to a Federal Milk Marketing Order (FMMO)
marketwide pool; and (2) incur a qualified expense. Although the
definition of EDO includes individual dairy farmers, most farmers might
not meet the other specified provisions to qualify as EDOs. For
example, most farmers would not incur qualified expenses since they do
not have the infrastructure to process raw milk into donated eligible
dairy products. Those individual dairy farmers who do meet the required
provisions would qualify as EDOs under statutes and this rule for both
the DDP and MDRP.
The DDP and MDRP refer to the same statutory EDO definition;
interpretation of that definition contained in the interim final rule
was adopted by both programs. This final rule amends that
interpretation, as explained below, to lessen the burden on
participants and gain administrative efficiencies.
(1) Account to an FMMO Marketwide Pool
The DDP authorizing statute \5\ adopts the EDO definition contained
in the statute establishing the MDRP.\6\ When AMS implemented the MDRP,
it interpreted the statutory language, ``account to an FMMO marketwide
pool,'' to apply to entities regulated by, and therefore filing reports
with, an FMMO. Participation in the MDRP was limited, partly due to the
requirement to be regulated.
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\5\ Sec. 762(a)(1) of the Consolidated Appropriations Act of
2021.
\6\ Sec. 1431 of the Agricultural Act of 2014 (7 U.S.C.
9071(a)). Implementing regulations are codified at 7 CFR part 1147.
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The COVID-19 pandemic and its impacts affected the entire United
States. Supply chain disruptions described earlier were not limited to
only those regulated by an FMMO. Consequently, Congress authorized the
DDP through a broad relief package. In reviewing Congressional intent
to encourage dairy product donation across the country, AMS determined
the interpretation of ``account to'' as requiring regulation by an FMMO
to be too narrow. Instead, a broader definition allowing for an EDO to
``account to'' an FMMO marketwide pool by filing a report with an FMMO
office was deemed more appropriate. Consequently, the interim final
rule revised the definition of ``eligible dairy organization'' for MDRP
by removing the requirement that the EDO be regulated under an FMMO. It
also adopted the same definition for the DDP.
In the interim final rule, USDA determined that the specific report
that an EDO must submit to ``account to'' an FMMO marketwide pool was a
monthly report that lists its fresh fluid products and/or bulk dairy
commodity products purchased and how they were utilized to produce
donated eligible dairy products. A comment from a Puerto Rican dairy
processor explained that the industry, as well as consumers, suffered
severe economic losses due to the pandemic, which were exacerbated in
Puerto Rico due to its isolation from major US markets. The commenter
suggested that the program provide more reporting flexibility in non-
FMMO regions to make program impacts more equitable.
AMS agrees with this commenter. To receive a reimbursement for
donations under the DDP, an EDO is required to submit a Reimbursement
Claim Form. Requiring entities not regulated by an FMMO to submit a
monthly report in addition to the Reimbursement Claim Form is overly
burdensome for participants because both forms contain duplicative
information.
The filing of the initial report serves to establish a relationship
between the EDO and the FMMO office that will be auditing its DDP
reimbursements. All other information needed to administer the program
is submitted through the application and reimbursement process. There
is no additional need to collect duplicative information through a
monthly report filing with the FMMO office. Therefore, this final rule
finds that accounting to an FMMO marketwide pool can be satisfied by an
entity submitting a report once to any FMMO office. EDOs can contact
their local FMMO office or access the DDP website to determine the
applicable FMMO office where the report should be filed. The filing of
this report for the purpose of participating in the DDP does not cause
the EDO to become regulated by the FMMO. For the reasons so stated,
USDA is amending the definition in this final rule as requested by the
commenter.
(2) Incur a Qualified Expense
The statute further specifies that an EDO must incur a qualified
expense. Since only Class I fluid products are donated through the MDRP
and most Class I processors are regulated by an FMMO, incurring a
qualified expense in the MDRP was originally interpreted as paying
minimum classified values into an FMMO pool because that is the
requirement for processors regulated by an FMMO. The interim final rule
found that an EDO no longer needed to be regulated under an FMMO and
added a definition of ``qualified expense'' to MDRP regulations to
specify that a qualified expense is not tied to the FMMO regulatory
requirement of paying minimum classified values. The DDP adopted the
same definition in the interim final rule. This final rule continues to
find those provisions appropriate.
EDOs incur a qualified expense by either purchasing a fluid milk
product (raw milk, skim milk, cream, or concentrated fluid milk
products) for processing into an eligible dairy product or purchasing
bulk dairy commodity product for further processing into an eligible
dairy product.
Dairy processors often buy fluid milk products for processing into
dairy products. Dairy processors also purchase bulk dairy commodity
products for further processing into retail packages. For example, a
processor buys 40-pound cheese blocks to further process and package
into 8-ounce blocks or bags of shredded cheese

[[Page 57863]]

typically preferred by consumers and eligible distributors alike. The
DDP is intended to facilitate these types of product donations.
Therefore, in addition to processors who buy fluid milk products for
processing, the DDP allows secondary processors who purchase and
further process bulk commodities for donation to qualify as an EDO. To
be considered an EDO, a secondary processor also needs to account to an
FMMO marketwide pool as described earlier.
Once these two above conditions--accounting to an FMMO and
incurring a qualified expense--are met, EDOs participate in the program
by forming partnerships with eligible distributors and then submitting
a Dairy Donation and Distribution Plan (Plan) to AMS for approval. If
an EDO or eligible distributor is looking for a partner, they may
contact the DDP Office (<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="4b2f2f3b0b3e382f2a652c243d">[email&#160;protected]</a>) for assistance.

What is reimbursed?

Upon Plan approval, EDOs can submit a Reimbursement Claim Form
(Claim Form) to receive reimbursement for donations. The DDP reimburses
EDOs for some of the following: a. input costs: milk equivalent of
either a fluid milk product or a bulk dairy commodity product used in
the eligible dairy product; b. manufacturing costs; and c.
transportation costs.
a. Input Costs--Fresh Fluid Milk or Bulk Dairy Commodity Product Milk
Equivalent
In the FMMO system, milk is priced based on its end use. FMMO
classifications are generally: Class I--traditionally the highest-class
price--for beverage fluid milk products such as whole, skim, nonfat,
and flavored milks; Class II for soft products such as yogurt, ice
cream, and packaged fluid cream; Class III for spreadable and hard
cheeses; and Class IV for butter and dried milk products. Announced
monthly, FMMO-minimum classified prices reflect surveyed end-product
wholesale market prices. Under an FMMO, regulated processors are
required to pay at least minimum classified values based on how they
use their milk.
This final rule continues to find that for processors purchasing
and processing fresh fluid milk products (raw milk, skim milk, cream,
or concentrated fluid products), the DDP will reimburse for the FMMO-
minimum classified value applicable on the date of production for fresh
fluid milk products used to make donated eligible dairy products. FMMO
prices are a good approximation of what the processor paid for the
fresh fluid milk products because they represent observed market values
paid for product at the time of purchase.
The DDP does not reimburse for powders and other dry dairy products
used as an ingredient in eligible dairy products (for example, powder
used to fortify cheeses or ice cream.) Reimbursement is not extended to
these ingredients because the DDP is designed to encourage the use of
excess fresh fluid milk for donation, rather than being dumped. Dry
milk powders in retail packaging--such as 10-ounce containers of nonfat
dry milk, which are made directly from fresh fluid milk--continue to be
considered eligible dairy products under this program, as surplus milk
is likely manufactured into dry milk powder as opposed to being dumped.
Since FMMO minimum classified prices are stated on a hundredweight
basis, EDOs should continue to report donations in the quantity and
size of the donated product, which is converted to hundredweights with
a yield factor (how much product can be made from 100 pounds of milk).
Applicable announced minimum class skim and butterfat prices are used
in determining the input cost of the donated dairy product. EDOs have
the ability to provide an actual product yield factor, or the EDO can
use a standard yield factor. Standard yield factors are posted on the
DDP website.
Secondary processors buying bulk dairy commodity products for
further processing and donation, as described earlier, will continue to
be reimbursed at the classified use value applicable for the month the
eligible dairy product was processed into the consumer-type package.
The reimbursed value represents the milk-equivalent market price of the
bulk dairy product at the time of conversion into an eligible dairy
product.
b. Manufacturing Costs
Processors incur expenses beyond input costs to make dairy
products. To encourage dairy product donations, this final rule
continues to reimburse for some of the manufacturing costs incurred to
convert fluid milk products into eligible dairy products. These
manufacturing costs are reimbursed at the manufacturing (make)
allowance levels contained in the FMMO uniform pricing formulas, which
are generally accepted by the industry as representative costs of
manufacturing dairy products from raw milk.
The interim final rule found it appropriate for the Class IV make
allowance contained in the Class IV price formula to apply to Class I
and II products. USDA lacked data on Class I and II manufacturing costs
and asked for public comment on this issue in the interim final rule. A
comment submitted from a dairy trade association included average
ranges for Class I and II manufacturing costs for its members that
produced such products. Submitted information concluded Class I costs
ranged from $4.50-$10 per hundredweight (cwt) and Class II costs ranged
from $5-$6 per cwt. While the cost ranges provided a general
approximation of those experienced by its members, the comment lacked
details on the underlying data needed to determine what the average
cost ranges represented. For example, the submission did not include
the specific products represented, the data collection timeframe, types
of costs incurred, geographic disbursement of plants, size of plants,
or how much of the Class I or II markets were represented. No other
comments on Class I and II manufacturing costs were received.
While the data provided lacked detail, it is reasonable to conclude
the Class IV manufacturing allowance, which equates to $2.16 per cwt,
is significantly lower than the actual cost experienced by Class I
plants. This final rule continues to find that while the DDP should not
reimburse for all manufacturing costs, it should strive to reimburse at
a level adequate for processors to choose to process and donate dairy
products instead of dumping milk.
During the first year of administering the DDP, USDA experienced
fluid milk processors choosing not to participate because the
reimbursement rate was too low. As the statutory objective of the
program is to encourage the donation of milk and dairy products to
individuals and families, this final rule finds that the manufacturing
cost reimbursement for Class I products should be increased.
As the input cost reimbursed through the DDP aligns with the
product's classification, this final rule finds manufacturing costs
should be similarly aligned. Under FMMOs, the base raw skim milk value
of Class I products is the average of the Class III and Class IV skim
milk price formulas, plus $0.74. Implicitly, this means Class I
handlers regulated by the FMMO system receive a Class I manufacturing
allowance that is the average of the Class III and Class IV
manufacturing allowances. Therefore, this final rule finds the
manufacturing cost reimbursement for Class I products donated through
the DDP should likewise be the average of the Class III and Class IV
manufacturing

[[Page 57864]]

allowances. Currently those manufacturing allowances equate to $3.17
per cwt and $2.16 per cwt, respectively, resulting in an average of
$2.67 per cwt.
Recognizing Class II products are priced off the Class IV advanced
skim milk pricing factor, Class II manufacturing costs reimbursed
through the DPP will remain at the Class IV level, currently $2.16 per
cwt.
This final rule makes no changes to the manufacturing cost
reimbursement for Class III and IV products, which equates to $3.17 and
$2.16 per hundredweight, respectively, for milk containing 3.5 percent
butterfat. If the FMMO make allowances are updated in the future, DDP
regulations referencing the FMMO regulations will be automatically
adjusted.
The public comment submitted by the dairy trade association also
suggested DDP manufacturing cost reimbursement be adjusted to more
accurately reflect actual component tests of raw milk. The current FMMO
make allowances, and therefore the DDP manufacturing reimbursement
levels, reflect standard component levels--3.5% butterfat, 2.99%
protein, and 5.69% other solids. According to the commenter, actual
component tests of raw milk are higher (4% butterfat, for example). The
comment states that incorporating these higher component levels would
increase the manufacturing reimbursement under the DDP. This final rule
finds the factors contained in the manufacturing allowances used in
both the FMMO program and the DDP should be consistent. If FMMO make
allowances are amended, this final rule allows for DDP manufacturing
cost reimbursements to change automatically.
c. Transportation Costs
Transportation costs from the processor to a distribution outlet
are often cost prohibitive. Absent reimbursement, processors may not be
willing to incur additional transportation costs, and feeding
organizations may lack the funding to cover these costs to facilitate
the donation. The DDP aims to facilitate timely donations and reduce
food waste. Therefore, this final rule continues to find the DDP should
cover part of the transportation costs from the EDO to the eligible
distributor. This may be especially beneficial to rural communities
whose donation sites are often far from plants serving them and who may
not receive assistance from other government feeding programs with
distribution points closer to urban centers.
As the reimbursement value is paid to the EDO, the DDP only
reimburses for transportation if the EDO incurred the expense. If
donated eligible dairy products are picked up from the plant by the
eligible distributor, no transportation reimbursement will be paid.
Details of the transportation cost reimbursement rate are explained
later in this rule.

Total Reimbursement Value

Section 762(d)(2)(A) of the CAA specifies that total
reimbursement--the sum of input, manufacturing, and transportation
costs--must be set neither too high to ``interfere with the commercial
marketing of milk or dairy products'' nor too low to ``be sufficient to
avoid food waste.'' The statute further requires total reimbursement to
be between the highest and lowest of the classified milk values. To
ensure costs can be sufficiently covered for most donations, the
interim final rule capped the total reimbursement payment, on a per cwt
basis, at the Class I value for the highest FMMO differential zone
(Dade County, Florida). Capping at the highest FMMO zone allowed for
Class I handlers to obtain some reimbursement for manufacturing and
transportation costs.
Section 762(d)(2)(B)(iv) of the CAA further allows the Secretary to
maintain traditional price relationships--Class I being the highest,
followed in sequence by II, III and IV--in setting the reimbursement
rate. In 2020, dairy markets experienced pronounced class price
inversions, where the Class III price was significantly higher than the
Class I price in many areas of the country. However, the Class III
price has been above the Class I price in Dade County, Florida, only
three times since the current pricing system was adopted on January 1,
2000.\7\ No extreme price inversions have occurred since the interim
final rule was published, and such extreme inversions are not
anticipated in the foreseeable future. While the DDP does not directly
determine classified prices and price relationships, the interim final
rule found that program rules should not exacerbate price inversions if
they occur. In times of price inversion, where the Class I price is not
the highest-class price, the interim final rule continued to cap total
reimbursements at the Class I price for Dade County, Florida. This
final rule continues to find the reimbursement cap appropriate.
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\7\ USDA, Federal Milk Marketing Order Statistics, Final Class
and Component Prices by Order. <a href="https://www.ams.usda.gov/resources/marketing-order-statistics/final-class-and-component-prices-order">https://www.ams.usda.gov/resources/marketing-order-statistics/final-class-and-component-prices-order</a>.
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When do plans and reimbursement claims need to be submitted?

Entities must submit Plan and Eligible Distributor Certification
Forms (Certification Forms) to AMS for approval before they can submit
Claim Forms for reimbursement. Reimbursement Claim Forms, along with
supporting documentation, can be filed any time after the Plan is
approved and the donation is made. AMS uses the supporting
documentation to verify program requirements were met. Plans only need
to be submitted once for approval. The DDP does not require annual Plan
renewal.

How does AMS handle both the DDP and MDRP?

Although program funds for the DDP and MDRP are statutorily
prohibited from being consolidated, the two programs operate as one
from a stakeholder standpoint. EDOs making Class I fluid milk product
donations which are covered by both programs are reimbursed through
MDRP funds at the difference between the Class I and lowest classified
price and receive a supplemental reimbursement of the lowest classified
price plus the manufacturing and transportation cost reimbursement
through DDP funds. Total combined reimbursement is capped at the Class
I price in Dade County, Florida.
EDOs already enrolled in MDRP were automatically enrolled in the
DDP when the interim final rule became effective. Subsequently, they
received supplementary payments for fluid milk products donated under
their currently approved MDRP Plans.

Is there a retroactive period for reimbursement?

Section 762(h) of the CAA requires supplementary payments be made
to EDOs participating in the MDRP for donations made on or after
January 1, 2020. Since the statute allows for retroactive reimbursement
to those participating in the DDP, a retroactive date of January 1,
2020, was adopted in the interim final rule to apply to the DDP to
streamline administration of the two programs. To ensure adequate
availability of funds for donations made before enactment of the CAA,
total program expenditures for eligible dairy product donations made
from January 1, 2020, to December 27, 2020, were limited to no more
than $50 million under the interim final rule.\8\ A deadline

[[Page 57865]]

for requesting retroactive reimbursement was posted on the AMS web page
for the DDP, and roughly $712,000 in retroactive claims were submitted.
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\8\ As indicated in the Economic Analysis contained in the
interim final rule, USDA expected the DDP to expend $68 million
annually. In determining funds available for this retroactive
period, USDA limited expenditures to approximately 80 percent ($50
million), consistent with other USDA COVID-19 recovery programs (7
CFR part 9--Coronavirus Food Assistance Program).
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Program Provisions

The following details the DDP provisions and amendments to the
MDRP, where applicable.

Definitions

The statute includes definitions for terms used. Section 1147.1
provides definitions for terms as they are used in the new program. Key
terms are ``eligible dairy organization,'' ``eligible dairy product,''
``eligible distributor,'' ``eligible partnership,'' and ``qualified
expense.'' This final rule makes no changes to these definitions.
Eligible dairy organization (EDO). As explained in the Background
section, section 762(a)(1) of the CAA adopts the same EDO definition
contained in the statute establishing the MDRP. See Sec. 1431(a) and
(b) of the Agricultural Act of 2014 (7 U.S.C. 9071(a)). The regulatory
definition matches the statutory definition, which specifies that a
dairy organization eligible to participate in the program is a dairy
farmer, either individually or as part of a cooperative, or a dairy
processor that: (1) accounts to an FMMO marketwide pool; and (2) incurs
qualified expenses. See id.
Eligible dairy product. Section 762(a)(2) of the CAA specifies that
only dairy products primarily made from milk, including fluid milk,
produced and processed in the United States are eligible for donation
and reimbursement under the DDP. Additional standards defining further
requirements for eligible dairy products are described in the commodity
specification provisions. Accordingly, Sec. 1147.1 defines ``eligible
dairy product'' as a dairy product meeting the commodity specifications
referenced in Sec. 1147.3.
Eligible distributor. Section 762(a)(3) of the CAA defines
``eligible distributor'' as ``a public or private nonprofit
organization that distributes donated eligible dairy products to
recipient individuals and families.'' Section 1147.1 likewise defines
``eligible distributor'' as a public or private non-profit feeding
organization distributing, or coordinating the distribution of, donated
eligible dairy products to recipient individuals and families. Eligible
distributors such as food banks, shelters, kitchens, and other food
distribution organizations are eligible so long as they are nonprofit
entities. Under this program, participating eligible distributors fill
out an Eligible Distributor Certification Form to verify their non-
profit status and affirm they have appropriate facilities and processes
for distributing donated dairy products to recipient individuals and
families.
Eligible partnership. Section 762(c) of the CAA requires an EDO and
eligible distributor form a partnership to participate in the DDP.
Requiring parties to apply as a partnership ensures all program
provisions are met and an agreed-upon structure is in place when
eligible dairy products are available for donation and distribution.
Section 762(a)(4) of the CAA defines ``eligible partnership'' as ``a
partnership between an eligible dairy organization and an eligible
distributor,'' and this rule continues to find the same definition
appropriate.
AMS recognizes some EDOs may have processing plants in multiple
locations reporting to different FMMOs. Similarly, eligible
distributors may have multiple distribution sites; for example, several
food pantries are operated by one umbrella organization. Thus, under
Sec. 1147.102(a), the eligible partnership can submit one Plan to
cover multiple plants and/or distribution locations as long as only one
EDO is represented.
Qualified expense. The statute does not define ``qualified
expense,'' but does specify one needs to be incurred to be eligible for
program participation. Section 1147.1 defines ``qualified expense'' as
the cost incurred to purchase fresh fluid milk for processing into
eligible dairy products or the cost incurred to purchase bulk dairy
commodity products for further processing into eligible dairy products.
A qualified expense is different than the reimbursement rate, which is
described later in this final rule. Because defining ``qualified
expense'' is fundamental to determining program eligibility and the
MDRP and DDP reference the same ``eligible dairy organization''
statutory definition, the ``qualified expense'' definition was added to
the MDRP regulation in the interim final rule and remains unchanged by
this final rule.
Additional terms necessary for administration of the program are
defined in Sec. 1147.1. ``Program'' is defined as the Dairy Donation
Program, and ``Secretary'' is defined as the Secretary of the United
States Department of Agriculture or a representative authorized to act
in the Secretary's stead.

Commodity Specifications

The final rule amends the DDP's commodity specification provisions
to expand applicability to eligible distributors, as explained below.
The DDP is intended to reimburse eligible dairy organizations for
timely donations of eligible dairy products and minimize food waste. It
is therefore reasonable to ensure eligible dairy products donated under
the DDP meet minimum food safety and quality standards and are in
package sizes desired by eligible distributors, consistent with the
intent of the program to minimize food waste that might otherwise
result. The final rule makes no changes to Sec. 1147.3, which defines
the program's commodity specifications.
The final rule continues to require that EDOs comply with all
applicable Federal, State, and local laws, executive orders, and rules
and regulations related to its performance under this program.
To qualify under the program, eligible dairy products must:
1. Be made primarily from cow's (bovine) milk produced in the
United States;
2. Be packaged in consumer-sized packaging; and
3. Meet the applicable provisions for dairy products in the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 301 et. seq.), as amended.
Grade `A' dairy products must meet the applicable provisions of the
current edition of the Pasteurized Milk Ordinance \9\; and
---------------------------------------------------------------------------

\9\ <a href="https://www.fda.gov/food/guidance-documents-regulatory-information-topic-food-and-dietary-supplements/milk-guidance-documents-regulatory-information">https://www.fda.gov/food/guidance-documents-regulatory-information-topic-food-and-dietary-supplements/milk-guidance-documents-regulatory-information</a>.
---------------------------------------------------------------------------

4. Have a sell-by, best-by, or use-by date no sooner than 12 days
from the date the eligible dairy product is delivered to the eligible
distributor.
Currently, bovine cow's milk is the only type of milk in surplus
being dumped at the farm. Since the program is designed to prevent
surplus milk from being dumped at the farm, it is the Secretary's
discretion to limit the DDP to cow's (bovine) milk.
Program provisions also specify donated dairy products must be in
consumer-sized packaging. This provision should be interpreted by the
eligible partnership as to whatever consumer-sized package is agreeable
to both entities. Examples of consumer-sized packaging include, but are
not limited to, gallons of milk, 8-ounce blocks of cheese, single serve
containers of yogurt, 1-pound packages of butter, or large bags of milk
if the eligible distributor has the ability to dispense (i.e., a soup
kitchen). When submitting

[[Page 57866]]

Plans for approval, the EDO is required to list what types of products
it will be donating. The submitted information is checked against the
distribution process explained by the eligible distributor to ensure it
has the ability to distribute the types of products to be donated.

Program Eligibility and Participation

As explained below, this final rule makes no changes to the program
eligibility and participation provisions, except for a modification of
the Plan submission requirements designed to lessen the burden on
participants.
Section 1147.100 requires an eligible dairy organization must be a
member of a partnership whose Plan has been approved by AMS to be
eligible for reimbursements under the DDP.
Section 1147.102 outlines requirements for Plan submission in order
to be considered for the program. The interim final rule required the
EDO to submit a Plan for each partnership. Upon administering the
program, AMS found requiring an EDO to submit a separate Plan for each
partnership overly burdensome to participants, as the EDO was
submitting the same information about its operations on multiple Plans.
Allowing Plans to cover multiple partnerships with the same EDO
eliminates reporting redundancies, increases efficiencies, and reduces
participant burden. Plans must continue to include a signed affirmation
regarding the type of product to be donated and the EDO's ability to
process and transport eligible dairy products consistent with the
requirements in the commodity specifications under Sec. 1147.3.
Along with the Plan submission, eligible distributors are required
to submit a signed Certification Form, which includes a description of
the eligible distributor's distribution process, contact information,
and a tax identification number to ensure compliance with program
provisions. AMS has found that details of a particular partnership-the
EDO and the eligible distributor--are sufficiently covered in the
information provided in the Eligible Distributor Certification Form.
Accordingly, this final rule amends the regulations to allow the EDO to
submit one Plan to cover all its partnerships and a separate
Certification Form for each eligible distributor to AMS.
As specified in Sec. 1147.208, AMS only collects information
deemed necessary to determine whether an eligible partnership's Plan
should be approved. All proprietary business information submitted is
used only for the purposes of the program and kept confidential by AMS.
Section 1147.104 specifies the process AMS will continue to use to
review and approve program applications. Within 15 business days of
application submission, AMS reviews the Plan and Certification Form,
determines whether to approve or disapprove, and notifies the eligible
partnership of the determination. Under Sec. 1147.104(a)(1), AMS
reviews the information submitted by the partnership, including the
signed affirmation that the partnership can meet the requirements
related to proper processing, transport, storage, and distribution of
eligible dairy products. Under Sec. 1147.104(a)(2), AMS considers the
extent to which the Plan would advance the statutory purposes of the
DDP, namely, whether the Plan would facilitate the timely donation of
eligible dairy products and prevent and minimize food waste. See Sec.
762(b) of the CAA.
Finally, section 762(c)(2)(B)(i) of the CAA specifies that priority
review is given to submitted Plans where an emergency or disaster was a
substantial factor, including a declared or renewed public health
emergency under section 319 of the Public Health Service Act (42 U.S.C.
247(d)) or a disaster designated by the Secretary. In reviewing a Plan,
AMS determines if an emergency or disaster was a substantial factor in
the Plan's submission. In this case, ``substantial factor'' means that
a supply and/or demand disruption caused by the emergency or disaster
event is a main reason for the partnership submitting the Plan. For
example, the COVID-19 public health emergency--which caused a
significant decrease in school and restaurant dairy demand, leading to
large volumes of displaced milk and many people in need of food
assistance--could be considered a justification for priority review. If
an emergency or disaster is deemed a substantial factor, AMS
prioritizes review of that Plan to facilitate donations and meet an
immediate need. Section 1147.104(a)(3) incorporates those factors for
Plan prioritization.
Once approved, Plans do not need to be resubmitted in subsequent
fiscal years, unless changes are made. Eligible partnerships that
received reimbursement from the MDRP were automatically enrolled in the
DDP when the program was implemented and became eligible to receive the
supplemental reimbursement as defined in Sec. 1147.109.

Reimbursement and Reimbursement Price

This final rule makes minor administrative changes to the
Reimbursement Claim Form and subsequently the MDRP and DDP regulations,
to ensure proper reimbursement rates. This rule continues to find the
reimbursement price--the sum of input, transportation, and
manufacturing costs--an appropriate reimbursement rate to meet program
objectives.
Section 762(d) of the statute requires the Secretary to reimburse
EDOs with approved Plans. Section 1147.106(a) provides the process and
describes the necessary information and documentation AMS requires to
verify the EDO's donation and calculate its reimbursement. To receive
reimbursement, the EDO must complete and submit a Reimbursement Claim
Form (Claim Form) that includes: the type, volume, and manufactured
date of the eligible dairy products donated; the entity type
(processor, co-pack facility, distribution center, or eligible
distributor); the physical address(es) of the eligible dairy
organization's processing plant(s), co-pack facility(ies), and
distribution center(s), and the eligible distributor's distribution
site(s); the universal product code(s) (UPCs) for donated product(s);
the sell-by, best-by, or use-by date(s) for donated product(s); and the
dates the donated dairy products were processed and shipped to the
eligible distributor.
In administering the DDP since September 1, 2021, AMS learned some
EDOs transport donated product to EDO-owned distribution centers before
delivering to an eligible distributor as part of their normal business
operations. As the DDP was designed to only reimburse for
transportation from the last point of ownership by the EDO, obtaining
information on a distribution center location, where applicable, is
necessary to determine the accurate transportation reimbursement.
Accordingly, this final rule adds ``distribution center'' as an
additional entity type to the Claim Form in order to improve data
accuracy and ensure proper reimbursement calculations.
There is no requirement dictating the frequency of Claim Form
submissions; therefore, any time after its Plan is approved, the EDO
can submit Claim Forms for donations made. The EDO also must provide
adequate documentation, which should be available through its normal
business records, to verify the eligible distributor received the
donated eligible dairy products. Such documentation could

[[Page 57867]]

include, but is not limited to, processing and shipping records, bills
of lading, storage records, or receiving records from the eligible
distributor. As specified in Sec. 1147.208, AMS only collects the
information and documentation needed to verify the EDO's reimbursement
claim.
Section 762(d)(4) of the CAA allows the Secretary to make
retroactive reimbursements to EDOs that donate eligible dairy products
before their Plans are approved. As provided for in statute, eligible
dairy products donated through the MDRP are eligible for supplemental
reimbursement through DDP for donations made on or after January 1,
2020. To gain administrative efficiencies and streamline the two
programs, donations of eligible dairy products through DDP beginning on
the same date were also eligible for reimbursement by the interim final
rule. Accordingly, Sec. 1147.106(a)(3) provides for donations of
eligible dairy products beginning on January 1, 2020, to be eligible
for reimbursement. As described earlier, total reimbursement for
donations made from January 1, 2020, through December 27, 2020, was
capped at $50 million by the interim final rule. This cap was
implemented to ensure equitable distribution of funds for that time
period in case a large number of claims were submitted. Participating
entities had 6 months to submit claims for this time period; only 20
claims were received and approximately $712,000 was reimbursed.
As authorized by section 762(d)(3)(B) of the CAA, AMS may verify
the accuracy of supporting documentation with spot checks and audits
under Sec. 1147.206.
Under section 762(d)(2)(A) of the CAA, the Secretary shall set a
reimbursement price that reflects the cost of the milk required to make
the donated eligible dairy product, is between the FMMO Class I and
Class IV minimum prices for the month of production, is sufficient to
avoid food waste, and does not interfere with the commercial marketing
of milk or dairy products. Section 1147.108 provides for reimbursement
of three separate cost factors: (1) input cost--fluid milk product or
bulk dairy commodity product milk-equivalent cost; (2) manufacturing
cost of converting fluid milk into a product; and (3) transportation
cost from the EDO to the eligible distributor. Section 1147.108(a)
provides that reimbursements are the sum of the three cost factors.
For the first of these factors, input cost, processors purchasing
and processing fresh fluid milk products (raw milk, skim milk, cream,
or concentrated fluid products), are reimbursed at the applicable FMMO
minimum classified skim and butterfat values. Processors purchasing
bulk dairy commodity products for further processing into eligible
dairy products are reimbursed at the applicable FMMO minimum classified
skim and butterfat values for the fluid milk equivalent contained in
the bulk product. This value is determined by the milk's end use (Class
I for fluid milk products, Class II for soft products such as yogurt,
Class III for cheese products, and Class IV for butter and powder
products) pursuant to 7 CFR 1000.40 and the applicable classified price
in effect for the month of production pursuant to 7 CFR 1000.50.
The manufacturing cost for processing fluid milk is represented by
the applicable FMMO make allowances contained in 7 CFR 1000.50. The DDP
uses the FMMO make allowances in the Class III and IV price formulas to
reflect manufacturing costs for Class III and IV products, as they are
based on surveyed cost data of wholesale Class III and IV products. The
Department lacked data on manufacturing costs for Class I and II
products. As such, the interim final rule adopted the lowest make
allowance, Class IV, as the representative manufacturing costs and
requested public comment on manufacturing costs for these classes of
products. One comment was received. As explained in the Background
section, the comment did not include full context on what the cost
ranges represented. However, AMS finds it reasonable to conclude from
the data submitted that Class I manufacturing costs are higher than the
Class IV make allowance currently used. Upon further review, this final
rule amends the Class I make allowance to be the average of the Class
III and IV make allowances, as the Class I pricing formula is a
function of the average of Class III and IV prices. Also discussed
earlier, the Class IV make allowance will still apply for Class II
products, as the Class II price is a function of the Class IV price.
This final rule does not retroactively apply the amended make allowance
for Class I products to reimbursements made prior to the implementation
of this final rule. The new Class I make allowance will only apply to
reimbursement of Class I products submitted after the implementation of
this final rule.
As explained in the Background section, the program does not
reimburse additional processing costs for bulk products purchased and
further processed. Processors purchasing bulk dairy commodity products
for further processing receive the same manufacturing cost
reimbursement as described above. Processors buy bulk product on a per-
pound basis, and it is reasonable to conclude the price paid
represented both the fluid milk value (which they are being reimbursed
for as described earlier) and the cost to convert the fluid milk into
the bulk commodity. Therefore, eligible dairy products made from bulk
dairy commodity products are only eligible to receive the manufacturing
cost reimbursement applicable to fluid milk.
The transportation cost reimbursement is based on the U.S. monthly
average diesel fuel price \10\ for the month the donation was made, a
fuel economy factor of 6.1 miles per gallon,\11\ and the shortest hard-
surface distance from the last point of EDO-ownership of the product to
the eligible distributor's physical distribution location. The final
rule clarifies that transportation cost reimbursement is from the last
point of EDO-ownership, which does not necessarily mean from the plant
where the product was produced. As a normal course of business, some
processors transport product to an EDO-owned distribution center before
delivering to the eligible distributor. To ensure efficient movements
of product and proper application of transportation reimbursement, it
is appropriate the EDO only receive reimbursement from the last point
of ownership. Transportation reimbursement is only be paid if the EDO
incurred the transportation cost, which is verified on audit.
---------------------------------------------------------------------------

\10\ U.S. Energy Information Administration (EIA), 2022;
Gasoline and Diesel Fuel Update for December 5, 2022. <a href="https://www.eia.gov/petroleum/gasdiesel/">https://www.eia.gov/petroleum/gasdiesel/</a>, accessed December 9, 2022.
\11\ United States Department of Transportation, 2021;
Combination Truck Fuel Consumption Data. <a href="https://www.bts.gov/browse-statistical-products-and-data/freight-facts-and-figures/combination-truck-fuel-consumption">https://www.bts.gov/browse-statistical-products-and-data/freight-facts-and-figures/combination-truck-fuel-consumption</a>, accessed August 23, 2021.
---------------------------------------------------------------------------

Section 762(h) of the CAA requires the Secretary to make
supplemental reimbursements to EDOs receiving reimbursements under the
MDRP from January 1, 2020, to the date when DDP program funds are no
longer available. AMS recognizes an EDO under MDRP is also eligible
under DDP. Further, eligible dairy products under MDRP also qualify as
eligible dairy products under DDP (notably, fluid milk products). Since
DDP reimburses at a higher rate than MDRP, a supplemental reimbursement
is needed to properly use funds for and fulfill the purposes of both
programs. Section 1147.109 provides the process AMS follows to make a
supplemental reimbursement to EDOs receiving reimbursement under

[[Page 57868]]

MDRP. EDOs with already approved Plans under MDRP were automatically
enrolled in DDP when the program was implemented and received
supplemental reimbursements equal to the difference they received under
MDRP and the reimbursement they would be eligible to receive for the
same products under DDP, calculated in Sec. 1147.108. New applicants
to the DDP that donate fluid milk products will be automatically
enrolled in MDRP. Upon approval, AMS makes reimbursements under the
MDRP provisions and then supplemental reimbursements under the DDP
provisions.

Administrative Provisions

This final rule continues the administrative provisions without
change.
Section 762(g) of the CAA requires AMS to publish donation activity
for the program. Accordingly, Sec. 1147.200 provides that AMS
periodically reports on its publicly accessible website the aggregated
donation activity under this program. Such information includes types
and volume of product donated, as well as remaining available funds.
Since April 2022, AMS has posted reports quarterly on its website,
along with the Plan and Claim Form templates to be submitted for
program participation.
Section 762(e) of the CAA prohibits the sale of eligible dairy
products donated under the DDP back into commercial markets and
specifies that eligible distributors who violate that prohibition will
not be eligible for future participation in the DDP. Section 1147.204
implements the statutory prohibition and penalty for violation. In
addition, the program prohibits reimbursement for donated eligible
dairy products made in conjunction with marketing or promotional
events.
Section 762(f) of the CAA directs the Secretary to conduct
appropriate reviews or audits to ensure the integrity of the DDP. Under
section 762(d)(3)(B) of the CAA, the Secretary is further authorized to
verify the accuracy of submitted documentation through spot checks and
audits. Section 1147.206 provides that AMS verifies the proper delivery
of and payment for donated eligible dairy products. Specifically, AMS
ensures the donated eligible dairy products were delivered to the
eligible distributor and the accuracy of the reimbursed value paid to
the EDO. The section further provides for the review, audit, and spot
checks of information submitted.
As mentioned in the above discussions, Sec. 1147.208 requires AMS
to maintain confidentiality regarding information collected to
administer the program and to use the information only for program
purposes.
A books and records provision is included in Sec. 1147.209 to
ensure the EDO maintains necessary records to be made available to AMS
upon request in conjunction with an audit.
Section 1147.210 specifies that dairy products sold or donated
under any other USDA commodity purchase or donation program, other than
the MDRP, are not eligible for reimbursement under the DDP. From time
to time, USDA may purchase dairy products for use in nutrition
assistance programs or other uses, but vendors are compensated for
those purchases through funding under those program provisions. One of
the main purposes of the DDP is to reduce food waste by encouraging the
donation of additional dairy products through eligible distributors.
Thus, EDOs who received compensation for dairy product purchases under
other USDA programs may not receive reimbursements for the same dairy
products under the DDP.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. Chapter 35), AMS has requested approval of updated information
collection and recordkeeping requirements for the DDP. AMS received no
public comments on the Office of Management and Budget (OMB)-approved
information collection portion of the interim final rule. AMS is now
making three minor changes (described below) to lessen the burden on
participants and increase administrative efficiencies.
Title: Dairy Donation Program Final Rule.
OMB Number: 0581-0327.
Expiration Date of Approval: Pending.
Type of Request: Approval of Updated Information Collection.
Abstract: The Consolidated Appropriations Act of 2021 (CAA)
mandated establishment of a Dairy Donation Program (DDP) to reimburse
eligible dairy organizations (EDO) for milk used to make eligible dairy
products donated to non-profit groups for distribution to recipient
individuals and families. Under the program, EDOs account to a Federal
milk marketing order (FMMO) by filing a report with an FMMO. Entities
not already filing an FMMO report will be required to submit a Report
of Receipts and Utilization. The information collection burden is being
changed to allow the report to be submitted once rather than every
month donated products are manufactured as was originally implemented.
All EDOs must submit a Dairy Donation and Distribution Plan (Plan
outlining their partnership(s) and products to be donated and, for each
eligible distributor partner, an Eligible Distributor Certification
Form (Certification Form) describing the process of transporting,
storing, and distributing eligible product to an eligible distributor.
Once approved, the EDO can file a Reimbursement Claim Form (Claim Form)
to receive reimbursement for the donated eligible dairy products. Since
the final rule allows for EDOs to include multiple partnerships on one
Plan, whereas the interim final rule required EDOs to submit one Plan
per partnership, the number of responses and reporting burden for the
Plan will decrease. Further, due to this same change, the number of
responses and reporting burden for the Claim Form will decrease because
the EDO will no longer need to submit separate Claim Forms for each
partnership.
Dairy Donation and Distribution Plan
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 1 hour per response.
Respondents: Eligible dairy organizations.
Estimated Number of Respondents: 150.
Estimated Number of Responses: 150.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 150 hours.
Eligible Distributor Certification Form
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 15 minutes per response.
Respondents: Eligible distributors.
Estimated Number of Respondents: 300.
Estimated Number of Responses: 300.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 75 hours.
Reimbursement Claim Form
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 2 hours per response.
Respondents: Eligible dairy organizations.
Estimated Number of Respondents: 150.
Estimated Number of Responses: 600.
Estimated Number of Responses per Respondent: 4.
Estimated Total Annual Burden on Respondents: 1,200 hours.

[[Page 57869]]

Report of Receipts and Utilization
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 1 hour per response.
Respondents: Eligible dairy organizations.
Estimated Number of Respondents: 15.
Estimated Number of Responses: 15.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 15 hours.
Comments: No comments were received on the information collection
in the interim final rule.
In the interim final rule, AMS estimated 150 respondents would form
2 partnerships on average for a total of 300 partnerships. In the first
fiscal year of program operation, there were approximately 120
respondents that formed 280 partnerships.
Each EDO is required to submit a Plan, which can cover multiple
partnerships with that EDO, and a Certification Form for each eligible
distributor partner. These forms only need to be submitted once; there
will not be an annual renewal requirement. AMS estimates 1 hour to
complete a Plan. Accompanying the Plan, the EDO will be required to
complete a Certification Form, which AMS anticipates will take 15
minutes.
AMS estimates 10 percent of the 150 EDO participants do not already
account to an FMMO by filing a report. Therefore, approximately 15
respondents will need to account to an FMMO by filing a Report of
Receipts and Utilization Form. All other EDOs have accounted to an FMMO
through their normal report filing based on their existing association
with an FMMO. AMS estimates 1 hour to complete the form. Filing of this
form will not cause an EDO to become regulated by an FMMO.
Claim Forms can be submitted any time after Plan approval and will
be processed on at least a quarterly basis. AMS estimated that to
capture efficiencies respondents will submit Claim Forms no more than
once per quarter and it will take 2 hours to complete the form per
quarter.
Assuming the reporting burden will be completed by an
administrative assistant employee, at an hourly salary rate of $21.70
\12\, AMS estimates the following annual reporting costs per
participant, assuming two eligible distributor partners per EDO: for
the first year of participation, the annualized cost is $206.15 (one
Plan, two Certification Forms, and four Claim Forms); for the
subsequent years of participation, the annualized cost is $173.60 (four
Claim Forms). Entities needing to account to an FMMO by filing a Report
of Receipts and Utilization Form will experience an additional annual
burden of $21.70 in the first year only (one response). EDOs also are
required to maintain books and records for 3 years to be made available
to AMS upon request in conjunction with an audit to verify the
donations the EDO received reimbursement for were made. These records
are part of normal business records and do not require additional
records to be created. Such records include production records to
verify yield computations and product code dates for donated
manufactured products, or delivery documentation to verify the EDO
incurred a transportation expense.
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\12\ Mean hourly wage for a bookkeeping, accounting, and
auditing clerk in 2021, according to the Bureau of Labor Statistics:
<a href="https://www.bls.gov/oes/current/oes433031.htm">https://www.bls.gov/oes/current/oes433031.htm</a>.
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E-Government Act

USDA is committed to complying with the E-Government Act (44 U.S.C.
3601, et seq.) by promoting the use of the internet and other
information technologies to provide increased opportunities for citizen
access to Government information and services, and for other purposes.
Forms can be found at <a href="http://www.ams.usda.gov/ddp">http://www.ams.usda.gov/ddp</a> and filed through
email at <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="c3a7a7b383b6b0a7a2eda4acb5">[email&#160;protected]</a>.

Statutory and Regulatory Authority

Section 762 of the Consolidated Appropriations Act of 2021 mandates
that AMS establish and administer a Dairy Donation Program (7 CFR part
1147). The program is intended to facilitate the timely donation of
eligible dairy products and prevent and minimize food waste.

Executive Orders 12866 and 13563

USDA is issuing this rule in conformance with Executive Orders
12866 and 13563, which direct agencies to assess all costs and benefits
of available regulatory alternatives and, if regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic, environmental, public health, and safety effects;
distributive impacts; and equity). Executive Order 13563 emphasizes the
importance of quantifying both costs and benefits, reducing costs,
harmonizing rules, and promoting flexibility. AMS has determined this
action, mandated by Congress, meets the requirements set forth in the
Consolidated Appropriations Act of 2021 to facilitate donation of
eligible dairy products and prevent and minimize food waste.
The interim final rule sought public comment on the economic
impacts of this action on the industry, including availability of
information or data that may demonstrate if and how DDP reimbursements
affect the market. As discussed earlier, AMS received four comments, of
which three were germane to this rulemaking. One comment was received
on manufacturing costs for Class I and II products. Another comment
requested additional flexibility concerning reporting requirements. One
additional comment expressed support of the positive economic impact
the program has on the dairy industry and consumers alike.
Regarding regional economic differences, AMS considered alternative
methods for allocating available funds under the program, including
whether to allocate reimbursements equally across all the geographic
areas of the United States or to target specific regions in need of
milk donations. Ultimately, AMS determined that because the program's
primary purpose is to reduce waste associated with the disposition of
surplus milk, the industry would be best served by allowing those with
the capacity to process surplus milk and who are in a position to make
donations to apply for the program without consideration of geographic
location.
AMS continues to find that this rule does not have any quantified
cost or benefits, rather the rule results in transfers consistent with
the following table, adjusted from the interim final rule with actual
expenditures during the first fiscal year of program operation and
accordingly, an expanded range for the time period covered. As
participants become more accustomed to the program and due to the
decreased burden for participants in subsequent years after their Plans
are approved, AMS reasonably expects the transfer value to increase 25
percent, year-over-year, for the first 7 years, and held constant in
the out years.

[[Page 57870]]

Table 1--Accounting Statement
----------------------------------------------------------------------------------------------------------------
Primary Discount rate
estimate Year dollar (%) Period covered
----------------------------------------------------------------------------------------------------------------
Benefits--
Annualized Monetized ($millions/year)..... 0 2022 7 FY 2022-2038
0 2022 3
Costs-- .............. .............. .............. FY 2022-2038
Annualized Monetized ($millions/year)..... 0 2022 7 ................
0 2022 3
.............. .............. .............. ................
Transfers--From the Federal Government to an
eligible partnership
Annualized Monetized ($millions/year)..... $21.04 2022 7 FY 2022-2038
$21.84 2022 3
----------------------------------------------------------------------------------------------------------------

As the program is voluntary, eligible partnerships are expected to
participate if they deem it beneficial depending on their individual
circumstances. The transfers will be reimbursements in the form of
Federal payments to program participants to help offset costs
associated with eligible dairy product donations.
In the normal course of transporting, delivering, and processing
milk, a small volume of milk is ``lost'' each month. In the FMMO
system, ``normal losses'' are estimated to be 0.25 percent of the total
participating milk annually. Under certain conditions, an additional
volume of milk cannot make it to market due to extraordinary
circumstances, such as extreme weather, plant capacity issues, and
market disruptions. This volume above ``normal losses'' is identified
as ``excess losses'' in this analysis.
According to FMMO statistics, ``excess losses'' averaged 0.08
percent of the annual volume of milk participating in the FMMO program
from 2015 through 2019, excluding the outlying pandemic-influenced
years of 2020 and 2021. During these years, the COVID-19 pandemic
resulted in higher levels of milk not making it to market, amounting to
0.32 and 0.27 percent, respectively, of the milk that participated in
the FMMO program. In the interim final rule, AMS included 2020 in the
``excess loss'' average, but 2020 distorted the value, leading to an
overestimate of the amount of milk available to be made into donated
products for normal years. In conducting an economic analysis, AMS
presumed milk classified as ``excess losses'' could be made into
eligible dairy products and donated under the DDP.
To estimate the volume of excess milk potentially donated under the
program in this final rule, a 5-year average rate of 0.08 percent for
2015-2019 period is applied to the projected 2023 U.S. milk production
volume. Under this assumption, approximately 183 million pounds of milk
would be available for dairy processors to make into eligible dairy
products for donation to eligible distributors. As in the interim final
rule, AMS lacks data to estimate the amount of bulk commodity product
available for secondary processors to purchase and further process into
eligible dairy products for donation to eligible distributors, so that
scenario is not considered in the economic analysis.
AMS estimated the amounts of butterfat and skim solids in the
forecasted product volumes available for donation. The product mix
includes fluid milk, soft products, cheese, butter, and nonfat dry milk
powder volumes, based on the volume of available dairy farmer milk. The
set of products utilizes nearly all the butterfat and skim solids
present in the milk available for donation. In the case of butter and
nonfat dry milk powder, both products can be made from a given amount
of milk. Butter requires a large amount of butterfat, while powder
utilizes very little butterfat but a large amount of the nonfat solids.
The DDP reimburses EDOs for eligible dairy product donations for
the input cost paid for the fluid milk or bulk dairy commodity product,
manufacturing cost, and transportation cost. In the interim final rule,
AMS estimated the maximum annual reimbursement value given the
program's parameters that total reimbursement must be between the
highest FMMO Class I value (Dade County, Florida) and the Class IV
value (assumed the lowest classified value). Using the same
methodology, AMS estimates a maximum reimbursement value of $63
million, using forecasted 2023 FMMO class prices and volume available
for donation based on the .08 percent excess loss assumption and USDA's
November 2022 World Agricultural Supply and Demand Estimates (WASDE).
In practice, AMS expects actual reimbursement expenditures to be
lower. During the first year of operation, DDP expended $5,834,353,\13\
representing 22,562,669 pounds of donated dairy products (equivalent to
27,576,312 milk pounds). Therefore, for this final rule, AMS determines
it more appropriate to estimate annual DDP expenditures based on actual
spending. Accordingly, expenditures are estimated to be 125 percent of
the previous year and held constant after 7 years. This is a reasonable
assumption given reduced participant burden and increased awareness and
familiarity with the program is expected to increase participation.
---------------------------------------------------------------------------

\13\ This figure represents Reimbursement Claims submitted in
the first year of DDP operation (October 1, 2021, through Sept 30,
2022), for product donated from January 1, 2020, to September 30,
2022.
---------------------------------------------------------------------------

In addition, normal fluctuation in market prices may contribute to
increased donations in times of low milk prices, and subsequently
higher program expenditures. For example, it is normal for excess milk
to be made into storable products such as butter. Relatively high
butter prices in 2022 indicated a tight butter market resulting in
excess milk made into butter to be sold in the marketplace instead of
donated through the DDP. USDA expects butter prices to be lower in
2023, as compared to 2022, due to weaker demand and lower international
prices, thus increasing DDP expenditures as the possibility rises that
surplus milk used for butter is made available for donation.
As described above, AMS estimates that 183 million pounds (0.08
percent of projected 2023 production) of excess milk could be available
to be processed and donated through the DDP. Consequently, AMS does not
anticipate this small additional processing volume will impact milk
prices. AMS anticipates dairy processors already donating dairy
products to non-profit feeding organizations will become eligible for
reimbursement through DDP. These donations are not new production

[[Page 57871]]

volume to be priced as they represent dairy products already processed
and priced somewhere in the dairy supply chain. The DDP does not intend
to reimburse for the full cost of processing and delivering donated
dairy products but rather encourages excess milk to be used.
This program is expected to have a negligible impact on retail
dairy product sales. Typically, populations that receive dairy products
from non-profit feeding organizations do so when they cannot buy dairy
products at retail outlets. Since the DDP reimbursement rate does not
cover all processing and transportation costs it is not a financially
prudent decision to divert milk from retail outlets to donations. The
following table provides examples of costs included and excluded from
reimbursement under the DDP. This is not an all-inclusive listing but
is intended to demonstrate how dairy product donations through this
program are not expected to be a substitute for retail dairy product
sales.

Table 2--Examples of Costs Included and Excluded
------------------------------------------------------------------------
Cost factor Includes Does NOT include
------------------------------------------------------------------------
Input....................... <bullet> Minimum <bullet> Any
classified price of contractually
milk used in the obligated monies,
donated eligible over the minimum
dairy product. classified value,
due to producers.
<bullet> Assessments
for promotion and
research programs,
if applicable.
Manufacturing............... <bullet> Applicable <bullet> Additional
FMMO manufacturing ingredient costs
make allowance, (i.e., fruit for
representative of fruit-flavored
the following yogurt).
costs:.
<bullet> Processing <bullet> Storage and
Labor. inventory costs.
<bullet> Utilities.. <bullet> Costs of
participating in
the mandatory Dairy
Product Mandatory
Reporting Program.
<bullet> Non-Labor.. ....................
<bullet> General and ....................
Administrative.
<bullet> Packaging ....................
into a commodity
volume.
Transportation.............. <bullet> Fuel: <bullet> Vehicle
Shortest hard maintenance.
surface mileage * <bullet> Vehicle
monthly diesel depreciation.
price * 6.1 miles <bullet> Licensing
per gallon. and other
administrative
fees.
------------------------------------------------------------------------

In addition, DDP is a voluntary program and reimbursements occur
after donations are made. Donations made through this program are made
privately without donation volumes being announced in advance, reducing
the impact on dairy markets compared to making advanced announcements
on expected donation volume.

Regulatory Flexibility Analysis

Pursuant to the requirements set forth in the Regulatory
Flexibility Act (5 U.S.C. 601-612), AMS has considered the economic
impact of the action on small entities. Accordingly, AMS prepared this
Regulatory Flexibility Analysis (RFA).
The purpose of the RFA is to fit regulatory actions to the scale of
businesses subject to such actions so small businesses will not be
unduly or disproportionately burdened. Small dairy farms are defined by
the Small Business Administration (SBA) (13 CFR 121.201) as those
businesses having annual gross receipts of $3.75 million or less. The
SBA's definition of small agricultural service firms, which includes
dairy processors, varies based on the type of dairy product
manufactured. Small dairy processors are defined as having between 750
and 1,250 or fewer employees depending on the products made.
According to the 2017 USDA National Agricultural Statistics Service
(NASS) Census Report, the most recent report, there were 39,303 farms
with milk sales. AMS estimates 36,158 farms, or 92 percent, are
considered small businesses. Dairy farmers of all sizes may benefit
from the program as it encourages donations of dairy products which
contain milk purchased from them. DDP is designed to reduce food waste
by providing alternative outlets for milk to be utilized in donated
products instead of being dumped due to oversupply. Often milk is
dumped from smaller dairy farms that are more costly to service because
their pickups may be less than a full tanker load and/or they may be
located farther from major trucking routes. By providing cost
reimbursement for donated products, the DDP incentivizes processors to
pick up and process the milk into products for donation rather than
having it dumped.
AMS estimates approximately 3,000 plants, owned by approximately
1,500 entities, manufacture dairy products in the United States.
According to AMS calculations, about 10 percent are operated by dairy
farmer cooperatives, while the remaining are independently owned. AMS
believes 1,500 to be the universe of EDOs that could participate in the
DDP. Of the potential EDOs, 90 percent would be considered small
businesses based on total employee numbers.
Participating in the DDP will not unduly or disproportionately
burden small dairy processing entities. All entities, regardless of
size, can apply for the program if they file a report with an FMMO and
incur a qualified expense as defined by program provisions. Program
provisions are administered without regard to business size. The
paperwork required to participate asks for information that is part of
normal business records.
The definition of an eligible distributor is a public or private
non-profit feeding organization that distributes or coordinates
distribution of donated eligible dairy products to recipient
individuals and families. Eligible distributors, regardless of size,
can voluntarily participate in the DDP if they form a partnership with
an EDO. The information collection burden for eligible distributors is
minimal as they must only complete the Certification Form with the
partnering EDO. The voluntary nature of the program allows any eligible
distributor to stop participating if they find the program causes an
undue or disproportionate burden.
AMS has determined this program does not have a significant
economic impact on small entities. Program provisions are applied
uniformly to both large and small businesses and are not expected to
burden small entities unduly or disproportionately.

Executive Order 13175

In the interim final rule, AMS assessed the impact of this program
on

[[Page 57872]]

Indian Tribes and determined it would not have Tribal implications
requiring consultation under Executive Order 13175. Since the final
rule does not include any changes affecting Tribal implications of the
DDP, additional review is not necessary. Executive Order 13175 requires
Federal agencies to consult and coordinate with Tribes on a government-
to-government basis on: (1) policies that have Tribal implication,
including regulation, legislative comments, or proposed legislation;
and (2) other policy statements or actions that have substantial direct
effects on one or more Indian Tribes, on the relationship between the
Federal Government and Indian Tribes, or on the distribution of power
and responsibilities between the Federal Government and Indian Tribes.
Tribal governments operating non-profit organizations feeding
recipient individuals and families can qualify as eligible distributors
and thus benefit from participation in the DDP. The regulatory burden
from participating is minimal, estimated at 15 minutes for completing
an Eligible Distributor Certification Form.
AMS hosts a quarterly teleconference with Tribal leaders where
matters of mutual interest regarding the marketing of agricultural
products are discussed. Information about the final rule will be shared
in an upcoming quarterly call. AMS will continue to work with the USDA
Office of Tribal Relations to ensure meaningful consultation is
provided as needed with regards to the DDP.

Executive Order 12988

The interim final rule was reviewed under Executive Order 12988--
Civil Justice Reform. Since the final rule does not include any changes
affecting the civil justice implications of the DDP, additional review
is not necessary. This final rule may have a retroactive effect. Claims
submitted after the effective date of this final rule for donations
made starting January 1, 2020, are eligible for reimbursement under
this rule's amended provisions if the eligible partnership's Dairy
Donation and Distribution Plan is approved and if the partnership met
all other program requirements. Dairy donations made prior to 2020 are
not eligible for reimbursement under the program. The provisions
amended by this final rule are not retroactive to Claims already
submitted and processed prior to this rule's effective date. There are
no administrative procedures that must be exhausted prior to judicial
challenges to the provisions of this rule. The DDP does not preempt any
state or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rule.

Civil Rights Review

AMS considered the potential civil rights implications of this rule
on minorities, women, and persons with disabilities to ensure no person
or group shall be discriminated against on the basis of race, color,
national origin, gender, religion, age, disability, sexual orientation,
marital or family status, political beliefs, parental status, or
protected genetic information. This review included persons that are
employees of the entities who are subject to these regulations. This
final rule does not require affected entities to relocate or alter
their operations in ways adversely affecting such persons or groups.
Further, this rule does not deny any persons or groups the benefits of
the program or subject any persons or groups to discrimination.
AMS found no evidence this voluntary program and the associated
final rule causes adverse or disproportionate impacts on minorities,
women, and persons with disabilities. The AMS analysis found no
evidence of potential impacts affecting dairy farmers or processors in
any protected groups, or that these impacts will be different than any
participating general population of dairy farmers and processors.

Executive Order 13132

AMS examined the effects of provisions in this final rule on the
relationship between the Federal Government and the States, as required
by Executive Order 13132 on ``Federalism.'' The DDP reimburses EDOs for
eligible dairy products donated to eligible distributors. The DDP does
not preempt any State or local laws, regulations, or policies
pertaining to the sale, manufacturing or distribution of milk or dairy
products within States.

List of Subjects

7 CFR Part 1146

Milk, Donations, Reporting and recordkeeping requirements.

7 CFR Part 1147

Dairy, Donations, Food waste, Emergency, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR chapter X is
amended as follows:

PART 1146--MILK DONATION REIMBURSEMENT PROGRAM

0
1. The authority for part 1146 continues to read as follows:

Authority: Sec. 1431, Pub. L. 113-79, 128 Stat. 695, as amended.

0
2. Amend Sec. 1146.102 by revising paragraph (a) to read as follows:

Sec. 1146.102 Dairy donation and distribution plans.

* * * * *
(a) The physical address(es) of the eligible dairy organization's
processing plant(s), co-pack facility(ies), and distribution center(s),
and the eligible distributor's distribution site(s);
* * * * *

0
3. Amend Sec. 1146.106 by revising paragraph (a)(1)(ii) to read as
follows:

Sec. 1146.106 Reimbursement Claims.

(a) * * *
(1) * * *
(ii) The physical address(es) of the plant(s) or co-pack
facility(ies) that processed and, if applicable, distribution center(s)
that stored the donated dairy products;
* * * * *

PART 1147--DAIRY DONATION PROGRAM

0
4. The authority for part 1147 continues to read as follows:

Authority: Sec. 762, Pub. L. 116-260, 134 Stat. 1182.

0
5. Amend Sec. 1147.102 by revising paragraph (a) to read as follows:

Sec. 1147.102 Dairy donation and distribution plans.

0
6. Amend Sec. 1147.106 by revising paragraph (a)(1)(ii) to read as
follows:

Sec. 1147.106 Reimbursement Claims.

(a) * * *
(1) * * *
(ii) The physical address(es) of the plant(s) or co-pack
facility(ies) that processed and, if applicable, distribution center(s)
that stored the donated dairy products;
* * * * *

0
7. Amend Sec. 1147.108 by revising paragraphs (a)(2)(i) and
(a)(3)(iii) to read as follows:

Sec. 1147.108 Reimbursement calculation.

(a) * * *

[[Page 57873]]

(2) * * *
(i) If a Class I product, the simple average of the Class III and
Class IV manufacturing allowances applies;
* * * * *
(3) * * *
(iii) The fuel economy rate of 6.1 miles per gallon.
* * * * *

Sec. 1147.212 [Removed]

0
8. Remove Sec. 1147.212.

Erin Morris,
Associate Deputy Administrator, Agricultural Marketing Service.
[FR Doc. 2023-18148 Filed 8-23-23; 8:45 am]
BILLING CODE P

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