Cooperatives Push to Expand Pa.'s Over-Order Premium

Charlene M. Shupp Espenshade
Special Sections Editor

HARRISBURG, Pa. — In the first rounds of testimony last week at the Farm Show Complex, two cooperative representatives testified before the Pennsylvania Milk Marketing Board (PMMB) to expand the board’s over-order premium for milk produced and processed in the state, but sold in a neighboring state with an over-order premium program.

The hearing was the first in a series hosted by PMMB to make a final ruling on the issue. The only other state impacted by this ruling would be New Jersey, which has a fuel adjuster premium in place for its dairy farmers.

If the PMMB rules in favor of the proposal, first set forth by Gov. Ed Rendell and Agriculture Secretary Dennis Wolff, more than a half billion pounds of milk produced in Pennsylvania annually would be eligible for the new premium.

Edward Gallagher, vice president of economics and risk management for Dairylea, and Dennis Schad of Land O’Lakes presented testimony on behalf of a conglomerate of cooperatives with membership in Pennsylvania.

Schad said using the PMMB’s milk volumes, a 65-cent per hundredweight premium would return more than $2.5 million to Pennsylvania dairy producers.

Both said that the board needs to consider this action in order to “level the playing field for New Jersey farmers” impacted by processors’ preference for cheaper milk from Pennsylvania, and to further assist Pennsylvania dairy farmers, who are losing ground compared to national averages.

Dairy farmers in Pennsylvania have higher production costs compared to other dairy regions and have not enjoyed the same economic benefits during times of high milk prices.

Schad said the state has only seen an increase in production of 5 percent — a far cry from the national average of 28 percent. The state has also lost national market share, dropping from 7 percent in 1998 to just 5.8 percent today.

The board’s efforts have not been unrecognized, Schad said. Its over-order premiums have helped keep milk prices above the national average.

However, “the board’s efforts in establishing and setting over-order premiums have not arrested the decline in the commonwealth’s dairy industry,” he said.

Schad and Gallagher said the rules of dairy economics have changed. Schad said the USDA milk support prices, based at $9.90 per hundredweight, and the Milk Income Loss Contract (MILC) program trigger of $16.94 per hundredweight are irrelevant. The cost of milk production in Pennsylvania, according to PMMB, is about $17 per hundredweight. Both assistance programs are below that average.

Gallagher said the dairy industry is now in a global marketplace. International demands from modernizing countries for better diets and governmental mandates for renewable energy have added new competitors for feedstuffs.

Ultimately, this has increased the cost of production.

Since 2002, the average cost of purchasing feed has risen $3 per hundredweight of milk.

“Feed cost inflation has devalued the milk check,” said Gallagher. He said that a $17 per hundredweight milk check is equal to a $12 per hundredweight milk check in 2002 dollars, which places the state’s dairy industry in the low point of the “disastrous milk pricing cycle of 2002,” the last time milk was priced this low.

“Pennsylvania dairy farmers need to derive additional income to assist them in managing through low milk prices, high production costs and the milk price uncertainty inherent in the global marketplace,” he said.