In 1937, the federal government began regulating milk pricing
in southern New England (the regulated area does not include Maine), and
continues to the present setting minimum prices on all classes of milk. Two
years earlier, in 1935, the Maine Milk Commission (Commission) was established.
The Commission regulates milk prices by using federal prices as a base on to
which a premium is added to adjust Maine prices to those prevailing in southern
New England. Maine's regulations cover the price paid by dairies per hundred
pounds of milk delivered by producers, the minimum margin per gallon that
dairies must receive for processing and delivering milk, and the minimum price
per gallon paid for milk by consumers at retail stores.
The Commission establishes minimum milk prices, monthly, for
milk sold in gallons (the price also applies to quarts through 20-quart
containers). The price per gallon established by the Commission is based on the
Federal Market Administrator's price announcements; however, the Commission has
the authority to add special premiums to the price based on market conditions
in southern New England.
The producer milk price begins at the Federal
Market announced minimum price for milk sold to a dairy. Pricing is based on
100 pounds (CWT) of milk with standards of 3.5 % butterfat, 2.99 % Protein and
5.69 % Other Solids.
The producer is paid for his milk produced in the calendar
month based on butterfat, protein, and other solids contents plus a Producer
Price Differential (PPD). (The PPD is sort of a clearinghouse method to
distribute revenue left over in the federal milk pool after the producers'
class obligations are set aside). The Commission adopts these prices monthly
and, in addition, requires payments be made to producers for any premiums added
by the Commission. To this base minimum payment are added any premiums and
other distributions paid by the handler and, in total, becomes the producer's
pay for milk produced during that month.
Minimum prices for processors (dairies) are
established to reflect the lowest price at which milk purchased from Maine
producers at Maine minimum prices can be received, processed, packaged and
distributed to retailers within the state at a just and reasonable return. To
arrive at the dairy processing cost, also known as the dealer margin, the
Commission conducts a cost study for the operation of hypothetical model milk
processing facilities. Using the models and current cost data for supplies,
labor, electricity, trucking, etc., a theoretically, lowest achievable price is
calculated, which is the theoretical price at which a dairy should be able to
process milk from raw product to finished product and deliver it to the
retailer. The Commission adjusts the theoretical price to take into account
Maine conditions to arrive at a proposed processor margin. The Commission
conducts a public hearing on the proposed processor margin and after
considering the input of processors, any other interested parties, and the
public, the Commission adopts a rule establishing the processor margin. This
margin is the return that processors are guaranteed until a new study is
completed. Processors may obtain a higher price for a gallon of milk from
retailers, but the price paid by retailers cannot be below the minimum
processor margin. By statute, a cost study is required every three
years.
Retail minimum prices paid by consumers are
based on the minimum processor margin and a reasonable rate of return to the
retailer. To arrive at the cost of selling milk at the retail level, the
Commission conducts a cost study of Maine supermarkets. The cost study
identifies methods currently in practice for the delivery of milk to Maine
supermarkets and for in-store handling and selling of milk. It also considers
changes that could be made to make this process more efficient. The Commission
conducts a public hearing on the proposed retail margin, and after considering
the input of retailers, any other interested parties, and the public, the
Commission adopts a rule establishing the retail margin. As with the dealer
margin, the retail margin does not change until a new study is completed and a
public hearing is held to receive comment on the margin.
