Legislature(2001 - 2002)

04/26/2002 03:25 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ 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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