State lawmakers wrestle with milk-hauling issue
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By Louis Porter Vermont Press Bureau - Published: April 21, 2008
MONTPELIER — Last year the Legislature passed a measure requiring that milk companies — not dairy farmers — should pay to truck milk to processing plants. It seemed logical at the time. The hauling costs were especially painful for dairy farmers who were getting the lowest prices for milk in recent memory.
But now dairy cooperatives, the state's top agriculture official and the Vermont Milk Commission are warning that unless lawmakers repeal or delay the law, known as Act 50, it could harm farmers ability to market milk out of state.
Sen. Harold Giard, D-Addison, the champion of the legislation, said he will agree to move the law's effective date of Jan. 15, 2009, back a few months.
It's not clear if that delay will satisfy opponents of the measure, who prefer a full repeal. The new milk hauling rule already includes a triggering mechanism relying on other states taking similar action before fully going into effect.
The delay would give other states, where farmers still pay to haul their milk to dairy processors, an opportunity to jump on Vermont's bandwagon. Legislators in New Hampshire are considering a similar bill, and New York state is studying the cost of milk hauling and who should pay.
The way the law stands now, the shift forcing dairy companies to pay for milk transportation puts the state's farmers at a disadvantage in the regional market, according to proponents of the repeal. The House has already passed the repeal. The Senate would have to agree to do the same in order for the repeal to go into effect.
For Giard, who was a dairyman for two decades, it seems wrong that farmers have for decades paid "hauling and stop charges" on milk purchased by dairy companies like Cabot, owned by Agri-Mark, or the St. Albans Cooperative Creamery.
"The farmer has been subsidizing every glass of milk, every bowl of cereal in Boston," Giard said. Because he ran a dairy farm himself, the issue is more than a policy question — it cuts close to home. "I paid enough money in hauling and stop (charges) to pay for the farm," Giard said.
Those charges vary depending on how far a farm is from a dairy plant; by some measures, the cost is 60 cents per hundredweight on average.
But not all farmers — or even all farmers in the Statehouse — agree with Giard.
House Agriculture Committee member Rep. John Malcolm, D-Pawlet, a recently retired dairy farmer and a former board member of Cabot, presented the repeal of milk hauling bill in the House. "I thought it would put us at a disadvantage," in marketing and in the cost of Vermont milk relative to other states, Malcolm said. "I thought it was the wrong way to go for Vermont."
Bob Wellington, the economist for Agri-Mark, agrees with Malcolm. The state can require dairy producers like Cabot to forgo charges to farmers for trucking, but they can't then ensure the milk, which may have a higher price, will find a market in Southern New England, he said. It would be especially risky for Vermont milk to be more expensive if New York state did not also change the rules around hauling charges.
"It would have to be delayed at least until New York is on board," Wellington said. "New York is an absolute lynchpin. It could displace the Vermont milk very easily."
"The markets out there for Vermont milk are going to shrink" if the measure goes into effect, Wellington said. "It is going to create a lot of problems for us in marketing Vermont milk."
Cabot, which sells some fluid milk to bottlers in New England, has already heard this firsthand. "We have been told by our customers that when this goes into effect they don't want Vermont milk," Wellington said.
Cabot also makes cheese and other products itself, so if the new law goes into force, the company could pay more for Vermont milk and use it in its own plants. That would mean its price on those foods would be higher than its competitors to recover the cost, Wellington said.
There is more to the story than a disagreement over who should pay for hauling milk, however.
Part of the reason Giard introduced the bill requiring that the dairy companies pay for hauling is that just as the Legislature was passing a roughly $11 million emergency aid package for dairy farmers last year the cooperatives were asking for more money from their farmer members.
"At the same time we were sending farmers $1 a hundredweight the co-ops were taking 60 cents of that to make up for their financial missteps," Giard said.
Because of the six-month to two-year aging cycle of cheese, Cabot was selling its products at a price disadvantage because it bought the milk from farmers when prices were high, Wellington acknowledged.
"We had expensive cheese in inventory and we had to sell it in a down market," he said. The company was competing against some cheesemakers, Kraft for instance, that artificially age their cheese and so do not get caught in that timing problem, he said.
"We took terrible losses trying to compete," Wellington said.
Since then the company has started using the futures market to hedge against such losses and sells its cheese un-aged to buyers — and then ages the cheese for them, Wellington added.
St. Albans had also made some investments that did not work out as well as the company hoped, Giard said.
"You have to manage your risk a little better than that," he said.
But Tom Gates, the relations manager for St. Albans, said that since the co-op is owned by farmers the losses or gains go back to them.
"The cooperative is owned by dairy farmers. Dairy farmers are the cooperative," he said. "Any margins that are achieved on the sale of milk are paid back to the members."
But Giard isn't convinced. The milk companies are basically threatening that there will not be a market for their milk if the trucking charges are put onto the milk companies, he said.
"That's how you deal with farmers. You threaten them, and that is exactly what the co-ops are doing," Giard said. "The co-ops have forgotten who they truly represent, which is the farmer."
Roger Allbee, the state's agriculture secretary, said the danger to Vermont milk sales if the law goes into effect is real.
Because of the way milk is priced and the way the market is set up, it is unlikely the change in assessing hauling charges would have the desired result of putting more money in farmers' pockets, Allbee said. Instead, the dairy companies like St. Albans and Cabot — and their members — would likely end up eating the cost.
"You can't easily leverage higher prices out of the market," he said. "Farmers end up paying one way or the other if they are in the co-ops."
The Vermont Milk Commission, chaired by Allbee, heard testimony from dozens of witnesses over the months since the hauling bill became law. Their conclusion was unambiguous — the legislation creates competitive disadvantages and should be repealed, the commission concluded.
Erik Brue, the president of mozzarella and provolone producer Via Cheese in Swanton, said the law could raise the cost of his products if it went into effect.
"We compete in a national industry," he said, "This is going to make us not cost-competitive in the national marketplace."
"We will request milk from New York if that is what we need to do," Brue said. The transfer of hauling charges would make Vermont uncompetitive, he added,
"Long term it would be difficult to be here," Brue said.
Giard acknowledged that he may be facing tough opposition and added that he is willing to delay the implementation date of the legislation until other states join Vermont.
But he is not giving up the idea, Giard said.
"We want to get New York and New Hampshire to get on board," Giard said. "You are changing a culture here and I think that is always extremely difficult. It is uphill, against the wind, with rocks in your backpack."
Contact Louis Porter at louis.porter@rutlandherald.com.
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