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Some dairy operations urged to pay into price pool

DENVER (AP)--A dispute over how milk processors and bottlers pay dairy farmers for their product is raising years-old arguments over who's playing fair.

At issue are funding pools the government set up decades ago to ensure farmers get a minimum price for their milk. Processors and bottlers pay into the pools, but farms that do everything from raising cows to bottling and selling their own milk don't pay in, under an exemption for so-called "producer-handlers."

The National Milk Producers Federation and the International Dairy Foods Association want to scrap that exemption. Together they represent about 36,000 of the nation's 60,000 commercial dairy farmers and about 220 dairy processors.

"Producer-handler status was never intended to give unfair advantages to large milk plants, but such large producer-handlers put many small farms at risk," federation head Jerry Kozak wrote in a letter to the U.S. Department of Agriculture last month.

They argue that the exemption, dating to the 1930s, was intended for small farmers who sold directly to families--not operations that have grown into large, modern-day bottlers. If more large operators take the exemption, that would shrink the pool and deprive farmers of funds, they say.

The groups wants the USDA to end special treatment for producer-handlers, which in December represented about 1.5 percent of sales in their regions.

The federation estimates the exemption gives producer-handlers an advantage of up to 15 cents per gallon of milk for drinking, which fetches higher minimum prices than milk used for butter, cheese or ice cream.

The federation says its proposal won't affect small operators as long as they produce less than 3 million pounds a month, or roughly 350,000 gallons. About half a dozen of the nation's 40 producer-handlers produce more than that, and the federation's proposal could add significant expenses for them.

The USDA has yet to decide whether to hold a formal rule-making hearing on the proposed change.

The American Independent Dairy Alliance wants the USDA to deny the petition for a hearing.

One alliance member, Aurora Organic Dairy of Boulder, Colo., argues that while it doesn't pay into the pools, it takes on more risk and costs by raising its own cows and building facilities to process and distribute its milk.

Sally Keefe, vice president for government and legal affairs at Aurora, said eliminating the exemption could stifle innovations like organic milk, raise consumer prices or force producer-handlers to sell off parts of their businesses to focus either on farming or processing.

Privately held Aurora Organic Dairy does not disclose production, but court records in unrelated cases suggest it has about $100 million in annual revenue.

"It would be very devastating to our business," Keefe said. "Producer-handlers make up 1.5 percent of the fluid milk market. The group of people who represent the other 98.5 percent of the market are trying to gobble up the last bit of it."

Another alliance member is Warren Taylor, owner of Snowville Creamery in Pomeroy, Ohio. He contends producer-handlers would be subsidizing their competition if they have to pay into the pools.

"It's an absurd economic construct," he said.

Taylor's creamery produces about 4,000 gallons a week in southeast Ohio but is poised to become a producer-handler. Taylor said Snowville sets itself apart with milk from grass-fed cows that is packaged in cartons rather than plastic jugs, which he believes can alter the taste.

He said scrapping the producer-handler exemption would discourage people from producing milk the way he does, with an operator managing everything from what cows eat to how milk is packaged.

"I want to enable other dairies to do this," he said.



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