Pennsylvania is inching closer to a long-awaited reform to its over-order premium on milk.
After more than three years of talk about how to change the outdated system, there is a plan now. Agriculture Secretary Russell Redding proposed that retailers collect the entire premium at the point-of-sale, instead of the premium being collected through a wholesale minimum price build-up.
This would allow a more equitable distribution of the premium to all dairy farmers in the state, Redding said, as he presented his plan during the April 25 hearing of the Senate Agriculture and Rural Affairs Committee.
“At the end of the day, it’s about the dairy farmer,” he said. “We do something extraordinary here in Pa. That is go to the marketplace and ask every consumer in Pa. to pay a premium to access the milk in Pa. We have an obligation to get all of that money back to the dairy farmer.”
Background. The over-order premium, conceived in 1988, is built into the minimum retail milk price, which is also set by the Pennsylvania Milk Marketing Board, or PMMB. It was viewed as a way to help struggling dairy farmers get a little more money for their product.
Whether it still works as intended and how to fix it has been a hotly debated topic among dairy farmers and other groups for years. According to the PMMB, the over-order premium has distributed more than $800 million to dairy farmers since its inception. The current premium is $1 per hundredweight of milk.
Currently, milk qualifies for the premium only if it is sold as a fluid product. This is a problem because farmers generally have no control over how their milk is used by the processor, and the market for fluid milk has been on the decline for years.
Additionally, only milk that stays in state for processing and retail sale is eligible for the premium. Some say this “strands” some of the premium dollars with processors that should be going to farmers. The PMMB said $24 million premium dollars were collected by milk dealers last year, but only $14.5 million was paid out to Pennsylvania farmers.
The milk marketing board began holding hearings on the over-order premium in 2019. Since then, nine hearings have been held, but no changes have been made. The Pennsylvania Milk Marketing Board voted in December to extend the current $1 per hundredweight premium until June. Most changes to the premium system would require legislative action.
Reaction. Under Redding’s plan, the premium would then be gathered by the state’s Department of Revenue and set aside in a designated fund. The General Assembly would establish how to allocate money to farmers and processors.
This new strategy would fit the three criteria Redding laid out before as being essential to a reformed system: premium dollars be evenly distributed among dairy farmers; the amount charged to Pennsylvania consumers not be substantially more than what is distributed back to farmers; and the distribution system not provide incentives for processors to avoid paying premiums by selling or purchasing milk across state lines.
Rob Barley, chairman of the PMMB, said they’d like to develop a new premium system to benefit all parties involved in the state’s dairy industry, but that would require the legislature giving the board more power.
Barley said he agreed with Redding’s proposal was the best way to get money more evenly distributed among dairy farmers, and to make the system more fair, even though he didn’t like it.
“We don’t have any other choice,” he said, during his testimony. “It’s about the only way that we have figured out that you can do it. Because of interstate commerce laws, we can’t grab the money and give it right back to the farmers if it is not produced, processed and sold in Pennsylvania.”
Barley suggested looking to the federal programs, like Dairy Margin Coverage, for how the General Assembly could figure out how to distribute the premium fairly among farmers.
“I would not be opposed to having a tiered system,” he said. “It’d probably be the easiest thing to piggyback on what they have. You don’t have to recreate the wheel.”
(Reporter Rachel Wagoner can be reached at 724-201-1544 or rachel@farmanddairy.com.)
