Maine Milk Producers, Inc. v. Commissioner of Agriculture, Food and Rural Resources

CourtSupreme Judicial Court of Maine (US)
Citation483 A.2d 1213
PartiesMAINE MILK PRODUCERS, INC. et al. v. COMMISSIONER OF AGRICULTURE, FOOD AND RURAL RESOURCES.
Decision Date05 December 1984

Linda Smith Dyer (orally), Augusta, for plaintiffs.

H. Cabanne Howard (orally), Jeffrey Frankel, Asst. Attys. Gen., Augusta, Drummond, Woodsum, Plimpton & MacMahon, P.A., Richard A. Spencer (orally), Kathleen Barry, Portland, for appellee.

Before McKUSICK, C.J., and ROBERTS, VIOLETTE, WATHEN, GLASSMAN and SCOLNIK, JJ.

McKUSICK, Chief Justice.

Maine Milk Producers, Inc., a membership corporation of dairy farmers who sell their milk to Maine dealers, and Harold Brown, one of its members, filed suit on May 17, 1984, in the Superior Court (Kennebec County) challenging the validity of P.L.1983, ch. 573, "AN ACT Creating a Maine Milk Pool" (the "Milk Pool Act"), on the grounds that it is a tax measure that is unconstitutional under art. I, § 6-A, and art. IX, § 8 of the Maine Constitution, and also contravenes various other state and federal constitutional provisions. After a consolidated hearing on plaintiffs' motions for preliminary and permanent relief, the Superior Court in an opinion dated June 27, 1984, declared the core provisions of the Milk Pool Act, 7 M.R.S.A. §§ 3153 and 3154 (Supp. 1983-1984), unconstitutional under art. I, § 6-A (equal protection clause) and art. IX, § 8 (equal tax clause) of the Maine Constitution. 1 The basis for the decision was a finding that the Milk Pool Act assesses taxes unequally and provides no rational basis for distinguishing between those taxed and those not subject to tax. The court did not rule on plaintiffs' other asserted grounds of unconstitutionality. In a supplemental order dated June 29, 1984, the Superior Court also set aside the provisions in the Milk Pool Act repealing certain taxes, which were to have been replaced by provisions of the Milk Pool Act declared to be invalid. From those orders a joint appeal to this court has been taken by the named defendants in the Superior Court action, the Commissioner of Agriculture, Food and Rural Resources and the Maine Milk Commission, and by the intervenors below, being dairy farmers selling on the Boston market and two of their membership corporations. We reverse.

I.

Maine dairy farmers (identified in the Act as "producers") sell their milk to dealers in two different regulated markets: the Boston market (which includes milk dealers in Connecticut, Rhode Island, and parts of Massachusetts, Vermont, and New Hampshire) and the Maine market. The stated purpose of the Milk Pool Act was to even out price disparities between the two markets. 7 M.R.S.A. § 3151 (Supp. 1983-1984).

The Boston market, and the prices paid to producers selling in that market, are regulated under Federal Milk Order No. 1, 7 C.F.R. 1001, promulgated under the Agriculture Marketing Act of 1937, as amended, 7 U.S.C.A. §§ 601-673 (1980 & Supp.1984). Under the federal order, dealers must keep records of how much milk they process as Class I milk (drinking milk) and how much they process as Class II (milk used for other purposes, such as the making of ice cream, butter, cheese, and dried milk). Class I and Class II milk are identical at the time when the dairy farmer sells them to the dealer. However, because the demand for drinking milk is inelastic, dealers are able to charge consumers more for drinking milk than for Class II milk, and accordingly, dealers can afford to pay more for Class I milk.

Producers selling in the Boston market are paid a "blend price" for their milk, which price is the weighted average of the Class I and Class II prices for milk processed in the entire Boston market. The blend price varies depending on the market utilization rate, or percentage of milk used as Class I in the entire market. The higher the Class I utilization rate is, the higher the market blend price is. Every producer selling in the Boston market receives the same basic blend price 2 per hundredweight of his milk, regardless of the use to which that particular milk is actually put and regardless of the utilization rate of the particular Boston market dealer to which he sells.

The federal order also establishes a "producer settlement fund," which is used to rectify the imbalance between dealers whose utilization rates differ from the average rates. All dealers pay their producers the market-wide blend price. Then, dealers whose Class I utilization rates are higher than average pay into the fund amounts that they would have paid to their producers if the blend price had been computed at their individual utilization rates. Conversely, dealers whose Class I utilization rates are lower than average draw from the fund amounts they paid to their producers over what they would have paid if the blend price had been computed at their own utilization rates. 3

Milk prices on the Maine market are regulated by the Maine Milk Commission under 7 M.R.S.A. §§ 2951-3156 (1979 & Supp. 1983-1984). As a longstanding practice the Maine Milk Commission has set the minimum producer prices for Class I and Class II milk at the same level as Boston city prices set under Federal Milk Order No. 1. What the Maine market producer actually receives is a blend price that depends upon the rate of utilization of Class I and Class II milk. Maine market dealers, however, compute that blend price on a dealer-by-dealer, rather than a marketwide, basis. Producers selling to different Maine market dealers may thus receive different prices per hundredweight for their milk.

Historically, Maine market dealers have had higher Class I utilization rates than their Boston market counterparts. As a result, producers selling on the Maine market get a higher price for their milk than producers selling on the Boston market. 4 This extra amount is sometimes referred to as the "Maine market premium." The Maine market dealers' higher utilization rates come from their practice of buying "short"; they purchase locally only enough milk to satisfy their average needs and buy any additional amounts needed or sell any local surplus on the Boston market. That practice benefits both Maine market producers, who receive higher blend prices as a result, and Maine dealers, who avoid handling large amounts of excess local production for which they have little use and on which they sometimes bear a cost. The Maine market premium has been going to fewer and fewer producers in the recent past. As Maine market producers increase production and add to the Maine dealers' milk supply, the dealers drop some producers onto the Boston market.

The legislature found "that, in terms of net income after operating costs, producers on the Maine market receive, on the average, 50% more than their Boston market counterparts of equal size." 7 M.R.S.A. § 3151. It saw an evil that demanded rectification; it declared:

[T]hat the lower net returns received by producers selling on the Boston market seriously limits their ability to withstand cost fluctuations caused by unpredictable increases in costs of fuel, credit, feed and other input costs or price fluctuations resulting from changing milk price support policies, all of which are largely controlled by national and international policies and other events beyond their control; that this relative vulnerability engenders an instability in the present marketing system resulting in a destructive competition for higher priced markets; that this instability has recently been aggravated by the introduction of store-brand milk in Maine markets; that the result is a serious threat not only to the viability of these Boston market farms but also to the Maine dairy industry as a whole; and that the loss of these dairy farms would seriously erode Maine's agricultural base.

... Whereas, this favorable utilization rate [on the Maine market] is made possible by the presence of 2 independently regulated markets which allow the sale of excess Maine production on the Boston market, with the result that such excess is excluded from the calculation of utilization rates on the Maine market, the Legislature finds that the resulting price difference is in the nature of an economic benefit which has arbitrarily accrued to Maine market producers over Boston market producers.

The Legislature finds that it is in the best interest of the Maine dairy industry and the well-being of the State as a whole to adjust prices paid to Maine milk producers to redistribute this benefit among Maine milk producers in both markets. In so doing, it is the intention of the Legislature to eliminate those differences attributable to the higher utilization rates which are a product of the 2 regulated markets.

Id. In reaction to that perceived need for equalizing the milk prices received by all Maine dairy farmers, regardless of the market in which they sell, and to eliminate the effect of different utilization rates on the price of milk, the legislature created a common fund, administered by the State and known as the Maine Milk Pool.

Under the Milk Pool Act, each Maine market dealer must compute its blend price twice, 7 M.R.S.A. § 3153(2)(A): the first computation is based on its individual utilization rate, while the second is based on the combined utilization rates of all the Boston market dealers. The producers selling to these Maine market dealers are immediately paid the Boston market blend price. The dealers then pay the difference between their individual blend prices and the Boston market blend price into the Maine Milk Pool. At this point in the process, the Maine market producers and the Boston market producers have received the same price for their milk, namely, the Boston market blend price, while the Maine market premium has been paid into the pool. Then, the pool is equally allocated among Maine market and Boston market producers on a per hundredweight...

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