TERMINATION OF DEALER—PRODUCER CONTRACT
§ 143.31. Written notice required.
(a) No dealer shall terminate its contract or purchasing agreement or ordinary continuance of a previous course of dealing with a producer except by giving such producer at least a 90-day written notice before termination. No producer shall terminate its contract or purchasing agreement or ordinary continuance of a previous course of dealing with a dealer except by giving such dealer at least a 28-day written notice before termination. The period of notice shall begin when the producer or dealer receives the notice. The dealer shall specify in such notice the reasons for termination, shall include the list of agencies and organizations required by section (j), and shall pay in full the producer whose contract has been terminated by the 20th day of the month following actual termination. If a dealer petitions for a shorter notice period under subsections (c), (d), (e) and (f), the notice to the producer must inform the producer that the dealer is petitioning for the shorter notice period, this notice must be provided simultaneously to the Board, and this notice shall be sent by certified mail return receipt requested to affected producers and the Board with notice effective no later than on the first date of attempted delivery. If a dealer petitions for a shorter notice period under subsections (c), (d), (e) or (f), the Board shall notify the dealer and affected producers by certified mail return receipt requested within 10 business days of receiving from the dealer the information required by the respective clause its decision to either approve or disapprove the petition.
(b) Repetitions of the causes set forth in § 143.44 (relating to rejection of producer’s milk) may, however, cause termination of the contract without the requisite notice.
(c) A dealer may terminate a contract or purchasing agreement or ordinary continuance of a previous course of dealing with a producer by giving a 28-day written notice if the dealer is in financial distress. ‘‘Financial distress’’ means an Ohlson O-score of 0.5 and higher. The dealer’s Ohlson O-score shall be calculated as follows:
O = -1.32 - 0.407log(TAt/GNP) + 6.03TLt/TAt - 1.43 WCt/TAt + 0.0757 CLt/CAt - 1.72X - 2.37NIt/TAt - 1.83FFOt/TLt = + 0.285Y - 0.521 (NIt-NIt-1)/(|NIt| + |NIt-1|)
Where
TA = total assets GNP = Gross National Product price index level found at (https://fred.stlouisfed.org/series/A001RG3A086NBEA) TL = total liabilities WC = working capital = (current assets) - (current liabilities) CL = current liabilities CA = current assets X = 1 if TL › TA, 0 otherwise NI = net income after taxes FFO = cash flow from operating activities Y = 1 if a net loss for the last 2 years, 0 otherwise t = most recent year data t-1 = prior year data
The Board shall complete its computation and review of the Ohlson O-score, and notify the dealer and affected producers, within 10 business days of receiving the necessary documentation from a dealer. ‘‘Necessary documentation’’ is the Balance Sheet and Statement of Operations found in the Milk Dealer’s Financial Statement (PMMB-60), and the Statement of Cash Flows prepared annually with the dealer’s financial statements.
(d) A dealer may terminate a contract or purchasing agreement or ordinary continuance of a previous course of dealing with a producer by giving a 28-day written notice if the dealer’s Ohlson O-score is between -1.0 and 0.5 if any three of the following five solvency ratio conditions are met:
(1) Quick ratio less than or equal to 0.6, where quick ratio = (cash on hand + accounts receivable)/current liabilities.
(2) Current ratio less than 1.0, where current ratio = current assets/current liabilities.
(3) Current liabilities/total equity greater than 2/3.
(4) Total liabilities/total equity greater than 1.0.
(5) Fixed assets/total equity greater than 3/4.
(e) A dealer may terminate a contract or purchasing agreement or ordinary continuance of a previous course of dealing with a producer by giving a 28-day written notice if the dealer has raw milk volumes for which there are insufficient customer sales. Raw milk volumes for which there are insufficient customer sales shall be determined as follows:
(1) Identify sales reductions or customer losses experienced within any 90-day rolling period.
(2) Document weekly average sales history in pounds for the customer(s) decreased volume or for the lost customer(s) based on a 26-week rolling average, or a lesser time period if such customer was a customer for less than 26 weeks or was a school(s) and the school contract was lost during the school year.
(3) Affirm that good faith efforts were made to replace the lost sales.
(4) If the lost sales calculated according to paragraph (2) amount to at least 40,000 pounds or 3% of raw milk receipts, whichever is less, of raw milk per week and the dealer has made the affirmation required by paragraph (3), the Board shall approve the 28 day written notice based on the dealer having raw milk volumes for which there are insufficient customer sales.
(5) The Board shall determine if a dealer has raw milk volumes for which there are insufficient customer sales, and notify the dealer and affected producers, within 10 business days of receiving the necessary documentation from a dealer.
(f) A dealer may terminate a contract or purchasing agreement or ordinary continuance of a previous course of dealing with a producer by giving a 28-day notice if the dealer has raw milk volumes for which there is insufficient plant output due to a verifiable catastrophic event affecting a milk plant’s ability to handle, process or sell/deliver historical volumes of packaged milk products, which is reasonably expected to last beyond 28-days. Raw milk volumes for which there is insufficient plant output shall be determined as follows:
(1) Identify catastrophic events including mechanical failure; weather-related damage; infrastructure-related damage; shut down or slow down of plant operations; government-imposed plant shutdown, partial or otherwise; or other similar catastrophic circumstance.
(2) Document weekly average plant output as measured by sales in pounds of packaged milk products prior to catastrophic event based on a 26-week rolling average.
(3) Document weekly average raw milk receipts in pounds prior to catastrophic event based on a 26-week rolling average.
(4) Document reasons, nature and extent (estimated in pounds) of reduced ability to handle, process or sell/deliver historical output of packaged milk products.
(5) Affirm that good faith efforts have been made to return to historical plant output documented under paragraph (2).
(6) Affirm that despite good faith efforts the reduction in output will last beyond 28-days.
(7) If the reduction in plant output documented in paragraph (4) amounts to at least 40,000 pounds or 3% of historical raw milk receipts in paragraph (3), whichever is less, of raw milk per week and the dealer has made the affirmations required in paragraphs (5) and (6), the Board shall approve the 28-day written notice based on the dealer having raw milk volumes for which there is insufficient plant capacity due to a catastrophic event.
(8) The Board shall determine if a dealer has raw milk volumes for which there is insufficient output due to catastrophic event and notify the dealer and affected producers within 10 business days of receiving the information required by this subsection.
(g) Any 28-day notice period as provided by this section shall commence on the day the 28-day notice is approved by the Board.
(h) If a contract between a cooperative and a member of the cooperative provides for the amount of notice required to terminate the contract, this section shall not apply.
(i) Notwithstanding subsection (a), a producer and dealer may contract for either more or less than a 90-day notice period to terminate a contract or purchasing agreement. Subsection (a) shall apply when the contract, purchasing agreement or ordinary continuance of a previous course of dealing between a producer and dealer does not contain a termination provision.
(j) The Board shall maintain and make available on its web site a current list of government agencies and nonprofit organizations which are available to assist producers who receive a termination notice. The termination notice shall not be considered received by the producer unless it includes this list.
Authority The provisions of this § 143.31 amended under sections 301 and 307 of the Milk Marketing Law (31 P.S. § § 700j-301 and 700j-307).
Source The provisions of this § 143.31 amended September 29, 1978, effective September 30, 1978, 8 Pa.B. 2671; amended July 30, 2021, effective July 31, 2021, 51 Pa.B. 4223. Immediately preceding text appears at serial page (365388).
Cross References This section cited in 7 Pa. Code § 143.33 (relating to individual variations).
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