By Allen Warshaw, PFMA legal counsel
In Pennsylvania, the price of milk is regulated. The Pennsylvania Milk Marketing Board sets different minimum prices for all fluid milk products at the producer, wholesale and retail levels in each of six different Milk Marketing Areas.
At the producer, raw milk level, Pennsylvania minimum prices are based primarily on federally established minimum prices which change from month to month and can vary dramatically over time. Retail minimums reflect raw milk prices, dealer/wholesale costs, retail costs and a profit margin. Those prices change monthly with raw milk prices.
In order to determine the costs of dealers and retailers, the board holds annual hearings at which the dealers and retailers present evidence regarding their costs. For the past 11 years, PFMA has based its presentation of retail costs on the 2007 costs of stores which were deemed representative of the stores in the six Milk Marketing Areas in 2007. Each year, PFMA asked the Board to take those 2007 costs and adjust them monthly by the consumer price index.
Two years ago, the board’s staff and one board member began questioning whether the group of stores (“cross-section”) used to determine retail costs in 2007 were still representative of the market. Unfortunately, given dramatic changes in the retail industry, their skepticism was reasonable.
For example, the group of stores selected in Area 1 in 2007 included three Wawas, two CVS’, two Giants, a Rite Aid, a K-Mart, and an A Plus Sunoco. Walmart, Target and Costco were not included, because they did not exist or were not significant factors in the retail milk market in Area 1 or any other area.
As a result, this year, PFMA, in conjunction with the Pennsylvania Association of Milk Dealers, has directed its accountants to make a fresh calculation of retail costs using stores that are currently representative of the stores selling milk in each area. That process is ongoing and will be completed in time for the 2019 cost hearings.
For a variety of reasons, including, but not limited to the inclusion of larger, presumably more efficient stores, retail costs and, therefore, minimum prices will likely fall. It is too early to predict how much. Clearly, efficient dairy operations will become even more Important.
PFMA will continue to represent retailers at the Pennsylvania Milk Marketing Board hearings and will provide updates in the Spectrum and other communications.
Allen C. Warshaw is a retired partner of Rhoads & Sinon, LLP. He represents PFMA members on milk issues and at the Pa. Milk Marketing Board hearings.
At the producer, raw milk level, Pennsylvania minimum prices are based primarily on federally established minimum prices which change from month to month and can vary dramatically over time. Retail minimums reflect raw milk prices, dealer/wholesale costs, retail costs and a profit margin. Those prices change monthly with raw milk prices.
In order to determine the costs of dealers and retailers, the board holds annual hearings at which the dealers and retailers present evidence regarding their costs. For the past 11 years, PFMA has based its presentation of retail costs on the 2007 costs of stores which were deemed representative of the stores in the six Milk Marketing Areas in 2007. Each year, PFMA asked the Board to take those 2007 costs and adjust them monthly by the consumer price index.
Two years ago, the board’s staff and one board member began questioning whether the group of stores (“cross-section”) used to determine retail costs in 2007 were still representative of the market. Unfortunately, given dramatic changes in the retail industry, their skepticism was reasonable.
For example, the group of stores selected in Area 1 in 2007 included three Wawas, two CVS’, two Giants, a Rite Aid, a K-Mart, and an A Plus Sunoco. Walmart, Target and Costco were not included, because they did not exist or were not significant factors in the retail milk market in Area 1 or any other area.
As a result, this year, PFMA, in conjunction with the Pennsylvania Association of Milk Dealers, has directed its accountants to make a fresh calculation of retail costs using stores that are currently representative of the stores selling milk in each area. That process is ongoing and will be completed in time for the 2019 cost hearings.
For a variety of reasons, including, but not limited to the inclusion of larger, presumably more efficient stores, retail costs and, therefore, minimum prices will likely fall. It is too early to predict how much. Clearly, efficient dairy operations will become even more Important.
PFMA will continue to represent retailers at the Pennsylvania Milk Marketing Board hearings and will provide updates in the Spectrum and other communications.
Allen C. Warshaw is a retired partner of Rhoads & Sinon, LLP. He represents PFMA members on milk issues and at the Pa. Milk Marketing Board hearings.
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