Terry Etherton’s Blog on Hormones, Biotechnology, and Food Safety

Terry D. Etherton

Protect consumer choice:In the marketplace it is important that consumers have the right to buy milk produced by the most efficient, safe and sanitary methods of dairy farm management practices and production technologies that are available,and priced to reflect these efficiencies.

If some consumers demand milk produced by other less efficient and more costly methods of farm management and production technology (such as rbST-free or organic), those consumers should pay for those higher costs of production, without forcing all consumers to pay the higher costs.

I have written extensively in Terry Etherton’s Blog on Hormones, Biotechnology, and Food Safety about the fact that producing milk with rbST is more efficient and profitable than producing milk without the use of rbST. And it is equally safe and sanitary!

The fact, however, is that many dairy farmers who use rbST are being “hijacked” out of using this profit tool by the deceptive marketing campaign some dairy processors and retailers are operating. Futhermore, they essentially are not getting paid any premium for being forced to give up use of a safe and approved biotechnology. To put it politely, this is inappropriate! It is an infringement on their freedom to choose their preferred method of production, and on their ability to make a profit.

Is there a solution to the fact that dairy farmers are not being fairly compensated for losing a profit tool like rbST? Yes.

In Pennsylvania, the solution lies with the Pennsylvania Milk Marketing Board (PMMB). A petition has been submitted to the PMMB by the Professional Dairy Managers of Pennsylvania and Mr. Alan Zepp, a dairy farmer from Adams county. The objective of the petition is to have the PMMB grant a hearing, and to ask to have a fair premium paid to farmers who are deprived of the opportunity to use rbST. The petition has been accepted and a hearing will be held in June, 2008.

Role of the Pennsylvania Milk Marketing Board (PMMB):

By law, the PMMB is required to establish minimum prices for milk at the farm, wholesale and retail level based upon cost plus a reasonable profit. Minimum prices of dairy products are differentiated. Therefore, for example, producers are paid a different price based upon the butterfat content of their product, and stores and consumers pay different minimum prices for skim, 1%, 2% or whole milk. Minimum prices of products are further differentiated by the costs of milk processor additions … adding chocolate flavoring would be a good example.

If the PMMB “averages” the costs of producing milk with and without rBST, the Pennsylvania consumer will be unable to purchase milk at a price reflecting the most efficient method of dairy farm production. This means some consumers will be subsidizing those consumers who choose to demand milk produced by less efficient farm management practices.

If the minimum price for each product is established to reflect their different costs of production, the consumer can make a choice based upon product and price. If by averaging costs of all producers, the PMMB artificially raises the price of the most efficiently produced product, price becomes less important in the matter of consumer choice because both products have a common or similar price. The effect is to drive the efficient product out of the market because it no longer has the ability to attract consumers by marketing that efficiency through lower prices.

That result is not necessary. Pennsylvania laws and regulations allow packaged fluid milk to be labeled to differentiate it as having been produced without the use of rbST. Therefore, it is possible for the PMMB to establish minimum prices at the farm, wholesale and retail levels which place the cost of rbST-free production on products labeled or certified as such. Consumers who do not wish to pay the higher costs of such production would have the choice of purchasing the less expensive product.

If the Pennsylvania consumers have the choice, many will elect to keep purchasing milk produced using the most efficient dairy technologies, like rbST, because it cheaper at retail.

The basis for state and federal minimum pricing laws for Class I milk is to protect the dairy farmer, because an individual dairy farmer does not have the ability on a continuing basis to receive fair value for his or her product in the marketplace. The Pennsylvania Milk Marketing Law acknowledges that milk producers “do not possess the freedom of contract necessary for the procuring of cost of production.”

The PMMB has established minimum prices for milk at the farm level including “Over Order Premiums” which are premiums above federally established prices for milk utilized for Class I purposes (packaged fluid milk). The PMMB minimum prices are based upon costs of production that use modern, safe, sanitary farm management technologies. The use of rbST is such a technology. As I have written about extensively in my blog, milk produced using rbST costs much less at retail than rbST-free milk. This price differential also reflects the fact that retailers are charging more for rbST-free milk using deceptive absence claims that are intended to scare consumers.

Recent trends in the market reflect a preference of a small portion of consumers for milk produced without rbST. Some dairy processors have demanded from farmers milk produced without the use of rBST. Because of the factors that affect the relative strength of producers and dealers(processors) in the marketplace, many producers have not been able to negotiate a price (premium) above established minimum prices to recover their income that is lost from their being forced out of using rbST.

The Pennsylvania Milk Marketing Board needs to recognize that many farmers using rbST are being unfairly treated by milk dealers (processors). For example, based on current milk prices at the farm, farmers who effectively use rbST “net” an additional $1.40 per hundredweight of milk (milk is sold on a hundredweight basis by farmers). For a farmers milking 100 cows this represents about $31,000 in additional profit for the herd on an annual basis. I have met many dairy farmers who are outraged that they are being cheated out of this income by having to sign affidavits forced on them by milk cooperatives mandating that they “give up use of the biotechnology”. This “lost” income amounts to millions of dollars for Pennsylvania dairy farmers each year.

The PMMB has the ability and responsibility to establish a premium for milk produced under an affidavit or other certification that it was produced without use of rbST. Because the Secretary of Agriculture has approved use of labels identifying such products, the PMMB has the authority to establish minimum prices for Class I products so labeled, thus allowing all costs associated with the rBST-free producer premium to be passed through in the minimum prices of those products sold to stores and consumers.

With the PMMB having decided to accept the petition, it is now important that the hearing be granted AND that a fair over order premium be established for farmers who are being cheated out of the opportunity to use a safe and effective tool of biotechnology. The PMMB should not encourage this intrusion into farm management practices and use of proven biotechnologies unless those making the demands are required to pay the full costs of the loss of these technologies to the dairy farmers…to do otherwise will drive the use of modern dairy technology - rbST and perhaps others, off the Pennsylvania dairy farm.