The Center for Dairy Excellence maintains that there are currently 5,430 dairy farms in Pennsylvania.
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As two of the farmers very much involved in the discussion at the recent annual meeting of the Pennsylvania Farm Bureau, which included a broad cross-section of Pennsylvania’s farming community and ultimately resulted in a vote to oppose the imposition of an over-order premium (OOP) and other regulatory pricing functions of the Pennsylvania Milk Marketing Board (PMMB), we would like to comment on the opinion offered by the PMMB secretary Dr. Carol Hardbarger in the Dec. 11 issue of Lancaster Farming.

First and foremost, this was most definitely not a decision made as a “result of personal concerns of cooperative members related to the distribution of the premium by cooperative administration,” as Dr. Hardbarger states is the belief of herself and board Chairman Robert Barley. Since neither attended the annual meeting, and the PMMB executives’ conclusion was based only upon “phone calls and emails received” after the annual meeting, that ill-informed assertion is presumably from those who voted in opposition to the measure that was passed.

The fact is that the decision was the result of lengthy and open discussion and deliberation among Farm Bureau members over two days of meeting that resulted in the overwhelming (approximately 2-1) vote, by duly elected delegates through the organization’s democratic process, to “support the elimination of the over-order premium and the elimination of the minimum wholesale and retail price regulation.” For those of us in the majority who voted for this change in policy, there were at least three key issues inherent in the current regulated pricing system that drove this action.

First is the basic inequity embedded in the distribution of the OOP among dairy farmers in the commonwealth. Ironically, the opinion piece offered by Dr. Hardbarger points this out in dramatic fashion. In her own example, $2,918,482 was received by only 641 independent producers in the first six months of last year for an average of $4,553 per farm. According to Dr. Hardbarger, in the same six-month period cooperatives received $3,619,636 for distribution among cooperative members.

The Center for Dairy Excellence maintains that there are currently 5,430 dairy farms in Pennsylvania. Dr. Hardbarger’s article indicates that, as of June, only 1,047 of them were independent farms that sold their milk to processors. Therefore, it is safe to assume that the vast majority of the remaining 4,383 are cooperative members. For easy math, let’s assume that number is only 4,000. In that case, simple math says these farms received only an average of $905 per farm, compared to $4,553 per farm for the average independent farm.

That is a five-fold difference! What is fair and equitable about a state-mandated regulatory pricing system that picks “winner and losers” among farmers all facing the same challenges in the extremely competitive dairy industry? It was the conclusion of delegates at the PFB annual meeting that this inequity is not justifiable.

The second point of concern for us, and others at the Farm Bureau meeting opposed to the OOP, is that the manner in which the over-order is administered by the PMMB provides an incentive to move out-of-state milk into Pennsylvania Class I plants, thereby pushing PA-produced milk to other markets. Again, we can look to Dr. Hardbarger’s explanation of how the premium is determined as the cause of this displacement of PA-produced milk. The premium is embedded in the price of all milk sold at retail, adding significantly to the cost borne by Pennsylvania consumers. However, unless this milk was “produced, processed and sold” in PA, this premium does not go back to Pennsylvania farmers. It just seemingly disappears elsewhere in the system.

We would maintain that this type of incentive distorts what would otherwise be the free and efficient movement of milk to processors, and ultimately consumers. From this perspective it is pretty simple to conclude that the more out-of-state milk that is processed by a Pennsylvania plant and sold in Pennsylvania, the less premium is required to be paid to farmers. We don’t fault the processing plants, but instead the pricing system which encourages and incentivizes this practice.

And finally, a word on the minimum wholesale (the price that a processor sells milk to a retailer) and minimum retail (what the consumer pays) prices. These minimum prices are necessary to generate the premium dollars paid by consumers which (in theory at least, but not in practice) are all returned to Pennsylvania farmers. Regardless of whether this causes Pennsylvania consumers to overpay or if it serves as a deterrent to higher volume sales, as some maintain, the bottom line is that if over-order premiums can’t be justified, then there is no reason to impose them.

The elephant in the room that the secretary of the PMMP fails to mention is that the OOP has caused erosion of milk markets for Pennsylvania milk, thus causing milk to move farther and increasing hauling costs for the dairy farmers who bear the burden of paying them. The PMMB should explain to haulers and producers why they have relinquished their duties of certifying and licensing milk haulers, as well as tank weight certification, this year to the Pennsylvania Department of Agriculture, while still collecting a fee of approximately $1,000 a year per 600 cows. Remember, hauler costs are passed on to dairy farms.

Is it any wonder that no new processing has come to Pennsylvania in decades while dairy processing is expanding in other states around the country, as close as neighboring New York state? Prospective companies are surely concerned about the costs of doing business in this unfairly regulated environment in Pennsylvania. We also wonder if guaranteed profit to processing in Pennsylvania might actually be resulting in complacency, stifling improvements in inefficiency and innovation. One can only imagine what new markets might be developed for PA milk if only it were on a more competitive footing.

In summary, the vote by delegates, in a democratic process, to support the elimination of the over-order premium was not made as a result of personal concerns of a few cooperative members as suggested by Milk Marketing Board Secretary Hardbarger in her recent column. It was the result of genuine and valid concerns about the inequity of Pennsylvania’s antiquated milk pricing system and the overall effects that inequity has on our dairy community.

We believe it is time to have a candid conversation about the true costs and the unintended consequences of Pennsylvania’s over-order premium.

— Jim Harbach, Clinton County dairyman, Tim Wood, Tioga County dairyman

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