Dairy Halftime: Pa. Milk Marketing Board Evaluates Regulatory Options

As one testifier said at Wednesday’s Pennsylvania Milk Marketing Board hearing, it’s a close game and it’s time for a pep talk.
Troye Cooper from Maryland & Virginia Milk Producers Cooperative Association Inc. summarized the situation as one where the industry might have to make adjustments.
“I feel like a coach at halftime, ready to make adjustments,” he said.
That “pep talk” was a two-hour conversation as the Pennsylvania Milk Marketing Board kicked off its first in a series of hearings to address the state’s dairy crisis. The state Department of Agriculture petitioned the board last month to see what options were available to help address the current price crunch.
“These are listening sessions. We want ideas,” board Chairman Luke Brubaker said. “This is all about making things better for dairy farmers and the dairy industry.”
“It is critical that we solicit input from all Pennsylvanians, particularly those dairy farmers and industry stakeholders whose occupation and families are impacted by poor market conditions,” said Brook Duer, agriculture department chief counsel. He presented the written testimony from Agriculture Secretary Russell Redding and details behind the department’s petition.
Several of the department’s regulatory proposals ask for evaluation of stranded premiums, updates to milk marketing law, and collection of data on how milk flows through retail outlets.
“This is dairy’s moment to examine how the state’s own pricing system can better match the current times, the changing trade and the transformations that are and will be experienced in the barn and in the dairy case of grocers, both small and big box stores,” Duer said.
The department is asking all options to be considered to address the current situation.
“We need new ways of thinking, even stronger relationships, new partnerships and productive input from stakeholders,” Duer said.
Cooper, representing the Pennsylvania Association of Dairy Cooperatives, said an adjustment to the over-order premium or to dealer and retailer costs won’t make the difference needed today.
“It’s going to take some creativity, innovation and real changes to come out the other side,” he said. “We agree that bigger changes to the law will be necessary to level the playing field for all facets of the dairy supply chain while providing more transparency to dairy farmers, dealers, distributors, retailers and consumers.”
Duer said the ag department would like to have one of the dairy economic survey authors, Andrew Novakovic and Chuck Nicholson of Cornell or Mark Stephenson from University of Wisconsin, present their findings at a future hearing.
The authors said that milk pricing regulations and the state where milk is processed are not major causes of declining sales.
Duer said the retailer licensing will provide clearer data on milk sales and the over-order premium. Other sections of the petition ask for changes to better track the flow of milk from the farm through the processing supply chain.
Other proposals ask to consider updating the statutes. The 1937 law’s language is hard to understand.
“The language is causing more white noise, static, misinformation and suspicion,” Duer said. “Maybe now is the time to straighten this language out.”
Minimum milk pricing has helped smaller, locally owned grocery stores remain competitive despite national and international pressures. If minimum milk pricing would go away, “this would lead to the industry’s larger retailers dropping their retails in the milk category to loss leaders,” said Anthony Gigliotti, executive vice president of sales and marketing for Boyer’s Food Markets. Retailers would then push distributors for better pricing and the push would continue back to the farm, he said.
Gigliotti also suggested removing the approval process required by vendors and retailers to have “buy a product, and get milk free” promotions. It discourages vendors, and instead of milk they will ask for a different product as the free item, he said.
Minimum state milk pricing has helped Karns Quality Foods find its niche in the marketplace, said company vice president Andrea Karns. The grocery chain contracts with one local dairy processor for all of its milk, offering it at the state minimum price to undercut stores that mark up their milk.
The loss of minimum pricing would result in a milk price war, she said. And if milk becomes a loss leader, Karns would move milk out of the best spot in the dairy case to showcase more profitable products.
The Pennsylvania Food Merchants Association objected to additional regulations on dairy retailers.
“Additional costs imposed by the costs of registration and reporting sales will, for many retailers, seriously reduce or even eliminate that margin, reducing their incentive to promote the sale of Pennsylvania dairy products,” said Allen Warshaw, the group’s counsel.
Warshaw cautioned the board that reworking the regulations could have unintended consequences.
“Seeking legislative solutions carries its own dangers,” he said.
Dairy farmer Brad Rohrer of Lancaster County shared his frustration with the current situation. He is receiving only 4 cents per hundredweight as an over-order premium on his milk check.
“I know at my farm I can survive without the law. Four cents won’t break my business,” he said.
The real challenge with the program, he said, is the disproportionate distribution of the over-order premium. Because of differences in contracts and buyers, not all farmers benefit equally.
“It’s hard for me to walk into my grocery store and see $3.75 for a gallon when I am getting paid peanuts for my milk,” he said.
The current law asks for a “reasonable return” to farmers, processors and retailers.
Taking it a step further, Cooper said the issue of stranded premiums, or over-order premiums, collected from milk sales that do not meet the produced, processed and sold in Pennsylvania requirement should be revisited. When that premium is collected on nonqualifying milk, the retailer or processor is able to keep the premium, he said.
The challenge for dairy is more than just milk supply and demand. It’s also a changing consumer. The push of plant-based milks into the dairy case is notable. One product that used to sell 20 cases per month, now sells more than 700, Gigliotti said. He’d like to see that shift back to dairy milk.
The second listening session will be held at 9 a.m. May 16 in the Monongahela Room at the Farm Show Complex. Preregistration is required to speak at the listening sessions.
By: Charlene Shupp Espenshade
Source: Lancaster Farming
Link: http://www.lancasterfarming.com/farming/dairy/dairy-halftime-pa-milk-marketing-board-evaluates-regulatory-options/article_88ff58a6-e85c-5b43-9411-6f9c8694e212.html