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Dairylea Cooperative Inc. v. Pennsylvania Milk Marketing Board

August 6, 2010

DAIRYLEA COOPERATIVE INC.; DAIRY FARMERS OF AMERICA, INC.; LAND O'LAKES, INC.; MARYLAND AND VIRGINIA MILK PRODUCERS COOPERATIVE ASSOCIATION, INC.; DAIRY MARKETING SERVICES, LLC; AND UPSTATE NIAGRA COOPERATIVE, INC., PETITIONERS
v.
PENNSYLVANIA MILK MARKETING BOARD, RESPONDENT
EDWARD G. RENDELL, GOVERNOR OF THE COMMONWEALTH OF PENNSYLVANIA AND DENNIS C. WOLFF, SECRETARY OF AGRICULTURE OF THE COMMONWEALTH OF PENNSYLVANIA, PETITIONERS
v.
PENNSYLVANIA MILK MARKETING BOARD, RESPONDENT



The opinion of the court was delivered by: Bernard L. McGINLEY, Judge

Argued: March 17, 2010

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge.

OPINION

JUDGE McGINLEY

Governor Edward Rendell and Dennis Wolff, Pennsylvania Secretary of Agriculture, the Pennsylvania Farm Bureau and a consortium of dairy cooperatives representing a majority of the dairy farmers in Pennsylvania, including Dairylea, Inc., Dairy Farmers of America, Inc., Dairy Marketing Services, LLC, Land-O'-Lakes, Inc., Maryland and Virginia Milk Producers Cooperative Association, Inc. and Upstate Niagara Cooperative, Inc. (collectively referred to hereinafter as "Petitioners") petition for review from the Adjudication and Order of the Pennsylvania Milk Marketing Board (Board) entered April 1, 2009.

Milk Marketing Law

Section 301 of the Pennsylvania Milk Marketing Law (MML)*fn1 , 31 P.S. §700j-301, vests the Board with the authority and duty to "supervise, investigate and regulate the entire milk industry of this Commonwealth.including the establishment of reasonable trade practices, systems of production control and marketing area committees in connection therewith.." The Legislature declared the Board to be an instrumentality of the Commonwealth for the purpose of administering the provisions of the MML and to execute its legislative intent. 31 P.S. §700j-301.

Section 801 of the MML establishes the authority of the Board to hear petitions. It states the Board can "upon its own motion or upon application in writing.alter, revise or amend an official order defining milk marketing areas or fixing prices to be charged or paid for milk.." 31 P.S. §700j-801. Section 801 requires the Board to "base all prices upon all conditions affecting the milk industry in each milk marketing area, including the amount necessary to yield a reasonable return to producers, which return shall not be less than the cost of production and a reasonable profit to the producer. 31 P.S. §700j-801. Section 803 of the MML establishes the Board's authority to fix the prices paid to producers by dealers.*fn2 It states, "[t]he board shall fix, by official order, the minimum prices or a formula for the setting of minimum prices to be paid by milk dealers or handlers to producers for milk or milk components sold or delivered or made available on consignment or otherwise by producers to dealers or handlers." 31 P.S. §700j-803.*fn3

Section 804 of the MML authorizes the Board to fix prices for various grades of milk and for such prices to vary in different markets and may apply to the area where the milk is produced, manufactured or delivered. 31 P.S. §700j-804. Section 806 vests the Board with the authority to "fix by official order, the terms upon which milk dealers shall pay producers and others for milk, may prescribe the method of computing payment therefore, and may prescribe a form of written statement to be sent to producers with each payment." 31 P.S. §700j-806. Finally, Section 808 of the MML states the legislative intent with regard to the Board's authority to price milk produced in Pennsylvania and shipped into another State for ultimate sale. It states it is the "legislative intent that the prices prescribed by the Board for milk produced in this Commonwealth, and sold or delivered...into and ultimate sale in another state, shall not be destructive of the price structure of producers in such other state." 31 P.S. §700j-808.

This controversy concerns the Petitioners' appeal to the Board to fix the price of milk and impose an "over order premium" on milk produced and processed in Pennsylvania and sold to milk dealers in New Jersey.

Over-Order Premium

In Pennsylvania, milk produced, processed and sold within the state receives a premium above the current federal order milk price. If milk is processed or retailed in another state, the producer does not receive the premium.

The term "over-order premium" refers to an amount to be paid by milk dealers to dairy farmers for milk over and above the federally established minimum price. It has been in place since 1988 and is generally reviewed twice annually, and has been adjusted up and down by the Board in response to all conditions affecting the milk industry.

Petitioners' Proposal

On July 6, 2007, the Board was petitioned to extend the scope of its "over-order pricing" regulation to include milk produced on Pennsylvania dairy farms, processed by Pennsylvania milk dealers and sold as packaged Class I fluid milk*fn4 in those adjoining states with a state-mandated premium.*fn5 Specifically, Petitioners sought to impose and collect an "over-order premium" on Pennsylvania produced and processed milk sold to processors, wholesalers and retailers, i.e., dealers, in New Jersey. Petitioners requested that the premium be equal to the Pennsylvania's "fuel adjuster premium," not to exceed the New Jersey fuel adjustment premium.

At the time the Petition was filed, those volumes of milk produced and processed in Pennsylvania and sold in New Jersey were not subject to an over-order premium. The over-order premium was, by regulation, calculated only on milk produced and processed in Pennsylvania and sold in Pennsylvania. If accepted, the proposal would for the first time expand the over-order premium beyond milk produced, processed and sold in Pennsylvania to milk sold outside of Pennsylvania. Petitioners argued that the expansion of the Board's over-order premium was necessary to assure Pennsylvania producers "the cost of production and a reasonable profit to the producer" as required by Section 801 of the MML, 31 P.S. §700j-801. Petitioners contend that dairy farmers were not receiving the cost of production plus a reasonable profit under the Board's current price-fixing scheme. The mandatory premium they proposed, if implemented, would capture and subject substantial additional quantities of Pennsylvania produced milk to mandated premiums. That, in turn, would provide Pennsylvania producers with additional income.

The Petition was opposed by the Pennsylvania Association of Milk Dealers and the Pennsylvania Food Merchants Association ("Milk Dealers"). The Milk Dealers contested the proposal because they believed the proposed premium would have adverse competitive consequences on Pennsylvania milk dealers.

Hearings were held over four days and the Board received testimony from numerous ...


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