Eliminates hauling costs for milk producers; defines the transfer of ownership of milk

Summary of specific provisions

The agriculture and markets law is amended by adding a new section subdivision 5 to section 257-a and new section 257-b.

Section one: *Provides definitions for hauling costs.

*Makes it unlawful to charge a milk producer any hauling costs incurred in the process of picking up milk from the milk producer and delivering it to a milk plant.

*Requires the Commissioner of Agriculture to adopt rules implementing the cessation of hauling charges to milk producers consistent with this section.

Section two: *Redefines milk ownership to state that the ownership of milk shall pass from the milk producer to the milk plant when the milk is placed in the vehicle used to transfer it from the milk producer's facility to the milk plant.

Section three: Provides that this act shall take effect upon the enactment into law by the state of New Hampshire and Vermont having identical effect with this act.

Justification

Dairy farming in New York State is the largest component of the agricul- tural industry. There are nearly 6,000 dairy farms and we are ranked third in the nation in milk production behind California and Wisconsin. NY's dairy farms continue to provide consumers with a source of locally produced, affordable supply of nutritious product that is needed for all ages. The state's dairy farms are also economic engines as farms employ 22,000 people statewide while also keeping local businesses operating. Many local building supply stores, fuel suppliers, insurance businesses, feed and dairy supply businesses, financial services, and veterinarian practices are dependent on farms. In fact, the money generated from dairy farms is also spent locally, turning over at least 3 times in local areas. Farms also provide many environmental benefits such as providing habitat for wildlife, open space, and scenic vistas for all New Yorkers to enjoy.

Federal Agriculture Secretary, Tom Vilsack recently stated that we are in, "one of the worst dairy crises in decades". In light of this crisis, the Federal government needs to address long-term solutions on pricing, and better tie what farmers receive for milk to the cost of production. On this issue, there isn't a lot we can do on the state level, but we must do something to help our hard-working struggling farmers and this legislation provides an immediate and real revenue boost to them.

Currently, all farmers are suffering from the rising costs of opera- tion-feed, energy, health care--just as the price their milk demands on the market is at a 30-year low according to the united states Department of Agriculture (USDA). All-milk prices will average $10.95-$11.65 per hundredweight (cwt) this year (2009), the lowest since 1978 (according to the USDA).

Dairy farming is a unique business as dairy farmers are price takers and cannot pass along any increase in operating costs. When milk is loaded onto the truck at the farm, the farmer does not know what price will be received for that milk until the payment arrives the following month. Milk is priced on a per hundredweight basis, unlike at the consumer level where it is priced on a per gallon basis. There are approximately 12 gallons in one hundredweight of milk. A price of $11/cwt, equates to approximately $0.90 per gallon received by the producer. Moreover, a recent study out of Vermont shows that dairy farmers are only receiving $0.91 of each gallon of milk sold in a store. Consumers pay a lot more than $0.90 per for a gallon of milk. That's the markup added by each stage of the shipping, processing and retailing operation that stands between their farms and consumer's fridge. At the retail end, in New York State, milk bottlers are sanctioned by law, to charge a 200 percent margin on milk, a higher margin than consumers pay for most any other staple item on the Consumer Price Index, which is compiled by the US Labor Department. Currently, everyone seems to be profiting from dairy farming, except farmers themselves.

The bottom line is that out of each dollar a consumer spends on a gallon of milk the dairy farm nets a very small percentage of that dollar. Farms, like any business, have costs. Operating costs, according to the USDA Economic Research Service, include feed, veterinarian expenses, bedding, marketing, fuel, electricity, repairs, and other miscellaneous costs. In 2006, dairy farms in New York State were receiving around $13/cwt, or $1.09 per gallon. After factoring in operating costs, they received a net of $0.03 per gallon of milk sold. This net is what the farmer is left to live off of, to send their children to college with, to pay for health care with, and to save for retirement. Currently, the price of milk (between $11.00 $12.00/cwt) is nearly two dollars less per cwt than it was in 2006, and production costs have increased to the point that it costs farmers nearly $16.00/cwt just to break even. so farmers are receiving around $0.90 per gallon of milk and operating at a loss.

The price that farmers receive for milk is based on a federal formula derived from the price of four globally traded dairy commodities --

butter, dry milk powder, whey powder (a byproduct of cheese-making) and cheddar cheese sold on the Chicago Mercantile Exchange (CME) and is administered by the USDA Federal Milk Marketing Order Office. Then a value is added based on the amount of protein, butterfat and solids in each individual farm's milk. These 2 values are added together, along with any quality premiums the farm may qualify for, and lastly, trans- portation costs are deducted. This is called the mailbox price, or the price that the farmer actually receives. Under this legislation, the transportation costs would not be deducted, so farmers mailbox price would increase. This is one real and immediate measure we can take to help dairy farmers during this tumultuous time.

Hauling is a critical component to the entire milk marketing system. Hauling charges will typically range from 3-4% of the gross value of the milk the farm sells. Under current law, processors charge farmers haul- ing costs incurred in the process of picking up milk from the milk producer and delivering it to a milk plant, receiving station or trans- fer station. If this bill is not passed, than faltering milk prices and high production costs could spell the end for many of the state's local dairy farmers. Farmers can only operate at a loss for so long and borrowing money to fund operational costs can only be a temporary option. If State and Federal legislator's do not act to help dairy farm- ers, it is estimated that New York will lose over 1,000 family dairy farms in the next year. This will decrease the volume of fresh dairy products that are available to consumers, and could cause other local businesses whose revenues are dependent on farms to close too.

Prior legislative history

2009: New

Fiscal implications for state and local governments

None.

Effective date

This act shall take effect immediately.