Spilled Milk: Legislature may revisit price-fixing system

Monday, Oct. 28, 1996 | 11:59 a.m.

In these times of rising milk prices, Nevada law protects everybody in the dairy industry -- except the consumer.

The law, enacted in 1955 and modified since, ensures bottlers, distributors and grocery stores earn a profit. No one is allowed to sell below their cost. And cost includes a percentage markup.

"It's one big price support system that blankets the whole country," said Bob Barengo, chairman of the state Dairy Commission which must insure that producers, bottlers, distributors and markets adhere to the regulations.

Milk prices, fairly stable until recently, have skyrocketed, partly because of the high cost of corn and feed for the cattle and a dip in production because of the hot summer months.

There's been some rumblings this guaranteed price support system should be re-examined. Sen. Sue Lowden, R-Las Vegas, has requested a bill be drawn that would open the issue whether the Dairy Commission should be retained in the light of the new atmosphere of business competition.

The telephone industry has been opened to competition and the electric industry may be the next.

But dairymen say that could return the industry to the days of price cutting and price fixing. And Nevada producers and consumers might end up on the short end.

Herb Witt, whose family has been in the dairy business since the 1920s in Minden, said people don't realize the producer has a product that is perishable. "We can't hold it (the milk) and bargain. It gets sour."

In the 1950s, Witt, whose family operates Milky Way Farm Inc., said "It was a cutthroat business. There were no controls in collecting receivables." Bottlers would offer different incentives to different ranchers, he said.

The law, he said, has achieved its intent of stabilizing the industry.

According to Bob Roser, acting executive director of the state Dairy Commission, there were 419.8 million pounds of milk produced last year by 43 dairy ranchers. It takes 8.6 pounds to make a gallon of milk. There are only three bottlers in the state -- Anderson in Las Vegas, Model in Reno and Valley in Yerington.

Roser said the commission's duty is to enforce the laws to prevent "unfair or destructive trade practices" and to make sure the milk is not being sold at below cost as it makes its way from the farmer to the consumer.

The law allows the bottler, distributor and grocery store to figure cost to include a "reasonable return on capital investment." That "reasonable return" is tied with the interest on U.S. Treasury Bills in January or July of a year. And it has been above 6 percent recently. "This is not to say they can't jack it (the price) up a little bit above that," Roser said.

The dairy industry files its cost data with the Dairy Commission. But the information is confidential, said Roser as a result of a decision years ago by a federal judge.

The law also sets a time limit for payment. Those along the chain in the dairy business must receive at least 50 percent of their payment on the first of the month, following the sale. And payment must be made in full by the 15th of the month following the transaction -- a schedule few other industries enjoy.

"They need that cash flow," said Roser.

Former Sen. Virgil Getto of Fallon, who also operated a dairy farm in the past, said the law setting up minimum pricing came about because the producers were afraid they would be drowned by the big operations in California.

The fear was California would dump its milk into Nevada at below cost, drive out Nevada operators and then boost prices at will to the consumer. "Most of the dairies would have been wiped out," Getto said. "The Dairy Commission stabilized that."

Three years ago, a legislative audit said the Dairy Commission failed to "develop policies and procedures to ensure effective regulation of the dairy industry." It recommended that the "present mission and direction of the Dairy Commission should be an area considered for further review."

Barengo was appointed about the time the audit was released and he said he's been busy correcting the deficiencies. The commission has modernized its regulations, curing many of the problems that occurred prior to 1993, he said.

But there hasn't been a review of the mission of the commission. And Barengo, a Reno attorney and lobbyist, said, "I've always been a proponent that there should be a review of government agencies."

The commission this year changed its policies about setting minimum prices for milk at the various levels. For instance in July, the minimum price of a gallon of milk in Las Vegas at the grocery store was $2.47. But many stores were selling it for $3 or more, far above the guaranteed markup.

"The stores were making big profits and blaming us (the commission), " Barengo said.

The commission now says milk cannot be sold below cost, hoping to put competition into the market. And early indications are that prices at some Las Vegas stores have dropped 10 cents a gallon.

Nevada is not alone in the price controversy. Consumers Union in San Francisco has complained customers are being gouged, particularly by supermarkets in the Bay Area. It found that supermarkets are charging $1 more per gallon than many of the small stores and a gallon of milk is being sold for up to $3.79.

Consumers Union is asking the California Attorney General's Office whether that constitutes price fixing.

Most agree that the price-setting mechanism from farmer to consumer is complex. "The levels are established by a complicated formula few of us understand," said Witt, whose son now operates the Minden dairy farm. "But it's a free-enterprise system because retailers are able to sell it for what they can get."

Barengo said the federal government "is heavily involved" in setting the minimum price of milk the farmer can charge. "I don't understand it all and its a complicated matter with lots of outside forces," he said.

But he's boning up to be ready for questions from the 1997 Legislature. He said he's told by representatives of the industry, "We've got to have you (the Dairy Commission) there. If not, we (the industry) will be in big trouble."

Witt said, "When there's talk about abolishing the commission, they don't understand the whole story. In the U.S., every area has some controls, whether its federal or state."

The chairmanship is supposed to be a job that requires only minimal time but Barengo says he spends at least one hour a day handling the business and consumer complaints.

In the three years since he was appointed to the commission, he said there has been only once when a consumer showed up at a meeting to protest. That occurred recently in Reno and the man went away satisfied. Although the law requires the commission to notify the state Consumer Affairs Division of its meeting, no representative of that agency has ever been present at a meeting, Barengo said.

As a result, he said the three-member commission must try to look out for the consumer.

The irony of the controversy, said Getto is the higher prices are not caused by the Dairy Commission. "It's the price of grain and corn. If it knocked out the Dairy Commission, we would be federal marketing orders."

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