Original Notice.

     Preproposal statement of inquiry was filed as WSR 01-03-090.

     Title of Rule: WAC 142-30-010.

     Purpose: Increase the current level of assessment on milk produced in Washington state by .00625 (5/8 cent).

     Statutory Authority for Adoption: RCW 15.44.060(1), 15.44.130, 15.44.080.

     Statute Being Implemented: RCW 15.44.080.

     Summary: The rule change, if approved by the commission, will increase the current assessment rate by .00625 (5/8 cent) per hundredweight.

     Reasons Supporting Proposal: The assessment rate increase is necessary to implement powers and duties vested to the Washington Dairy Products Commission in RCW 15.44.060(10), such as the participation in federal and state agency hearings, meetings, and other proceedings in relation to the regulation of the production, manufacture, distribution, sale or use of dairy products, to provide educational meetings and seminars for the dairy industry on such matters, and to expend commission funds for such activities. The current assessment level falls within the Federal Dairy and Tobacco Adjustment Act of 1983, Title I, Subtitle B-Dairy Promotion Program, Section 113. Section 113(j) prohibits funding for the above-specified activities from assessments collected under the federal program. By increasing the current assessment level beyond the level mandated by the federal program the Washington Dairy Products Commission will be able to implement those activities prohibited under the federal program.

     Name of Agency Personnel Responsible for Drafting and Implementation: Steve Matzen, 4201 198th Street S.W., Suite 101, Lynnwood, WA 98036, (425) 672-0687; and Enforcement: Celeste Piette, 4201 198th Street S.W., Suite 101, Lynnwood, WA 98036, (425) 672-0687.

     Name of Proponent: Washington Dairy Products Commission, governmental.

     Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: Adoption of the rule is subject to approval by the commission following hearings conducted in accordance with the Administrative Procedure Act, chapter 34.05 RCW. The increase in the current assessment level will not exceed the maximum authorized assessment rate as established by producers at the most recent referendum (1.0% of the Class I price for 3.5% butterfat milk conducted March 24, 1983).

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: The Washington Dairy Products Commission collects assessments on milk produced to fund programs, which positively affect the demand for dairy products through marketing, promotion, and educational endeavors. The increase in the assessment level will allow for implementation of powers and duties vested to the Washington Dairy Products Commission in RCW 15.44.060(10), such as the participation in federal and state agency hearings, meetings, and other proceedings in relation to the regulation of the production, manufacture, distribution, sale or use of dairy products, to provide educational meetings and seminars for the dairy industry on such matters, and to expend commission funds for such activities. The current assessment level falls within the Federal Dairy and Tobacco Adjustment Act of 1983, Title I, Subtitle B-Dairy Promotion Program, Section 113. Section 113(j) prohibits funding for the above-specified activities from assessments collected under the federal program. By increasing the current assessment level beyond the level mandated by the federal program the Washington Dairy Products Commission will be able to implement those activities prohibited under the federal program with these additional funds. Funding of legislative, regulatory and image-enhancement activities will ensure the industry's viability and create a more positive environment for dairy farming.

     Proposal Changes the Following Existing Rules: The rule will increase the current assessment rate on milk produced in Washington state by .00625 (5/8 cent).

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

     Analysis Results: As shown in Table 2 of the report, the compliance cost for a representative small business over the analysis period is estimated to be approximately $.04 per $100.00 of sales. The compliance cost for a large business over the same time period is estimated to be $.04 per $100.00 of sales. Therefore, the compliance cost burden, from rule revisions, is equal for both large and small business, and no disproportionate compliance burden exists for small businesses. In addition, the compliance cost burden for producers, based on farm production, is in proportion to the level of production of each producer as shown in Table 3. The large producers/businesses will pay more based on their higher production levels while the small producers/businesses will pay proportionally less. There will be no additional equipment, supplies, labor, or administrative costs imposed on dairy producers as well as indirectly affected businesses. Presently assessments are being collected and staff are in place to compute and satisfy all reporting requirements. Affected parties are currently in compliance with the existing requirements.

     Mitigation: As indicated above, the proposed rule revisions are not anticipated to result in a disproportionate compliance cost burden for small Washington businesses required to pay the assessment. As a result, mitigating measures are not required to reduce impacts on small businesses affected by the rule revisions.

     I. Proposed Rule Revisions: This study analyzes the compliance costs associated with a proposed assessment increase and estimates whether the revised rule would place a disproportionate economic burden on Washington small businesses. The purpose of this analysis is to comply with state legislative requirements that each prospective rule be evaluated to minimize potential disproportionate impacts on small business.

     A. Regulatory Context: Regulatory Fairness Act: The purpose of this study is to ensure that the proposed revisions to WAC 142-30-010 comply with the Regulatory Fairness Act (chapter 19.85 RCW). The Regulatory Fairness Act (RFA) requires that rules promulgated by state agencies under the Administrative Procedure Act be examined for their impact on small businesses (fifty or fewer employees). The purpose of the RFA is to ensure that proposed rules do not place a disproportionate burden on small businesses relative to the burden they place on large businesses. RFA compliance analysis must be documented in a small business economic impact statement (SBEIS). This SBEIS documents the analysis and results for proposed revisions to WAC 142-30-010. Appendix A contains additional discussion of RFA requirements.

     B. Summary of Rule Revisions: Chapter 15.44 RCW grants the Washington State Dairy Products Commission (WDPC) the authority to increase or decrease the current assessment on milk provided that the current level of assessment established does not exceed the maximum authorized assessment rate established by producers in the most recent referendum. The maximum assessment rate was established by producer referendum on March 24, 1983 (1% of the Class I price for 3.5% butterfat milk). The rule revision will increase the existing assessment by .00625 (5/8 of a cent) and allow the WDPC to implement RCW 15.44.060(10), which gives the WDPC the authority to participate in federal and state agency hearings, meetings, and other proceedings in relation to the regulation of the production, manufacture, distribution, sale or use of dairy products, to provide educational meetings and seminars for the dairy industry on such matters, and to expend commission funds for such activities.

     C. Potentially Affected Industries: Compliance costs will be incurred by businesses operating within the agricultural production of livestock. Primary impacts would be borne by dairy producers/farms. These businesses are involved in the production of milk.

     Dairy producers are categorized in the standard industrial classification (SIC) code 0241. According to Washington State Employment Security Department data, there are approximately five hundred sixty-nine business establishments in this SIC classification within Washington.¹ Of these establishments five hundred sixty-three are classified as small businesses with fifty or fewer employees. One percent would be classified as large businesses. In addition to dairy farms that bear the primary impact of the rule revision, a few related businesses may be indirectly affected (see Appendix B for full industry list). These businesses include producer handlers, processors/manufacturers, cooperatives or dealer/handlers of dairy products (only those businesses purchasing milk directly from the dairy producer).

     II. Approach to Estimating Differential Economic Impacts on Small vs. Large Businesses: The WDPC determined that an analysis of compliance costs should be conducted for the proposed rule revisions and documented in an SBEIS, consistent with chapter 19.85 RCW. An SBEIS analysis was performed for the rule revisions and is described below.

     A. Likely Industry Response to Proposed Rule: The first step was to anticipate how the industry would respond to the rule revisions. The Washington Dairy Products Commission coordinated a series of informational meetings to provide dairy farmers an opportunity to provide input and voice their opinions on the proposed assessment increase. Dairy Products Commission representatives and board members provided background information on the proposal and answered producer questions. There were some opposing views presented at the informational meetings, however, many producers sought clarification on how the funds would be utilized and monitored.

     B. Data from Small and Large Businesses in Affected Industries: Once affected industries were identified data was computed to estimate impacts. Data was provided through the following sources: WDPC, Washington State Employment Security Department, National Agricultural Statistics Service (NASS), and the United States Department of Agriculture AMS, Dairy Division. WDPC provided a variety of information, including related background information on the proposed rule, current requirements for assessment reporting and calculation and stakeholder information. Employment Security provided employment information by business within the designated SIC codes. NASS provided average milk production per cow for Washington and percent of production by group size. United States Department of Agriculture AMS, Dairy Division provided milk-pricing information.

     C. Differential Compliance Cost for Small Versus Large Businesses: To differentiate between impacts on small versus large businesses, compliance costs were evaluated per one hundred dollars of sales. In addition, costs were evaluated for various levels of farm production within the affected industry. These costs were based on the average cow production for Washington state as well as various herd sizes. Comparison of compliance costs for various levels of farm production as well as per hundred dollars of sales were used to determine whether a disproportionate economic burden would exist for small businesses and to estimate the magnitude of any disproportionate burden.

     III. Analysis Results:

     A. Overview: Over the analysis period, the proposed rule revisions are not anticipated to have a disproportionate economic impact on small businesses in the affected industry. As Table 2 shows, cost impacts of proposed rule revisions are equal for both small and large businesses. The cost burden to businesses both small and large is the amount of the proposed assessment increase .00625 (5/8 of one cent) per hundredweight. In addition, the compliance cost burden for businesses/producers, based on farm production, is in proportion to the level of production of each business/producer. The large businesses/producers will pay more based on their higher production levels while the small businesses/producers will pay proportionally less. For those businesses purchasing milk from the dairy producer (indirectly affected establishments) there will be no additional equipment, supplies, labor, or administrative costs. Presently assessments are being collected and staff are in place to compute and satisfy all reporting requirements. These indirectly affected businesses are currently in compliance with the existing requirements. A discussion of analysis methodology and assumptions is contained in Appendix A.

     The analysis period for the study was chosen to be one year. Estimates for the uniform statistical milk price are forecasted out through December 2001. All businesses bear the same cost burden for the study. Compliance with the proposed rule is not likely to cause a substantive loss of sales revenues for large or small businesses.

     B. Disproportionate Economic Burden Evaluation: As shown in Table 2, the compliance cost for a representative small business over the analysis period is estimated to be approximately $.04 per $100 of sales. The compliance cost for a large business over the same time period is estimated to be $.04 per $100 of sales. Therefore, the compliance cost burden is equal for both small and large businesses, and no disproportionate compliance burden exists for small businesses. One percent of the farms would be classified as large businesses in Washington. All dairy farmers regardless of business size receive the same minimum uniform price for deliveries of milk to the federal order market. All Washington businesses/producers are part of the Pacific Northwest Order No. 124. The statistical uniform price is the Class III price, plus the producer price differential. This reflects a weighted average reflecting not only class prices, but the proportion of milk under the order in each class. These prices are announced on the 14th of each month. The only cost to businesses/producers is the amount of the proposed assessment increase itself ($.00625). The amended rule will impose no additional equipment, supplies, labor, or administrative costs on small or large dairy businesses/producers to comply with the rule. The assessment is collected from the first handler of the milk. In addition, the compliance cost burden for businesses/producers, based on farm production, is in proportion to the level of production of each business/producer as shown in Table 3. The large producers/businesses will pay more based on their higher production levels while the small producers/businesses will pay proportionally less.

     Those businesses purchasing milk from dairy producers (indirectly affected establishments) will realize no additional equipment, supplies, labor, or administrative costs. Presently assessments are being collected and staff are in place to compute and satisfy all reporting requirements. These indirectly affected businesses are currently in compliance with the existing requirements.

     IV. Mitigation: As the above analysis demonstrates, the proposed rule amendment will not result in a disproportionate impact on small Washington businesses. As a result, mitigating measures are not required to reduce impacts on small businesses affected by the proposed rule.

¹These businesses include those with employment covered by unemployment compensation programs. Consistent with intent of RFA, only Washington businesses are reported and analyzed in this study.

     Appendix A: Background Information and Assumptions:

     Regulatory Fairness Act: The Regulatory Fairness Act (RFA) (chapter 19.85 RCW) requires that rules promulgated by state agencies under the Administrative Procedure Act be examined for their impact on small businesses. The purpose of the Regulatory Fairness Act is to ensure that proposed rules do not place a disproportionately high burden on small businesses, relative to the burden they place on large businesses. A small business is defined by the RFA as an independent, for-profit Washington business entity with fifty or fewer employees, RCW 19.85.020(1).

     The RFA requires all rules that impose "more than minor costs" on industry businesses be evaluated and, if necessary, altered to minimize their impact on small business. An analysis of compliance costs must be completed and documented in a small business economic impact statement (SBEIS) if: (1) A proposed rule meets or exceeds this "more than minor" criterion, or if (2) the Joint Administrative Rules Review Committee (JARRC) requests an SBEIS for a proposed rule. A state agency may independently decide to complete an SBEIS.

     The RFA establishes specific analyses and necessary elements for inclusion in an SBEIS. Among other requirements, the SBEIS must include a brief description of the compliance requirements of the rule, a description of the professional services needed by small businesses to comply with the rule, an analysis of the compliance cost for small business, and a comparison of the compliance cost for small and large businesses. A basis of comparison must be chosen from: Cost per employee, cost per hour of labor, cost per $100 of sales, or any combination of these three measures.

     Based upon the extent any disproportionate impact is anticipated to occur for small businesses from the proposed rule, the agency must reduce the costs on small businesses (where legal and feasible in meeting the stated objective of the statutes upon which the rule is based). Mitigation can be accomplished in a number of ways, such as establishing differing compliance or reporting requirements for small businesses, clarifying or simplifying the compliance requirements for small businesses, delaying compliance timetables, exempting small businesses from any or all of the rule requirements, or similar measures.

     Conservative Approach: The analysis undertaken to estimate compliance cost impacts was generally "conservative" in its approach. Specific assumptions implementing this conservative approach included (but were not limited to):

•	Timing: Affected industries will be required to comply with the assessment increase January 1, 2002, when the rule takes effect.
•	Public and Industry Involvement: Potentially affected businesses, including small businesses, were involved throughout the rule-making process. A number of informational meetings provided opportunities for businesses of all sizes to provide input, as described below.

     Affected businesses will have the opportunity to testify at the legislative hearings to be held July 11 and 18, 2001.

     Dairy producers were given the opportunity to attend informational meetings where WDPC explained the proposed assessment increase. Background information was given regarding the proposed assessment increase and producer input was gathered and questions addressed. Additional informational letters were sent to dairy producers and affected businesses. The proposed assessment increase was initiated by an industry driven task force made up of producers representing all facets of the industry including representatives from the Washington State Dairy Federation, Washington Dairy Products Commission, and the Northwest Dairy Association.

•

Data Characteristics: As noted in the body of the SBEIS, data used to estimate compliance costs for affected businesses came from the following sources: WDPC, Washington State Employment Security Department (ESD), National Agricultural Statistics Service (NASS), and the United States Department of Agriculture AMS, Dairy Division.

     Appendix C: Glossary of Abbreviations

Abbreviation	Abbreviated Term
JARRC	Joint Administrative Rules Review Committee
RCW	Revised Code of Washington
RFA	Regulatory Fairness Act
SBEIS	Small Business Economic Impact Statement
SIC	Standard Industrial Classification
WDPC	Washington Dairy Products Commission
WAC	Washington Administrative Code
ESD	Employment Security Department
NASS	National Agriculture Statistics Service
WSDA	Washington State Department of Agriculture

     A copy of the statement may be obtained by writing to Steve Matzen, Washington Dairy Products Commission, 4201 198th Street S.W., Suite 101, Lynnwood, WA 98036, phone (425) 672-0687, fax (425) 672-0674.

Table 1
Cost of Compliance for Small and Large Businesses
Washington Dairy Farmers/Pacific Northwest Order No. 124
Month and Year	Statistical Uniform Price Per CWT		Producer Lbs. Equivalent to $100 in sales	Current Assessment Rate $.10CWT - Producer Cost per $100 sales		Proposed Assessment Rate $.10625 [.00625] CWT - Producer Cost per $100 sales		Cost Difference
Jan-00	$	11.11	900	0.90		0.96		0.06
Feb-00	11.06		904	0.90		0.96		0.06
Mar-00	11.17		895	0.90		0.95		0.06
Apr-00	11.31		884	0.88		0.94		0.06
May-00	11.70		855	0.85		0.91		0.05
Jun-00	11.91		840	0.84		0.89		0.05
Jul-00	12.19		820	0.82		0.87		0.05
Aug-00	11.94		838	0.84		0.89		0.05
Sep-00	12.11		826	0.83		0.88		0.05
Oct-00	11.79		848	0.85		0.90		0.05
Nov-00	11.80		847	0.85		0.90		0.05
Dec-00	12.27		815	0.81		0.87		0.05
Avg.	$	11.70	856	$	0.86	$	0.91	$	0.05

Table 2
Estimated Cost of Compliance for Small and Large Businesses
Washington Dairy Farmers/Pacific Northwest Order No. 124
Month and Year	Estimated Statistical Uniform Price Per CWT*	Producer Lbs. Equivalent to $100 in sales	Current Assessment Rate $.10CWT- Producer Cost per $100 sales	Proposed Assessment Rate $.10625 [.00625] CWT Producer Cost per $100 sales	Cost Difference
Jan-01	12.34	810	0.81	0.86	0.05
Feb-01	12.35	810	0.81	0.86	0.05
Mar-01	13.34	750	0.75	0.80	0.05
Apr-01	14.05	712	0.71	0.76	0.04
May-01	15.07	664	0.66	0.71	0.04
Jun-01	15.34	652	0.65	0.69	0.04
Jul-01	15.23	657	0.66	0.70	0.04
Aug-01	15.26	655	0.66	0.70	0.04
Sep-01	15.31	653	0.65	0.69	0.04
Oct-01	15.02	666	0.67	0.71	0.04
Nov-01	14.51	689	0.69	0.73	0.04
Dec-01	14.06	711	0.71	0.76	0.04
Avg.	$14.32	702	$0.70	$0.75	$0.04

     BOLD = Actual Announced Federal Order Prices.

     Federal Order: Classifies milk according to its use, establishes minimum class prices monthly, determines a uniform price monthly, conducts impartial audits, verifies weights and tests milk, and provides market information.

     Class III Milk: Milk used in storable, hard manufactured products-cheese and evaporated milk.

     Class III Price: The Class III price is based on the NASS surveys for cheese, butter and whey. The price is announced on or before the 5th day of the following month.

     Producer Price and Statistical Uniform Price: The statistical uniform price is the Class III price, plus the producer price differential. This value represents the minimum price received by producers and cooperative associations for deliveries to a federal order market. This reflects a weighted average reflecting not only class prices, but the proportion of milk under the order in each class. These prices are announced on or before the 14th of each month.

     *Estimated statistical uniform price based on futures market-data obtained from USDA AMS, Dairy Division Federal Orders 124 and 135. Data only forecasted out through December 2001.

Table 3

Annual Production and Associated Costs of Proposed Rule

Various Herd Sizes WA 2000

     A copy of the statement may be obtained by writing to Steve Matzen, Washington Dairy Products Commission, 4201 198th Street S.W., Suite 101, Lynnwood, WA 98036, smatzen@havemilk.com, phone (425) 672-0687, fax (425) 672-0674.

     Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. The Washington Dairy Products Commission is not a listed agency in section 201 (5)(a)(l), chapter 403.

     Hearing Location: Bellevue Community College, 3000 Landerholm Circle S.E., Conference and Lecture Hall N201, Bellevue, WA 98007, (425) 564-2376, on July 11, 2001, at 10:30 a.m.; and at the Washington State Department of Agriculture Building, 21 North First Avenue, 2nd Floor Conference Room, Yakima, WA 98902, (509) 225-2650, on July 18, 2001, at 10:30 a.m.

     Assistance for Persons with Disabilities: Contact Jodi Jones by June 27, 2001, TDD (360) 902-1996, or (360) 902-1976.

     Submit Written Comments to: Steve Matzen, Washington Dairy Products Commission, 4201 198th Street S.W., Suite 101, Lynnwood, WA 98036, smatzen@havemilk.com, fax (425) 672-0674, by July 31, 2001, 5:00 p.m. at agency.

     Date of Intended Adoption: September 25, 2001.

May 31, 2001

Steve Matzen

General Manager

OTS-4824.1

AMENDATORY SECTION(Amending Order 85-4, filed 7/5/85)

WAC 142-30-010   Declaration of purpose -- Effective date.   To effectuate the purposes of chapter 15.44 RCW there is hereby levied upon all milk produced in this state an assessment of:

     (1) 0.75 percent of the Class I price for 3.5% butterfat milk, as established in any market area by a market order in effect in that area or by the state department of agriculture in case there is no market order for that area((, or)); or

     (2) While the Federal Dairy and Tobacco Adjustment Act of 1983, Title I, Subtitle B-Dairy Promotion Program, is in effect:

     (a) An assessment rate not to exceed the rate approved at the most recent referendum that would achieve a ten cent per hundredweight credit to local, state or regional promotion organizations provided by Title I, Subtitle B of the Federal Dairy and Tobacco Adjustment Act of 1983((. The effective date of WAC 14-30-010 [142-30-010] shall be August 4, 1985)); and

     (b) An additional assessment of .00625 (five-eights of one cent) per hundredweight.

[Statutory Authority: RCW 15.44.130. 85-15-003 (Order 85-4), § 142-30-010, filed 7/5/85. Statutory Authority: Chapter 15.44 RCW. 83-08-019 (Order 83-2), § 142-30-010, filed 3/29/83; Order 2-76, § 142-30-10 (codified as WAC 142-30-010), filed 11/15/76, effective 1/1/77.]

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