Stranded’ payments frustrate Pa. dairymen

By DARRIN YOUKER

Contributing Writer

TEMPLE, Pa. — Pennsylvania farmers, still struggling with poor milk prices, are trying to close a loophole that prevents a fee paid by consumers from reaching their milk check.

Pennsylvania consumers pay an over-order premium — currently about a quarter — every time they buy a gallon of milk, and the money is supposed to go to dairy farmers. But, in some cases, farmers are not receiving their payments, even though consumers are paying the fee at the store.

“Some feel that a shell game is being played,” said Dennis Wolff, a lobbyist for Versant Strategies, which is working for the group Dairy Policy Action Coalition.

‘Stranded payments’

The problem, known as “stranded” payments, costs dairy farmers around $16 million a year. Now, members of the Dairy Policy Action Coalition, formed last year to reform the milk pricing system, are calling for action.

“What we are looking for is truth and transparency,” said Clifford Hawbaker, a Franklin County dairy farmer and president of the coalition.

“Farmers want to know where the dollars are, and how they are being allocated. We thought it was a simple process, and it is not.”

Background

The Pennsylvania Milk Marketing Board attaches a premium for milk that is produced, bottled, and sold in Pennsylvania. That premium is then passed on to farmers.

However, farmers believe that dairy processors are exploiting a loophole in the system by sending milk over state line for temporary storage prior to processing. Under that scenario, farmers are not entitled to the premiums, yet they are still collected at the stores.

“It’s collected as a premium, but does not have to be paid to a farmer if it crosses state lines,” Hawbaker said.

Senate hearing

Recently, the Pennsylvania Senate Agriculture and Rural Affairs Committee held a hearing to address the issue of stranded premiums.

There is a desire to make a change to the system, and assist farmers, said Kristen Crawford, executive director of the committee. However, those changes must meet federal interstate commerce laws.

“No one intends to move legislation that would be in contradiction to those mandates,” she said.

Pa.’s premium

Pennsylvania enacted its over order premium in the early 1980s to help dairy farmers overcome a crippling drought. Since then, the Pennsylvania Milk Marketing Board has established the premium, which is based in part on the wholesale price of milk, said Wolff, former secretary for the Department of Agriculture.

Only fluid milk — not cheese or yogurt — qualifies for the premium, he said. And, in order to qualify, it must be produced, processed, and sold in Pennsylvania.

Example

But those payments can get stranded. Here’s an example: A Pennsylvania milk producer may have a facility across state lines in Maryland. Milk is purchased from a Pennsylvania farmer, bottled in the state, but it is sent to a distribution center in Maryland before it’s resold in Pennsylvania.

Under that scenario, the Pennsylvania farmer won’t receive the premium, even though it’s being charged at the store, Wolff said.

“It’s disappearing somewhere in the system,” Wolff said.

That money is either stranded at the retail or processor level, and is not being returned to the farmers, Wolff said.

Currently, over-order premiums collected by retail stores are sent back to the processors, who then include the money in milk check payments for farmers, Wolff said. One way to change the system is to have the Department of Agriculture collect the payment, and then send it on to farmers, he said.

“Our farmers are not looking for anything that isn’t due to them,” Wolff said. “I don’t think you can argue this is an issue of transparency.”

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