PROPOSED RULEMAKING
MILK MARKETING BOARD
[7 PA. CODE CH. 145]
Transactions Between Dealers and Customers; Dealer Inducements
[35 Pa.B. 1772] The Milk Marketing Board (Board) proposes to amend §§ 145.11, 145.21, 145.25 and 145.26 to read as set forth in Annex A.
Purpose of Proposed Rulemaking
The principal purpose of the proposed rulemaking is to prohibit loans made by Board-licensed milk dealers to their customers. Section 807 of the Milk Marketing Law (law) (31 P. S. § 700j-807) provides that ''[n]o method or device shall be lawful whereby milk is bought or received . . . , or sold . . . or delivered . . . , or offered to be bought or received . . . , or sold . . . or delivered . . . , at a price less than the minimum price applicable to the particular transaction. . . .'' Milk dealers, in the course of acquiring new customers, sometimes make loans to those customers. Examining those loans to determine if they have the effect of bringing any particular transaction below the minimum price applicable for that transaction raises a myriad of valuation and enforcement issues. Widespread use of loans also has the potential to cause market disruption in some areas of this Commonwealth. In addition, the Board believes that the majority of milk dealers do not want to provide loans to customers, but in many cases the dealers feel that they must make a loan to retain or acquire a customer. The Board believes that prohibiting loans will tend to reduce the potential for market disruption and will lead to improved compliance with the law's minimum pricing provisions.
Summary of Proposed Rulemaking
The Board currently enforces regulations regarding transactions between milk dealers and their customers and regulations regarding dealer inducements to customers and potential customers.
Section 145.11 (relating to financing) currently prohibits dealers from providing financial accommodations to wholesale customers by, in general, guaranteeing the payment of any obligation of the customer. The proposed rulemaking would also prohibit milk dealers from providing financial accommodations to customers by lending the customers money or by paying any obligation of the customer.
Section 145.21 (relating to giveaways) currently prohibits milk dealers from giving money, among other items, to a customer or prospective customer as an inducement for soliciting or securing the business of that customer or prospective customer. The proposed rulemaking would also prohibit milk dealers from lending money to a customer or prospective customer as an inducement to solicit or secure the business.
Section 145.25 (relating to loans and credit; wholesale customers) currently provides that loans will be deemed an extension of credit as that term is used in section 807 of the law. The proposed rulemaking would rescind this section. As noted, examining loans to determine if they result in sales below the minimum price applicable to a particular transaction raises issues regarding the value and legitimacy of the loan. In addition, the Board is becoming increasingly concerned that widespread use of loans by milk dealers has the potential to cause market disruption in some areas of this Commonwealth. Rescinding this section is also necessary for consistency with the other amendments, as they would prohibit loans; if loans are prohibited, there is no reason to deem them extensions of credit.
Section 145.26 (relating to extension of credit to whole sale customers) prohibits extensions of credit to most wholesale customers beyond 30 days from the date of invoice. This section also provides that after 30 days, dealers must place the customers on a cash basis. At a public meeting dealing with the loan issue, some dealers expressed concern over not being able to secure payment from these cash customers if loans were prohibited. To clarify that dealers may make arrangements to secure those payments, the proposed rulemaking provides that dealers with customers on a cash payment schedule under the terms of § 145.26 may secure those payments with a promissory note, a lien or by some other method.
During preliminary discussions and the public meeting regarding this proposed rulemaking, the Pennsylvania Food Merchants' Association raised the issue of grocery wholesalers. The Board does license some grocery wholesalers as milk dealers. Some of the grocery wholesalers, in conjunction with supplying customers with the complete line of groceries including milk, do make loans to those customers, whether they be wholly-owned subsidiaries, franchisees, affiliates or nonaffiliated customers. Language was added to §§ 145.11, 145.21 and 145.26 to clarify that loans made by grocery wholesalers, to the extent the loans are not inducements related to acquiring or retaining the milk business of any customers, are not prohibited.
Dean Foods Company also expressed some concern during the preliminary discussions that the prohibition on dealer loans could cause competitive issues outside this Commonwealth if the Board enforced the prohibition on transactions that take place outside this Commonwealth. The Board recognizes that it may not enforce the law or regulations on transactions that take place outside this Commonwealth and has no intention or desire to enforce its regulations on transactions that take outside this Commonwealth.
Statutory Authority
Section 307 of the law (31 P. S. § 700j-307) provides the Board with the authority to adopt and enforce regulations necessary or appropriate to carry out the law.
Public Hearing
On December 15, 2004, the Board, after due notice, conducted a public hearing to receive comments on the proposed rulemaking. Among the attendees were representatives of the Pennsylvania Association of Milk Dealers, Pennsylvania Food Merchants' Association, Pennsylvania Farm Bureau, Dean Foods Company, Dairy Marketing Services, Lehigh Valley Dairies, Schneider's Dairy, Pennsylvania Department of Agriculture, United Dairy Company and Land O' Lakes. The Pennsylvania Food Merchants' Association raised the issue of grocery wholesalers making loans to customers in conjunction with the full line of grocery sales to those customers. The proposed rulemaking addresses that issue by clarifying that loans made by grocery wholesalers in conjunction with transactions that may include milk sales are not prohibited if the loans are only incidentally related to the milk sales and are not made as an inducement to secure or retain the milk business of the customer.
The Board also held a public meeting on June 29, 2004, to generally discuss the issues surrounding loans made by dealers to customers. Among the attendees were the Pennsylvania Association of Milk Dealers, Pennsylvania Food Merchants' Association, Pennsylvania Farm Bureau, Dean Foods Company, Lehigh Valley Dairies, Rutter's Dairy, Pocono Mountain Dairy, Ritchey's Dairy, Galliker's Dairy, Vale Wood Farms, Crowley Foods, Upstate Farms Cooperative and Land O' Lakes. The first draft of the proposed rulemaking was written as a result of the discussion and comments at that public meeting.
Fiscal Impact
The Board believes that adoption of this proposed rulemaking will eliminate the potential for market disruption, and hence the potential for negative fiscal impact on at least some dealers and their customers.
The proposed rulemaking should also have a positive fiscal impact on the Board in that resources spent examining and valuing loans made by dealers to customers will be spent on other enforcement priorities.
Paperwork Requirements
There are no paperwork requirements.
Effective Date; Sunset Date
The amendments will become effective upon publication in the Pennsylvania Bulletin as final-form rulemaking. There is no sunset date.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), a copy of this proposal was submitted on March 4, 2005, to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House and Senate Committees on Agriculture and Rural Affairs. In addition to submitting the proposed rulemaking, the Board has provided IRRC and the Committees with a copy of a detailed regulatory analysis form. A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed rulemaking, it will notify the Board within 30 days of the close of the public comment period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review by the Board, the General Assembly and the Governor of objections raised before final-form publication of the amendments.
Public Comment
Interested persons are invited to submit written comments, suggestions or objections concerning the proposed rulemaking to Chief Counsel, Milk Marketing Board, 2301 North Cameron Street, Harrisburg, PA 17110, within 30 days following publication in the Pennsylvania Bulletin.
BOYD E. WOLFF,
ChairpersonFiscal Note: 47-11. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 7. AGRICULTURE
PART IV. MILK MARKETING BOARD
CHAPTER 145. TRANSACTIONS BETWEEN DEALERS AND CUSTOMERS
REFRIGERATION EQUIPMENT § 145.11. Financing.
[Dealers shall] Milk dealers and their affiliates, subsidiaries, or representatives thereof may not provide financial accommodations for a wholesale customer by lending money to the customer, or by paying or guaranteeing the payment of any obligation of the customer, or by acting as a cosigner on a promissory note or other obligation of [said] the customer, or by depositing money or collateral with a third party, person or organization which will lend money or extend credit to [a wholesale] the customer. This section does not apply to transactions between grocery wholesalers and their subsidiaries, affiliates, franchisees or wholesale customers to the extent the transactions occur in the normal course of the grocery wholesaler's business and are only incidentally related to acquisition or retention of the fluid milk business of the subsidiary, affiliate, franchisee or wholesale customer.
DEALER INDUCEMENTS § 145.21. Giveaways.
[(a)] Milk dealers [shall] and their affiliates, subsidiaries or representatives thereof may not give or lend any milk, milk products, money, article, prize, award[,] or any other item to a customer or a prospective customer, as an inducement for the purpose of soliciting or securing business [or making collections for said dealer, unless such person is a regular employee of the dealer]. This section does not apply to transactions between grocery wholesalers and their subsidiaries, affiliates, franchisees or wholesale customers to the extent the transactions occur in the normal course of the grocery wholesaler's business and are only incidentally related to acquisition or retention of the fluid milk business of the subsidiary, affiliate, franchisee or wholesale customer.
[(b) Subsection (a) shall not apply to persons employed by ''Welcome Wagon Service,'' any similar organization, any accredited collection agency, or attorneys retained for collection purposes.]
§ 145.25. [Loans and credit; wholesale customers] (Reserved).
[Loans by a dealer, or an affiliate, subsidiary, or representative thereof to wholesale customers of fluid milk shall be deemed an extension of credit as that term is used under section 807 of the act (31 P. S. § 700j-807), and are prohibited insofar as an extension of credit is prohibited under such section.]
§ 145.26. Extension of credit to wholesale customers.
* * * * * (b) For the purpose of this section, cash payment basis may, at the option of the dealer, be interpreted to mean weekly payments for the delivery of the past weeks plus [not less than] at least 4% of the past due account to be received by the dealer, on a regular and continuing weekly basis until the customer has reduced the past due balance below the maximum 30-day credit limitation. A dealer who has placed a customer on a cash payment basis under this section may, with approval of the Board, require the customer to execute a promissory note in favor of the dealer, or to grant the dealer a lien on assets of the customer, or to otherwise secure payment of the past due balance to the dealer. The dealer shall immediately notify the Board of the full details of an action taken to secure the payment of a past due balance under this section.
(c) This section does not apply to transactions between grocery wholesalers and their subsidiaries, affiliates, franchisees or wholesale customers to the extent the transactions occur in the normal course of the grocery wholesaler's business and are only incidentally related to acquisition or retention of the fluid milk business of the subsidiary, affiliate, franchisee or wholesale customer.
[Pa.B. Doc. No. 05-497. Filed for public inspection March 18, 2005, 9:00 a.m.]
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