2. Cost of Production and Chronic Insufficiency of Price
    The evidence in the record suggests that the costs of production in
the New England states, within the meaning of the required finding, is
best defined as a range. The Compact Commission draws this conclusion
for two reasons. First, both the farm testimony and that of the
region's dairy economists indicates that costs of production vary from
farm to farm. Second, the testimony of the dairy economists themselves
define a wide range of values.
    The range presented in their study data varied widely, between
approximately $13.50 and $17.24 per cwt. Leon Berthiaume testified that
costs of production among members of a substantial Vermont cooperative
ranged from $13.50-$14.25; on behalf of the Vermont Department of
Agriculture, Reenie De Gues testified that Vermont production costs
were $14.06; University of Vermont economist Rick Wackernagel testified
that costs were at $15.00; Neil Pelsue testified of costs equaling
$16.41; Bob Smith described costs of $15.37; The Economic Research
Service provided an estimate of at $16.46; Milligan and Knoblauch
concluded that production costs were as high as $17.24.
    These variances can be explained by several factors, including the
different time frames surveyed, the different data relied upon, and the
different costs included in the survey evaluations. Despite the
recognized, inherent, limitations resulting from this variability, this
data base is still most comprehensive, and allows the Commission to
settle upon a range of cost of production that is most reliable.
    To establish its range, the Compact Commission has referred to the
above series of summary numbers and eliminated the high and low values.
The

[[Page 23041]]

Compact Commission then matched this range against the variety of
anecdotal statements presented by dairy farmers in testimony and
comment. Accordingly, the Compact Commission determines that, for
purposes of analysis under this rule, the range of New England cost of
production is reliably understood to be somewhere between $14.06 and
$16.46 per cwt.
    As described earlier in detail, the data, comment and testimony
received demonstrated overwhelmingly that New England farmer pay prices
are and have been chronically below this defined range of cost of
production. The Compact Commission further concludes that the amount of
this insufficiency is also best described as a range.
    As described earlier, the USDA Economic Research Service estimate
that during the 1985 to 1990 period, cash receipts of Northeastern
dairy farmers rose from $13.96 to $16.00 per hundredweight while the
cost of production increased from $12.06 to $16.46. This describes a
deficiency in price range of $1.90-$0.46. Vermont Department of
Agriculture economist Reenie De Geus provided testimony indicating
that:

    In 1995, the most recent year, costs of production averaged
$14.06 for the group. (Vermont Dairy farmers) This is $0.83 lower
than the actual milk prices received of $13.23. In fact, in each of
the last 5 years, milk price received was lower [sic] than the cost
of production by an average of $1.08.\63\

    \63\ De Geus, 1/2/97 WC at 74.
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    Using the figures here identified, the Commission accepts this
comment and concludes that cost of production exceeds farmer pay price
by an amount in the range of $0.46-$1.90.
    As cited earlier, Ms. De Gues provides some context for this
apparent range in deficiency:

    In good years, we find that the cost of production tends to rise
with the price of milk. With the extra cash farmers replace worn out
equipment and make repairs that may have been delayed for years.
When the price of milk drops below cost, they consume some of the
equity in their farms to meet family living expenses and cash flow
demands.\64\
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    \64\ De Geus, 1/2/97 WC at 75.
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