The Pennsylvania Milk Marketing Board is moving ahead with a plan to triple the lead time that milk buyers must give to dairy farmers before terminating their contracts.
The notice would grow to 90 days from 28 but would include exceptions for milk dealers in distress.
The Pennsylvania Ag Department petitioned the Milk Marketing Board last year to extend the termination notice period after Dean Foods dropped 42 dairies in the state.
Dean gave the farms 90 days’ notice, more than the law currently requires, but many farms still had difficulty finding a new market. A few quit milking cows.
Had the dairies only received 28 days’ notice, even more might have exited the dairy business, the Milk Marketing Board reasoned in paperwork prepared for the state Independent Regulatory Review Commission.
In years past, Pennsylvania had ample milk markets, and a dairy dropped by one buyer could often find another processor or co-op fairly easily.
But with the market awash in milk, those days are gone, Jayne Sebright, executive director of the Center for Dairy Excellence, testified last July during the board’s hearing on the notice.
Even when buyers want to do business with a new dairy, they don’t just snap the farm up.
The buyers who wanted to help the Dean farmers needed time to assess their current milk supply and the quality of the farms, Sebright said.
The board has spent much of the year since the hearing developing a new regulation with the longer termination period.
“We took a probably four-sentence regulation and it got turned into a four-page regulation, so it became more complex,” said Doug Eberly, the board’s chief counsel.
One of the biggest sticking points was just how long the new notice period should be.
The Ag Department had originally petitioned for 180 days — half a year — while dealers suggested 45 days, Eberly said.
The board also hadn’t initially planned on offering exceptions to the 90-day notice.
It changed course after buyers warned the 90-day rule could force them to buy milk for which they had no market for up to two additional months.
During that time, the buyers could go out of business, killing a market for all the farms that shipped to the business, not just the ones that were terminated, the board said in a regulatory review document.
Under the proposed language, milk dealers can petition the board for a 28-day notice period because of financial distress, business loss or catastrophe.
Using actual dealer financial data, the board tested two formulas for assessing hardship.
That process took some time, but “it’s better to submit a good product than a not-so-good product and have to change it,” Eberly said.
No other state imposes a combination of notice period and exceptions that is similar to this proposed regulation, according to the board.
The proposed rule also recognizes that processors can donate bottled milk to a food bank and maintain their contracts with farmers.
And it would remove a loophole that says farmers who sell some of their milk on farm have forfeited their right to written notice.
The 90-day notice would not apply when the buyer and producer explicitly contract for a different notice period.
It’s not clear how many dealer-producer contracts have such language already, but the board could easily amend the regulation later if dealers use contracts to push short notice periods on farmers, Eberly said.
The board is now awaiting a review of the proposal from the attorney general’s office.
After that, it has to go through a 30-day public comment period and review by several other government bodies, Eberly said.
The board is shooting for the final rule to go into effect in January.