For Immediate Release
June 30, 2010
Contact: Nathan Flood
717-787-4420
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A Conversation with Senator Brubaker

Senate Committee Examines Stranded Premium for Dairy Farmers

In December, the Senate Agriculture and Rural Affairs Committee held a hearing to examine the pricing structure for milk to determine what the state can do to help dairy farmers who have been suffering through low prices they have been paid for their product for more than a year. One of the primary concerns expressed by producers at this hearing was the “stranded premium” that is intended to be transmitted to dairy farmers for each gallon of milk produced, processed and sold in Pennsylvania.

I held a second hearing on this issue this week to ensure that the state and the General Assembly take the appropriate actions to protect our dairy farmers. The committee heard testimony from representatives from the Pennsylvania Department of Agriculture, Pennsylvania Milk Marketing Board, Pennsylvania Farm Bureau, Dairy Policy Action Committee, Ahold USA Retail, Pennsylvania Association of Milk Dealers, and the Greater Northeast Milk Marketing Agency. This testimony helped to shed some light on the depth of the problem, as well as possible solutions to ensure that dairy farmers receive this stranded premium in the future.

The 27-cent over-order premium paid by consumers is intended to be passed on to dairy farmers for each gallon of milk produced, processed and sold in Pennsylvania. However, the premium is not paid to dairy farmers for milk that is processed at out-of-state plants or sold wholesale out-of-state and later sold to consumers in Pennsylvania. This premium is still paid by consumers, but dairy farmers do not receive the money.

Pennsylvania Secretary of Agriculture Russell Redding testified that 40-45 percent of milk produced in the state is sold in Pennsylvania as fluid milk, but the current over-order premium is only paid on 15-20 percent of all Pennsylvania-produced fluid milk. Pennsylvania Milk Marketing Board records show that the stranded premium was at least $12 million in 2008, and several producers at the hearing suggested the stranded premium could be as high as $26 million. With many dairy farmers struggling just to cover the cost of operations for their farms, this premium could provide a great deal of financial relief without taking any additional money out of the pockets of taxpayers or consumers.

The vast majority of participants at the hearing supported a recommendation to change the state's Milk Marketing Law to report and audit all retail sales of milk to ensure that dairy farmers receive the stranded premium. Participants also supported a proposal to transfer ownership of the milk at the farm gate to allow more milk to qualify for the premium. The Pennsylvania Milk Marketing Board also recently unanimously voted to change its method for calculating the over-order premium to ensure that $6.7 million of this stranded premium will find its way back to producers.

Dairy farmers make up the largest segment of our state’s agriculture community, and we must ensure that action is taken to help dairy farmers who have experienced significant financial hardships due to low prices they are paid for their product. In the coming weeks and months, I will work with members of the committee to examine these and other recommendations made during the hearing to determine the appropriate course of action to ensure that the stranded premiums reach Pennsylvania dairy farmers.