Legislature(2001 - 2002)
04/26/2002 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 354-PRICES PAID BY MILK PROCESSING PLANTS CHAR MURKOWSKI announced that the first order of business would be SENATE BILL NO. 354, "An Act relating to the prices paid by milk processing plants to suppliers of fluid milk." Number 0079 JANEY WINEINGER, Staff to Senator Lyda Green, Alaska State Legislature, explained the current situation for dairy farmers in Alaska. If the fat content of a particular dairy farmer's milk drops below the specified butterfat content, the dairy farmer is penalized in the dairy's payment. If the fat content of a particular dairy farmer's milk rises above the specified butter fat content, the dairy farmer is not paid for that increased butterfat. She informed the committee that in the Lower 48, federal and state laws have devised a system of milk marketing orders which guarantee the farmer gets a fair price for the milk produced. Senate Bill 354 merely injects that same fairness into the marketplace in Alaska by stipulating that if a milk processor opts to penalize a dairy farmer for low fat content, it also must reward those farmers with a high fat content. Ms. Wineinger deferred any questions to Pete Fellman. Number 0187 PETE FELLMAN, Staff to Representative John Harris, Alaska State Legislature, added that this [proposed] statute isn't mandatory and would only come into play if [the processor chose to implement] a deduction. CHAIR MURKOWSKI related her understanding that if a milk processing plant pays a reduced price for low fat milk, then the milk processing plant must pay a proportionately higher price for the higher fat milk. However, if a milk processing plant doesn't differentiate [in their prices] between high fat and low fat milk, then the plant wouldn't be required to compensate for milk with the higher fat content. MR. FELLMAN agreed. CHAIR MURKOWSKI pointed out that information in the bill packet specifies that currently Matanuska Maid Dairy penalizes milk by one-tenth of one percent [for each one-tenth of one percent in butterfat content below 3.2 percent]. Therefore, under SB 354 Matanuska Maid Dairy would have to pay one-tenth of one percent additional compensation over the set fee [for milk containing a butter fat higher than 3.2]. MR. FELLMAN said that was correct. In further response to Chair Murkowski, Mr. Fellman explained that in the Lower 48 there are milk marketing orders and federal standards. Individual producers come together and set the standard according to their area. Therefore, the producers negotiate with the processor in developing a standard and thus the standard can vary from region to region. Since the federal government has recognized value in protein, fat, and high quality milk, the federal government has seen fit to reward the dairy farmers with milk marketing orders that recognize the dairy farmers' efforts to manage their milk in a better fashion. Mr. Fellman, in further response to Chair Murkowski, confirmed that the milk marketing orders do allow for additional compensation for milk with high butterfat content. CHAIR MURKOWSKI pointed out that Matanuska Maid's butterfat plan has been in effect since October 1, 1985. Therefore, she questioned why, after 17 years, this legislation is being offered now. MR. FELLMAN related that some dairy farmers received letters from Matanuska Maid saying that their prices were going to be reduced if their butterfat didn't increase. Although this butterfat plan has been in effect, he said he wasn't sure that the issue has come up in the past. CHAIR MURKOWSKI surmised then that Matanuska Maid hasn't necessarily been penalizing the milk producers, although there is a butterfat plan in effect. MR. FELLMAN said that he didn't know, although he did know that the processor has penalized dairy farmers for quality milk, milk with high bacteria counts. However, the processor pays for higher quality milk. Such a situation is acceptable to dairy farmers. The butterfat count is a similar situation, and therefore if there are going to be penalties for low butterfat counts, then there should be some compensation when high butterfat counts are produced. Number 0681 REPRESENTATIVE ROKEBERG inquired as to the number of dairy farmers and processors in Alaska. MR. FELLMAN answered that there are two processors: Northern Lights Dairy and Matanuska Maid. There are three dairies in the north and about five to six dairies in the Palmer area. In further response to Representative Rokeberg, Mr. Fellman stated that Matanuska Maid hasn't testified on SB 354, although Matanuska Maid is aware of this legislation. REPRESENTATIVE ROKEBERG turned to the standard used at Matanuska Maid and inquired as to why the 3.25 butterfat threshold in the legislation was chosen. MR. FELLMAN replied that the 3.25 butterfat content is the federal standard. In the Lower 48 the milk marketing order sets the standard. However, the processors in the State of Alaska [currently] set the standard. REPRESENTATIVE ROKEBERG inquired as to how often the milk is tested. MR. FELLMAN responded that every tank of milk picked up from the farm is tested for butterfat and bacteria content. In further response to Representative Rokeberg, Mr. Fellman emphasized that the tests, which look at butterfat, protein, water, and solid non-fat, are very accurate. CHAIR MURKOWSKI pointed out that failing to comply with this legislation falls under Title 45, the Unfair Trade Practices Act. She highlighted that failing to comply results in a penalty of not more than $25,000 per violation, which she viewed as high. There is also a civil penalty of not more than $5,000. Number 1062 DONALD LINTELMAN, Northern Lights Dairy, testified via teleconference. Mr. Lintelman explained that so much [low butterfat milk was produced] that the Northern Lights Dairy couldn't produce whole milk due to the lack of cream. Therefore, the dairy began to penalize the farmers for [low butterfat contents]. The [low butterfat contents] continued for a number of months, which resulted in the dairy purchasing Jersey cows in order [to produce whole milk]. He noted that this year [the butterfat content] is higher because the farmers are feeding the cows more hay than grain. Mr. Lintelman informed the committee that the dairy is paying "$19.00 a hundred" for this test. He explained that when there is extra cream, it has to be pasteurized, boxed, and frozen before being shipped to Matanuska Maid. The Northern Lights Dairy doesn't need milk with a butterfat higher than 3.25. If SB 354 is passed and pressure increases on the Northern Lights Dairy, then it may stop picking up milk from [farms that produce high butterfat] and thus their milk will have to be sent to Matanuska Maid. CHAIR MURKOWSKI surmised that Mr. Lintelman doesn't necessarily support that a dairy farmer should be compensated for the product that's high in butterfat. MR. LINTELMAN replied, "That is true." In further response to Chair Murkowski, Mr. Lintelman specified that in the past the Northern Lights Dairy has penalized farmers for a lower butterfat content. However, penalties haven't been issued since the tests have shown the [butterfat content to be high enough] for the dairy to make whole milk. CHAIR MURKOWSKI explained that under SB 354 so long as the milk processing plant isn't penalizing the dairy farmers for the lower butterfat content, the plant doesn't have to compensate the dairy farmers for the higher butterfat content. MR. LINTELMAN stressed, "If we were going to penalize them, we'd have to go less than $19 a hundred. We're paying $19 a hundred for 3.25 [percent butterfat]." He said that the plant doesn't pay for butterfat contents higher than 3.25 because the milk samples vary from day to day. Mr. Lintelman stated that he didn't want to get into a hassle with this. Therefore, it might be better for Northern Lights Dairy to drop the two dairy farms and merely deal with its own milk. He related that he doesn't have the time or labor to deal with this. MR. LINTELMAN, in further response to Chair Murkowski, specified that the milk at the Northern Lights Dairy is tested on average about twice a week. Number 1338 REPRESENTATIVE MEYER related his understanding that different types of cows produce different quality milk. MR. LINTELMAN agreed that the Jerseys and Brown Swiss may produce more cream than the Holstein. In further response to Representative Meyer, Mr. Lintelman informed the committee that in the Delta Junction area the dairy farmers mainly have Holstein cows. Number 1366 ROBERT WELLS, Director, Division of Agriculture, Department of Natural Resources, testifing via teleconference, announced that he was available to answer questions. In response to Chair Murkowski, Mr. Wells explained that he doesn't have a direct connection with Matanuska Maid, which has a creamery corporation board of seven members that are appointed by the Board of Agriculture. However, Mr. Wells said he was sure that the chairman of [the creamery corporation] is aware of SB 354. Mr. Wells related that he had spoken with the chairman this morning and the chairman had said he had forwarded some correspondence [to the committee]. CHAIR MURKOWSKI remarked that she understood that Mr. Wells was affiliated with Matanuska Maid. MR. WELLS explained that although Matanuska Maid is an asset of the Agricultural Revolving Loan Fund, the day-to-day decisions are made by Matanuska Maid's manager in Anchorage. The manager is responsible to the creamery corporation board. CHAIR MURKOWSKI noted that the committee did receive information from Matanuska Maid regarding how the quality bonus programs work. Number 1469 REPRESENTATIVE CRAWFORD inquired as to how the milk industry is fairing in Alaska. He also inquired as to whether SB 354 would endanger what's left of the milk industry. MR. WELLS informed the committee that there has actually been a rebound in the milk industry in the last 12-18 months because of the disposals at Point McKenzie. The largest dairy is currently milking 300 cows and will soon be milking 350 cows. The average of the other dairies is between 60-140 cows. In the Matanuska Susitna Valley there are now eight operating dairies. Mr. Wells commented that it's a challenge for both the producers, dairy farmers, and processors because of the vertical integration and current marketplace as well as the competitive pricing. However, Alaskans do support Alaskan grown products because of the freshness and quality. REPRESENTATIVE CRAWFORD expressed concern that if Alaska loses its milk industry, milk prices would increase due to the lack of competition. Therefore, Representative Crawford said that he didn't want to do anything to jeopardize Alaska's milk industry. MR. WELLS remarked that Representative Crawford has a very legitimate concern, especially after the September 11, 2002, tragedy which illustrated how supply lines can be interrupted. He pointed out that at any given moment, there is only a few weeks worth of groceries in the state. Mr. Wells highlighted the unique situation of the Division of Agriculture in that it supports the dairy farmers while being involved in the ownership of Matanuska Maid. He expressed the need to be careful with any legislation that would impact pricing and place [Alaska's dairies] in a noncompetitive position. Number 1630 CHAIR MURKOWSKI reiterated her understanding that Matanuska Maid's penalty with regard to milk with a butterfat content lower than 3.2 percent hasn't been enforced. She inquired as to Mr. Wells' knowledge of the situation. MR. WELLS said that was his understanding as well. He characterized the letters sent to the dairy farmers as a warning that if the plant continued to receive milk [with a butterfat content less than 3.2 percent], action would have to be taken. CHAIR MURKOWSKI turned to Mr. Lintelman's testimony regarding the fact that certain cows produce milk with low butterfat content. MR. WELLS said that the predominant dairy breed is the Holstein, which doesn't produce as high a butterfat content as other breeds. However, with good feed rations and good care, the Holstein breed is able to provide the minimal butterfat content. Still, Mr. Wells recognized the situation in which the lack of butterfat can lead to a dairy's inability to produce whole milk. MR. FELLMAN interjected that a Holstein is able to produce over 4 percent butterfat content. He informed the committee that as a cow goes into lactation, it generally produces a higher volume of milk with a lower volume of butterfat. As the cow's milk production decreases and lactation progresses, the volume of milk decreases while the butterfat content generally increases. He explained that dairy farmers in the Lower 48 under the milk marketing orders understand that they will receive less money for their milk by the hundred weight, but they will produce more milk per cow. Therefore, as the milk production decreases, the butterfat increases as does the milk price and thus balances out those cows that aren't producing during the peak of their lactation. At this point, the issue of pricing and fairness comes into play. Number 1880 REPRESENTATIVE MEYER related his understanding that the Holstein breed produces higher volumes of milk, although there may be lower butterfat contents. He recalled the testimony that grain versus hay impacts the butterfat content of the milk. However, the cost of the food has to be factored in the equation. The additional cost of the food producing higher fat contents may result in the higher milk price, he suspected. He asked if there are some federal subsidies to dairy farmers. MR. FELLMAN addressed the issue of subsidies. He explained that in the Lower 48 there is the CCC tax, which is money that is taken out of the milk check and placed into a fund that is used for subsidies during feed shortages. He pointed out that most subsidies revolve around grain production. In the State of Alaska there is no subsidy for any milk. REPRESENTATIVE MEYER inquired as to why there are no subsidies for milk in Alaska. He recalled hearing that some dairy farmers were being paid to not produce as much milk as normal. MR. FELLMAN explained that although the State of Alaska isn't involved in any dairy subsidies, one can apply for insurance during a feed shortage. The aforementioned is a federal program. In order to qualify for that insurance, one must make a payment to the [Farm Service Agency] FSA. In further response to Representative Meyer, Mr. Fellman reiterated that the level of fat can be impacted by the type of grain or hay a cow is fed. However, at certain times of the year, a cow will produce higher or lower fat depending upon the cycle of lactation. REPRESENTATIVE MEYER asked whether a bill such as SB 354 is necessary or will the market take care of it. MR. FELLMAN noted that in most cases it costs more to produce higher fat milk, although there is currently no compensation for that higher fat milk. Mr. Fellman related his belief that if one can be penalized for low fat milk, one should be able to receive similar compensation for [high fat milk]. Number 2258 CHAIR MURKOWSKI, determining there was no one else who wished to testify, closed public testimony on SB 354. REPRESENTATIVE MEYER remarked that with as few dairy farmers as Alaska has he didn't foresee too much impact regardless of whether SB 354 passes or not. REPRESENTATIVE ROKEBERG expressed concern with the "proportionately higher price" definition. He pointed out that there isn't a cap on [the butterfat content] when it's on the high side and asked if there should be a cap. TAPE 02-66, SIDE B CHAIR MURKOWSKI agreed that the definition was odd. However, she expressed the need to keep in mind that this provision goes into effect only if the processing plant charges a penalty for the lower fat. Chair Murkowski pointed out that the testimony doesn't sound as if anyone is being assessed the penalties. REPRESENTATIVE CRAWFORD related his understanding that the testimony sounded like these penalties were assessed 18 months ago [at the Northern Lights Dairy], and these penalties seemed to be a good incentive for the dairy farmers to increase the butterfat content. [Mr. Lintelman] says that he doesn't use the excess butterfat when the content is higher and thus he doesn't have any way in which to market that butterfat. Representative Crawford said he wished that Matanuska Maid would've weighed in on this matter so that the committee would know what it does with the excess butterfat milk. MS. WINEINGER related her belief that Matanuska Maid operates completely differently than the Northern Lights Dairy. She explained that Matanuska Maid implements a penalty for [low] butterfat content and pays extra for [high] butterfat content because she believes that Matanuska Maid fully utilizes that butterfat whereas the Northern Lights Dairy doesn't have a need for that [high butterfat] cream. CHAIR MURKOWSKI surmised that Ms. Wineinger was saying that were SB 354 adopted, it wouldn't have much impact on Matanuska Maid because this is already the current practice. MS. WINEINGER deferred to Mr. Fellman. MR. FELLMAN disagreed with [Ms. Wineinger's] statements. Mr. Fellman specified that although Matanuska Maid assesses penalties, to his knowledge Matanuska Maid hasn't taken any money from milk checks. However, Matanuska Maid has indicated the intention to deduct money from the milk checks if the milk fat doesn't increase. Mr. Fellman further specified that Matanuska Maid does not pay for the additional fat. REPRESENTATIVE ROKEBERG noted his concern with Mr. Lintelman's comments that he would stop picking up milk from the local dairies if he is forced to pay for the high butterfat content. However, Representative Rokeberg said he understood the bill not to make Mr. Lintelman have to [pay for the high butterfat content]. MR. FELLMAN reiterated that if there is no penalty assessed, then there is no requirement to pay extra. Number 2081 REPRESENTATIVE MEYER moved to report SB 354 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, SB 354 was reported from the House Labor and Commerce Standing Committee.
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