By Sherry Bunting, Farmshine, May 5, 2023

HARRISBURG, Pa. — As reported in Part One, published in Farmshine’s April 28^th edition, the Pennsylvania Senate Agriculture Committee held a three-hour hearing on April 25 about the state’s mandated Class I milk over-order premium (OOP), which is part of the state’s minimum milk price per gallon set by the Pennsylvania Milk Marketing Board (PMMB).

Agriculture Secretary Russell Redding offered this equation to describe what is known and unknown about the estimated $30 million or more in annual OOP paid by Pennsylvania consumers: A+B=C.

‘A’ was confirmed by PMMB auditor supervisor Gary Golsovich to be $23.6 million collected by processors in 2022. But, he said, only $14.5 million of this collected OOP was documented as paid to Pennsylvania farms for milk that could demonstrate all three criteria: produced, processed and sold in Pennsylvania.

Golsovich gave an example: A processor sourcing 50% of its milk from Pennsylvania farms with 50% of its sales being consummated in Pennsylvania only has the obligation to pay 25% of the OOP to the Pennsylvania farms. This was something the PMMB tried to change 10 years ago, seeking to require processors to pay up to the percentage of in-state sales that matched in-state sources, but a constitutional interstate commerce challenge in the courts caused the state to back down.

‘B’, said Redding, is the additional $5 to $10 million in OOP that is paid by Pennsylvania consumers but is presently unaccounted for. Examples are packaged milk from out-of-state and other cross-border transactions. Legislation such as Senate Bills 840 and 841 from last session would capture this information, and Senate Ag Chairman Elder Vogel Jr. and Minority Chair Judy Schwank said they intend to re-introduce these bills in the current legislative session.

He estimates the total ‘C’ would be around $30 million, or more, but last year less than half that amount was paid to the intended beneficiaries: Pennsylvania farms.

The only way to fix the leakage, said the Secretary, is to “break the chain,” to remove the OOP from the minimum price and make it a fee collected at retail and remitted to the Department of Revenue into a designated fund. This would also require legislation.

“Pennsylvania has a system that is like no other,” said PMMB Chairman Rob Barley, a farmer in Lancaster and York counties. “The system worked well when people were drinking a lot of milk produced by Pennsylvania dairy producers. That’s changing. The system needs an adjustment.”

When the Senate Ag Chairman pressed the PMMB Chairman for specific ideas, Barley said the Secretary’s proposal, “while not ideal, is probably the only way to do it.”

He mentioned the potential for a tiered or scaled system where smaller farms could receive more and larger farms less, much like the federal Dairy Margin Coverage has a tiered program based on annual milk production history. 

“We want to work with the legislature on this — to benefit everyone,” said Barley.

The consumer member of the PMMB board, Kristi Kassimer Harper from Fayette County, noted examples in her area of western Pennsylvania, where the OOP works among a variety of independent bottlers that buy Pennsylvania milk, process it in Pennsylvania and sell most of it in Pennsylvania.

She cited studies by St. Joseph’s University indicating consumers don’t give much thought to where their milk comes from, but a survey of Pennsylvania consumers showed that two-thirds would pay a 10-cent premium if the premium gets back to the farmers. (They are already paying a 13-cent OOP plus fuel adjuster embedded in the milk price, but less than half of it is getting back Pennsylvania farms.)

In his back-and-forth discussion with Vogel, Barley said a formula could be developed that would prioritize producers that are currently serving the Class I fluid milk market, using a graduated scale. This idea turned Chairman Vogel’s head. He said it’s the first time he’s heard this approach mentioned.

Something like this would address the concerns of milk dealers who are currently upholding the spirit of the law and the testimony from the State Grange, urging caution about diluting the meaningful amount of OOP 15 to 20% of Pennsylvania farms currently receive.

“Consumers are already paying this, it’s not a tax, but if we collected it from Pennsylvania retailers as a fee and put it in a restricted fund, we can avoid the constitutional issues with interstate commerce,” said Senator Gene Yaw. “We do this all the time, collect funds and put it toward programs we want to support. In this case, the people are already paying it, and if the money is in one place, we can audit it.”

The “mechanics” of how to distribute it, he said, can be worked out with the Board and the industry. But at the same time, Yaw and other Senators said they want to help more of the state’s farmers access what was intended for them, without harming those already receiving some.

Meanwhile, the Department of Agriculture’s plan mentions ‘uniform distribution,’ as do the policy points endorsed by Pennsylvania Farm Bureau.

PMMB board member Jim Van Blarcom, a farmer from Bradford County, stated that in his nine years on the Board, he has heard the concerns of producers across the state. He noted the geographic and generational diversity of the PMMB Board, and their ability to understand how different parts of the state have different experiences with the OOP. 

“The OOP was put in place to help dairymen recoup some costs,” said Van Blarcom, explaining to lawmakers that the Milk Marketing Law already has built into it a 2.5 to 3.5% profit margin for bottlers and retailers. “Since then, the industry has changed, making it outdated and less effective. As a board member, it is getting more difficult to weigh the benefits for the farmers who receive a useful OOP vs. farmers who receive very little to none. When consumers pay a mandated 8 to 12 cents on every gallon of milk sold, this becomes a large sum of money, of which some is unaccounted for.

“During my time on the Board, I have heard over and over about the tanker loads of New York milk coming in and displacing Pennsylvania farmers’ milk. The primary reason these companies do this is they can take advantage of the OOP… We are essentially encouraging this to happen,” he explained.

Recounting testimony at a Board hearing from a dairy farmer milking 90 cows, he said the amount of OOP that farm received wass equivalent to one bag of milk replacer a month.

“I don’t believe one bag of calf feed keeps that farmer in business, but rather his tenacity and commitment to the family farm,” said Van Blarcom.

He also recounted testimony at a Board hearing from Pennsylvania Representative John Lawrence, who cited the accurate accounting on mandated fees for alcohol and fuel.

“This is not happening with the mandated milk OOP. It will continue to become more difficult to defend as a program with funds that are not accurately accounted for and not fairly distributed,” Van Blarcom asserted, adding that consumers will also “become more aware of the unfairness to themselves.”

Meanwhile, when laying out the Department of Agriculture’s plan, the Secretary talked about “a collective investment in PA Dairy,” such as using some of these funds to invest in processing.

Andy Bollinger, a Lancaster County dairy farmer testifying for PDMP said the organization has not taken a position on reforming the OOP because they want to see the facts and the results of a study they are working on with a third-party economist.

Zach Myers from the Center for Dairy Excellence also mentioned a study CDE is involved in to understand the obstacles to processing investment within the state. He cited the impact on farms from supply management programs placed on them based on processing capacity.

“We come to you and ask for investments,” Secretary Redding told lawmakers. “Here’s one that’s already done in the marketplace, and we’re failing to bring those dollars back specifically to reinvest in PA Dairy.”

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