News for Immediate Release
Nov. 17, 2009
Governor Rendell Continues to Seek Solutions to Aid Pennsylvania Dairy Farmers
Harrisburg – As financial hardship for dairy farmers in Pennsylvania approaches the one-year mark, Governor Edward G. Rendell responded in a letter to the Pennsylvania Milk Marketing Board, identifying gaps in the state’s over-order premium and milk pricing structures that, if closed, will benefit dairy producers.
“I appreciate the recommendations that the board has presented, however we need to go further to ease the burden on one of Pennsylvania’s leading economic drivers – our dairy industry,” said Governor Rendell. “I am asking the board to close gaps to significantly help dairy producers right now. We must find solutions that are workable and immediate.”
The Pennsylvania Milk Marketing Board responded last week to Governor Rendell’s previous letter for recommendations to address the collapse in milk prices in Pennsylvania.
The board has recently granted a petition filed by dairy farmers' cooperatives to increase the over-order premium $0.50 to $2.65 for milk produced, processed and sold in Pennsylvania until Dec. 31, 2009. The over-order premium is an additional amount required to be paid to dairy farmers per one hundred pounds of fluid drinking milk above the minimum farm price set by the U.S. Department of Agriculture.
The board is set to reconvene on Dec. 2 to set the amount of the over-order premium for Jan. 1, 2010 through June 30, 2010.
Governor Rendell is urging the board to take more aggressive action to help dairy producers including:
• Closing the gaps in the current system that result in Pennsylvania dairy farmers not being paid the board's mandated over-order premium on fluid drinking milk if their milk is processed or retailed out-of-state. Currently the only farmers being paid the board's over-order premium are those whose milk is produced, processed and sold in Pennsylvania. This means the premium is paid on less than half of all fluid drinking milk produced in Pennsylvania.
• Begin calculating the volume of fluid drinking milk sold in Pennsylvania on which consumers pay the board's minimum retail price, but processors do not pay the over-order premium to a dairy farmer. The minimum retail price is applicable to all fluid milk sold, however the over-order premium is paid on only a portion of that milk.
Governor Rendell wishes to explore a pricing structure that returns all benefits of the minimum retail price to dairy farmers consistent with Pennsylvania's Milk Marketing Law.
“Pennsylvania is one of only six states with milk marketing laws,” Governor Rendell added. “We should use all authority within the commonwealth’s law to help dairy producers who have struggled for nearly a year with increased production costs, coupled with historically low milk prices.”
The Governor’s latest efforts to aid the dairy industry builds upon his work since 2003 to strengthen Pennsylvania agriculture.
Under Governor Rendell, the state has enacted the Agriculture, Communities and Rural Environment initiative, or ACRE, to help protect producers against potentially illegal local ordinances, while providing for strong environmental protections for rivers and streams. The administration also has put in place tax credits through the Resource Enhancement and Protection Program that help farmers and businesses implement sound conservation practices to enhance production and protect the state’s water quality.
The Governor also improved farmers’ access to state financial assistance, providing additional resources that help producers expand their business. Governor Rendell implemented the First Industries Fund, which provides grants and loans to businesses in the agriculture industry, and made farmers eligible for assistance through the Machinery and Equipment Loan Fund—a program that was unavailable previously to farmers.
For more information on Pennsylvania agriculture, visit www.agriculture.state.pa.us.
Media contacts:
Justin Fleming, Agriculture; 717-787-5085
Michael Smith, Governor’s Office; 717-783-1116
Editor’s Note: The text of Governor Rendell’s latest letter to the PMMB is attached.
November 13, 2009
Mr. Keith Bierly, Secretary
Pennsylvania Milk Marketing Board
2301 N. Cameron Street, Room 110
Harrisburg PA 17110
Re: Milk Pricing Collapse
Dear Mr. Bierly:
I want to thank Chairman Kriebel kindly for the letter of October 14, 2009. In light of concerns raised previously about the impact of direct discussions with PMMB members of matters that may come before the PMMB in its adjudicatory function, I am responding to you directly for distribution as you see fit.
With milk prices at the farm remaining at historic lows, the financial hardship of our dairy farmers remains a matter of great urgency. The continued viability of thousands of farming families’ livelihoods remains in jeopardy. We have now suffered the better part of one full year during which our farmers have been selling their milk at a loss. No business can sustain those kinds of losses for long. All options available under existing Pennsylvania law must be explored, even if they break new ground in the PMMB’s traditional pricing structure. We have asked the federal government to explore new options and are accordingly doing the same at the state level.
It is obvious that the PMMB and its staff have put careful and thoughtful work into the considerations you have outlined. We have done the same internally, in consultation with Acting Secretary of Agriculture Redding and his staff. We have some observations and proposals we would like to discuss further with you.
1. Class I Over-Order Premium: As we understand it, the best numbers available indicate that between 40-45% of all PA produced milk is sold as Class I, but only between 15-20% of all PA produced milk is “utilized” as Class I, as that term is applied under Pennsylvania’s Milk Marketing Law. Therefore only that smaller percentage has the PMMB over-order premium attached and results in payment of the premium to our dairy farmers. We understand the current practice is that milk must be “produced, processed and sold” within Pennsylvania in order for the Class I over-order premium to be paid. The Class I milk constituting the difference between the two above-stated percentages (approximately the equivalent of between 20-30% of all PA produced milk) goes out of state at some point in the chain and therefore losses eligibility for the
PMMB’s over-order premium as it is currently applied. Attempting to close this identified gap in how the PMMB over order premium is presently applied is one option to be explored. As long as “produced, processed and sold” in Pennsylvania remains the operative test for a producer’s entitlement to any benefit of a PMMB over-order premium system, substantial progress beyond helping some limited Class I producers will not be made. Additionally, as we know, a percentage of that milk actually comes back into Pennsylvania for ultimate retail but eludes the application of the PMMB’s over-order premium. That should not be the case in any instance.
2. Minimum Wholesale and Minimum Retail Pricing: Another identified gap in Pennsylvania’s current pricing system exists in the establishment of the minimum wholesale price and minimum retail prices for Class I milk to be paid by PA consumers. It is assumed in the calculation that all Class I milk on the retail shelf in Pennsylvania has had Pennsylvania’s over-order premium paid upon it. That is not true of course. So the consumer pays for the over-order premium to be applied, but that portion of the price paid by Pennsylvania’s consumers is not benefiting the producers of Pennsylvania as articulated in Section 805 of the Milk Marketing Law. Contrary to the language of Section 805, this consumer-financed “benefit” is not being “given to producers,” but is instead swallowed in the distribution chain.
In order to explore closing this identified gap, it would be helpful to establish how much total Class I milk is retailed in PA, both PA-produced and produced out-of-state. We understand the PMMB does not maintain that data any longer, but could do so. We request that the PMMB immediately begin to tabulate and keep that data. If that data were available today, it would be possible to subtract out the volume on which the PMMB over-order premium is paid. That would establish the amount of milk on which our consumers pay for the over-order premium to be “passed through” to our producers, but on which that is in fact not occurring.
Using an over-order premium of $2.65, plus a fuel adjuster of approx. $.30 cents, per hundred weight, the amount of the minimum retail price that is directly attributable to the PMMB over-order premium is approximately $.25 per gallon on every gallon retailed in Pennsylvania. Our consumers presently pay this $.25 on the basis that it funds the payment of a PMMB over-order premium on every gallon. Consideration needs to be made to creating a mechanism that would capture this $.25 per gallon and distribute it in some equitable manner to all PA producers as contemplated by the law.
3. Other Products: The benefits of setting over-order premiums on Class II, III and IV products, even if logistically possible under current law, appear to be minimal. Based upon the nature of the products involved, perhaps it would be possible to establish an over-order premium on cream, and possibly buttermilk.
The remainder of the considerations you have set forth in your letter require statutory change which we are willing to do, but in the meantime we are most interested in immediate options which can help Pennsylvania’s struggling dairy farmers in the most expedient way possible. For these reasons, we believe closing the gaps identified above would be beneficial to more producers and be consistent with current law.
To continue our pursuit of a state solution to the dairy crisis, I would like to schedule a meeting with you and your staff as soon as possible to discuss these matters further. As always, your service to the Commonwealth is greatly appreciated.
Sincerely,
Edward G. Rendell, Governor
cc: The Hon. Michael Brubaker, Chair, Senate Agriculture & Rural Affairs
Committee
The Hon. Michael O’Pake, Chair, Senate Agriculture & Rural Affairs
Committee
The Hon. Mike Hanna, Chair, House Agriculture & Rural Affairs Committee
The Hon. John Maher, Chair, House Agriculture & Rural Affairs Committee
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