N.J.A.C. 2:52-1.6 was amended to delineate the increased reporting requirements for processors, dealers and subdealers, detailing the data that will be needed. Under the Emergency rule an annual form will be required to be filed by all processors, dealers, or subdealers by April 1, 2007 and by April 1 of each year thereafter.  The reporting requirements shall include the provision of information regarding the wholesale accounts of the processor, dealer or subdealer detailing various financial information regarding those accounts.  Specific financial information will include information such as the volume of milk sold and total sales receipts for all milk sold at wholesale.  In addition, information regarding the wholesale price for each unit charged will be required. 

Information regarding the processor, dealer or subdealer’s costs and expenses will also be required to be reported, such as administration costs, fixed costs, ingredient costs, processing and cooling costs, container or bottling costs, shipping and transportation costs and sales costs.  Amendments to N.J.A.C. 2:52-1.6 also provide for a point system in which to assess costs on a per unit basis.  In the point system, each product is assessed a point value for the amount of quart size equivalents in that product.  For example, a gallon contains four quarts, so a gallon of milk is assessed four points.  Finally, the emergency adopted and concurrently proposed amendments require the maintenance of supporting documentation for all reports filed for a period of three years in accordance with N.J.A.C. 2:52-1.5.

Information obtained pursuant to amended N.J.A.C. 2:52-1.6 will be covered by N.J.A.C. 2:52-1.7 pertaining to confidentiality.

Likewise, N.J.A.C. 2:53-5.2 was amended to delineate the increased reporting requirements for stores selling milk and milk products, detailing the data that will be needed. Under the Emergency rule an annual form will be required to be filed by all stores selling milk and milk products by April 1, 2007 and by April 1 of each year thereafter.  The reporting requirements shall include the provision of information regarding the retail prices charged to consumers, total milk sales, rebates and price reductions offered to consumers and milk volume information.  Information regarding the store’s costs and expenses will also be required to be reported, such as milk procurement costs, labor costs, utilities and storage costs, and fixed costs attributable to the sale of licensed milk and milk products.  Amendments to N.J.A.C. 2:53-5.2 also provide for a point system in which to assess costs on a per unit basis.  Finally, the emergency adopted and concurrently proposed amendments require the maintenance of supporting documentation for all reports filed for a period of three years in accordance with N.J.A.C. 2:53-5.1(a)6.

Chapter 53 was promulgated to regulate the purchase and sale of milk and milk products by retail stores in the State of New Jersey, thereby providing protection to producers who sell and consumers who buy these products.  As such, the emergency adopted and concurrently proposed amendments in N.J.A.C. 2:53-5.2 primarily affect stores licensed by the State of New Jersey to sell milk and milk products, and will also benefit New Jersey milk producers and consumers.

Information obtained pursuant to amended N.J.A.C. 2:53-5.2 will be covered by N.J.A.C. 2:53-5.3 pertaining to confidentiality.

As this notice of emergency adoption and concurrent proposal involves an imminent peril subject to the provisions of N.J.S.A. 52:14B-4(c), this notice is excepted from the rulemaking calendar requirement, pursuant to N.J.A.C. 1:30-3.3(a)3.

Social Impact

The emergency adopted and concurrently proposed amendments will provide additional financial information to aid in the stabilization of milk and milk product pricing, which must be obtained in order to the continued availability of fresh, wholesome, locally-produced milk for the benefit of New Jersey residents.  Because of the importance of including milk and milk products in a healthy diet, these rules are necessary to ensure New Jersey consumers have access to quality milk at competitive prices and to ensure that the New Jersey dairy industry remains viable in this State. 

Once the information is received from the increased reporting required under the emergency adopted and concurrently proposed amendments, the Department will be better able to act to protect both the producer and the consumer from inappropriate and inadequate pricing.  In addition, the increased reporting is important in ensuring proper milk control regulation and will improve the Department’s ability to enforce its existing regulations, specifically prohibition of milk sales below variable cost. 

New Jersey dairy producers are important in maintaining locally produced high quality milk for consumption in New Jersey. Ensuring the continued existence of New Jersey dairy producers will limit disruption in the delivery of milk, support the rural economies of this State, provide tax paying open space and maintain the aesthetic value of rural New Jersey.  Thus, the maintenance of the dairy farming industry in this State will benefit all of New Jersey’s citizens.

Moreover, information obtained in the increased reporting requirements can be used to evaluate the retail prices paid to consumers to ensure that consumers are not being gouged by the milk industry.  Thus, the proposed regulations will provide a positive social benefit by ensuring that there is sufficient information in which to act in the future to maintain the viability of New Jersey’s milk marketing system, while ensuring adequate protections to the New Jersey consumer.

Economic Impact

The emergency adopted and concurrently proposed rules are driven by economics and provide a benefit to New Jersey consumers (especially school children, the elderly and the poor), dairy farmers, milk dealers and subdealers, and retail stores.

The emergency adopted and concurrently proposed rules benefit consumers by creating a market environment wherein adequate supplies of milk are available to meet consumer demands and ensuring that reasonable prices are charged for such milk.  Such benefits are direct results of the market stability and competitiveness provided by better enforcement of the Division’s rules.

All of New Jersey’s milk consumers, approximately 115 New Jersey dairy farmers, approximately 300 processors, dealers, subdealers and approximately 9,000 stores will receive an indirect benefit from the emergency adopted and concurrently proposed amendments through the maintenance of a competitive milk marketing system. The increased reporting requirement will assist the Department in ensuring that prices charged by processors, dealers and subdealers to stores are appropriate and that prices paid for raw milk to New Jersey producers are not unreasonably low.  Likewise, the increased reporting requirement for stores will assist the Department in monitoring prices charged to consumers by stores and the prices paid for milk by stores to ensure that it is not unreasonably high.

Should it be determined that inappropriate pricing is occurring without adequate justification, the Department can adopt regulations to control raw milk and wholesale milk prices pursuant to its authority under N.J.S.A. 4:12A-1 et seq.  This would provide a positive economic benefit to New Jersey processors, dealers, retailers and consumers by avoiding artificially inflated milk prices, while ensuring that producers receive sufficient compensation to remain viable.   

New Jersey dairy farmers are important to the State’s economy, particularly for rural communities.  The emergency adopted and concurrently proposed rules are important tools in ensuring that dairy farmers receive payment for their products.  Milk dealers, subdealers and retail stores benefit from the maintenance of a stable, competitive marketplace.  Further, no economic detriment to the processors, dealers or subdealers is anticipated.  There is no additional cost for compliance as a result of the proposed new rules, since most of the information requested should already be maintained by the processors, dealers, subdealers and stores in their normal course of business.  In fact, the proposed new rules will help ensure more stable business in New Jersey’s milk marketing system. The proposed amendments also benefit the State of New Jersey by providing accurate data on which the Department’s current regulations can be enforced.

There is no additional cost for compliance as a result of the emergency adopted and concurrently proposed rules as described more fully in the Summary and Social Impact above.  In fact, the emergency adopted and concurrently proposed rules will help ensure more stable business operations. There will be a positive economic impact to all parties involved by ensuring the orderly flow of milk and milk products to consumers at reasonable prices.

Federal Standards Statement

Executive Order No. 27(1994) and P. L. 1995, c. 65 require State agencies which adopt, readopt or amend State rules that exceed any Federal standards or requirements to include in the rulemaking document a comparison with Federal law. As related to this chapter, the rulemaking requirements of the Director, Division of Marketing and Development, are dictated by the New Jersey Milk Control Act, N.J.S.A. 4:12-1 et seq., and are not subject to any Federal requirements or standards.  The emergency adopted and concurrently proposed amendment imposes new financial reporting requirements for processors, dealers and subdealers, which are not subject to any Federal requirements or standards.  Although raw milk prices paid to producers are regulated under the Federal Milk Order No. 1 (Northeast Marketing Area), this federal rule does not contain any requirements regarding financial reporting for milk processors, dealers, subdealers or stores.  Therefore, a Federal standards analysis is not required.

Jobs Impact

It is not anticipated that the emergency adopted and concurrently proposed amendments will result in the generation or loss of any jobs.

Agriculture Industry Impact

For the reasons set forth in the Summary, Social and Economic Impact statements above, the rules proposed for readoption with amendments and new rule will have a positive impact on the agriculture industry.

Regulatory Flexibility Analysis

The emergency adopted and concurrently proposed rules apply to approximately 300 milk dealers and processors and approximately 9,000 retail stores, most of whom are small businesses as defined by the New Jersey Regulatory Flexibility Act, N.J.S.A. 54:14B-16 et seq.  Small businesses will be affected, but to no greater extent than in the past. The initial capital costs and the annual costs of compliance are minimal for both large and small businesses. While there are new compliance and reporting requirements as set forth above, no capital expenditures or professional services are necessary as a result of the emergency adopted and concurrently proposed amendments.

The reports required are designed to be taken directly from ordinary records already kept by processors, dealers, subdealers and stores for managerial decision-making purposes.  Both large and small licensed processors, dealers, subdealers and stores have similar cost structures within each individual’s licensed operation.  Most of these businesses should have the necessary reporting systems in place and will not require additional efforts to comply. Thus, the initial capital costs and the annual costs of compliance are minimal for both large and small businesses.  Moreover, it is critical to obtain financial information for both large and small milk processors, dealers, subdealers and stores in order to properly evaluate cost data for the New Jersey milk marketing area because the actual cost of doing business will vary based on business size.  As a result, no differing standards were provided based on business size.

Smart Growth Impact

The Department anticipates that there will be no impact on the achievement of Smart Growth or upon the implementation of the State’s Development and Redevelopment Plan from the proposed new rules.

Full text of the rule can be found at N.J.A.C. 2:52. 

Full text of the adopted emergency and concurrent proposed new rules follows:

CHAPTER 52 PROCESSORS, DEALERS AND SUBDEALERS

SUBCHAPTER 1.  PROCESSORS, DEALERS, AND SUBDEALERS RECORDS AND REPORTS

2:52-1.6. Reports required

(a) All processors, dealers and subdealers shall file monthly reports on forms supplied by the Division of Marketing and Development as follows:

1.  (No change.)

[i.] 2.  (No change in text).

[ii.] 3. (No change in text).

[iii.] 4. (No change in text).

• All processors, dealers and subdealers shall file reports by April 1, 2007 on forms provided by the Department for such purposes, which shall include the following information, broken down on a per point basis for the time period between January 1 to December 31^, 2006:

[2.] 1.  [Annually and at such other times as the director may request, a] A list of all stores and wholesale accounts served (including dealers, subdealers, schools and institutions) showing [name, trade name, address, current milk license number (if applicable) and the aged amount receivable for all products and any other amounts due shown separately; and] the following information:

i.       The name of the store, dealer, subdealer, school or institution to which you supply milk;

ii.   Any trade name of the store, dealer, subdealer, school or institution;

• iii.The address of the store, dealer, subdealer, school or institution;
• iv.The current license number (if applicable) of the store, dealer, subdealer, school or institution;

v.   The volume of milk supplied annually to store, dealer, subdealer, school or institution;

vi.     The amount of money received annually in sales of milk from the store, dealer, subdealer, school or institution;

vii.    The total price of milk charged to the store, dealer, subdealer, school or institution on a monthly basis, for each size container, and any extra fees charged, including but not limited to delivery fees, transportation fees, processing fees and case deposits;

viii.   A list of all rebates, price cuts, credits, give-backs, advertising allowance or any other reduction in the price charged to the store, dealer, subdealer, school or institution; and

2.   A statement of costs and other expenses, showing the following information, reported on a per point basis:

i.       Administrative costs, which include but are not limited to executive and officer salaries, costs for accounting, bookkeeping and related expenses, and any other costs incurred in operating the business;

ii. Fixed expenses, including but not limited to rent or mortgage payments, interest, depreciation, license fees, taxes, and insurance;

iii.     Cost of ingredients, including but not limited to, costs of raw milk, raw milk procurement, reconstituted powder, flavorings, sweeteners, vitamins and minerals, and any other substance or fortification added to the milk product;

iv.     Processing costs, including but not limited to pasteurization, separation, standardization, balancing, labor, utilities and maintenance;

v.      Cooling and refrigeration costs;

vi.     Container costs associated for each type and size including but not limited to cost of purchased containers, blow mold operations, resin, handles, caps, labels, pallets, cases and packing material;

vii.    Shipping and transportation costs, including but not limited to fuel, freight, labor and maintenance, and delivery costs;

viii.   Sales costs, including but not limited to salaries and commissions of salesmen, costs to acquire and maintain vehicles, costs of advertisement and any other costs associated with the sale of milk and milk products;

ix.     Costs of purchasing and processing non-regulated items, including but not limited to water, juice, and other non-regulated milk products;

x.      Any other similar cost information as may be deemed necessary by the Director of the Division of Marketing and Development; and

3.   A statement indicating total annual volume of all milk processed, bottled and sold and the volume of all non-regulated items processed bottled and sold by the licensee;

4.   A statement describing the current premium program for premiums paid to New Jersey producers, if one exists, which shall include the following information:

i.       A list of all premiums paid to producers or any entity acting on behalf of a producer under current premium programs;

• A description of the purpose for each premium listed;

iii.     A description of how each premium is calculated to arrive at the amount payable to a New Jersey producer; and

5.   For purposes of reporting pursuant to subsection (a)(2) above, points will be calculated as follows:

• Point value for allocation of plant cost centers shall be as follows:

a.   Fluid gallon-milk, milk drinks, etc., ice cream, others in fruit drink ..….………….……………………………………………………..4 points

• Yogurt, dips, sour cream, cottage cheese

            12 – 16 oz. …………………………………….……………….. 1 point

Under 12 oz. …………………………………..…………...… 1/2 point

c.   Butter, margarine, bread, eggs ………………… 1 point – lb., loaf, dozen

d.   Aerated whips, cream ……………………….. ….……… 1 point per can

e.   Ice cream novelties ………………………………….. 2 points per dozen

f.    All other items …………………………………. 2 points per $1.00 sales

• All other items shall include non-processed fruit drinks purchased for resale in unchanged form and package.
• All processors, dealers and subdealers shall file annually, but no later than April 1st of each year, on forms provided by the Department for such purposes, a revised report containing the information in subsection (b) above for the preceding calendar year for the period between January 1st and December 31st;

[3.] (d) All processors, dealers and subdealers shall file [Such] such other reports as may be required by the director in the administration and enforcement of N.J.S.A. 4:12A-1 et seq.;

(e)  All records and supporting documents for the information required to be reported in this section shall be kept by the processor, dealer or subdealer for a period of 3 years and shall be made available to an employee or agent of the Department upon request for purposes of audit.

 (f) Reports that are incomplete or inaccurate shall be returned and considered not filed.

CHAPTER 53 STORES

 SUBCHAPTER 5.  STORE RECORDS AND REPORTS

2:53-5.2  Reports by stores

(a)  All stores selling milk or milk productsshall report on forms provided by the Department for such purposes, the following information by April 1, 2007, broken down on a per point basis for the time period between January 1 to December 31, 2006:

1.   The following sales information for each store premises:

i.    The store location, including street address, city and zip code;

ii.   The total annual amount of money received in sales of licensed milk and milk products;

iii.  The total annual amount of money received in sales for all products;

iv.  The price of all licensed milk and milk products charged to consumers on a monthly basis, for each size container;

v.   A list of all rebates, price cuts, credits, give-backs, advertising allowance or any other reduction in the price charged to the consumer;

v.   The total volume of milk sold calculated on a point basis;

vi.  The total volume of licensed milk products sold calculated on a point basis;

vii. Any other similar cost information as may be deemed necessary by the Director of the Division of Marketing and Development; and

2.   A statement of costs and other expenses, showing the following information for each store premises, reported on a per point basis:

i.       The store location, including street address, city and zip code;

ii.      Cost of all licensed milk and milk products purchased by the store;

iii.     Total labor costs attributable to the sale of licensed milk and milk products;

iv.     Total labor costs of the store;

iv.     The total costs of utilities, cooling and storage attributable to the sale of licensed milk and milk products;

v.      The total cost of utilities, cooling and storage attributed of the sale of all refrigerated products

vi.     Fixed expenses or costs of running the store, including but not limited to rent, lease payments or mortgage payments, interest, depreciation, license fees, taxes, advertising and insurance attributable to the sale of licensed milk and milk products; and

vii. Any other similar cost information as may be deemed necessary by the Director of the Division of Marketing and Development.

4.   For purposes of reporting pursuant to subsection (a)(2) above, points will be calculated as follows:

• Point value for allocation of plant cost centers shall be as follows:

a.   Fluid gallon-milk, milk drinks, etc., ice cream, others in fruit drink ..….……………………………………………………………….. 4 points

b.         Yogurt, dips, sour cream, cottage cheese

            12 – 16 oz. …………………………………………………….. 1 point

Under 12 oz. ………………………………...……………...… 1/2 point

c.   Butter, margarine, bread, eggs ……….…….… 1 point – lb., loaf, dozen

d.   Aerated whips, cream ……………….….……….. ……… 1 point per can

e.   Ice cream novelties …………………….…………….. 2 points per dozen

f.    All other items ………………………….………. 2 points per $1.00 sales

• All other items shall include non-processed fruit drinks purchased for resale in unchanged form and package.
• All stores selling milk or milk productsshall file annually, but no later than April 1st of each year, on forms provided by the Department for such purposes, a revised report containing the information in subsection (b) above for the time period between January 1st to December 31st for the preceding year;

(c)  [Every store] All stores selling milk or milk products shall file such other reports as the director may require in the administration and enforcement of N.J.S.A. 4:12A-1 et seq.

(d)  All records and supporting documents for the information required to be reported in this section shall be kept by the store for a period of 3 years and shall be made available to an employee or agent of the Department upon request for purposes of audit.

(e)  Reports which are incomplete or in accurate may be returned and considered not filed.                                                            ______________________________

Alfred Murray, Director                 
Division of Marketing and Development     
New Jersey Department of Agriculture
Dated:  January ___, 2007

STATEMENT OF IMMINENT PERIL

To respond to an imminent peril of serious harm to the dairy industry due to low raw milk prices combined with high costs of production, the New Jersey Department of Agriculture is adopting these rules on an emergency basis and concurrently proposing new rules to N.J.A.C. 2:50.  The proposed amendment imposes additional reporting requirements for all licensed processors, dealers, subdealers and stores to ensure adequate pricing and consumer protection.  These amendments are necessary in order to assure that consumers will have an adequate supply of wholesome milk produced in New Jersey at reasonable prices. In addition, the proposed amendments will assist the Department in better enforcement of its existing regulations and permit easy access to information necessary for decision-making regarding the regulation of the milk industry.  Currently there is a question as to why consumer prices for milk have remained high, while producer prices for raw milk have dropped significantly.  Immediate action is therefore needed to ensure that the consumers are not being taken advantage of and to ensure the Department has adequate financial information to assist the New Jersey producers currently struggling financially.   

The current situation has been labeled as the “perfect storm,” because high costs of production, weather related losses and low milk prices have placed the industry on the brink of disaster in the Northeast.  Over the past year, producers reported lost revenue ranging from $13,547.49 to $45,000 annually due to the low milk prices and high costs of production currently plaguing the dairy producer.   Others reported average monthly losses of $1,000 a day and  $4,260 per month. These losses are a direct result of market instability that is inherent in the dairy industry.  Dairy producers in New Jersey experienced production cost increases of $1.50 per hundredweight, while the price of milk has fallen more than $2 per hundredweight since the beginning of 2006.    

Although the milk market has been traditionally volatile, in situations where low milk prices meet high feed costs, dairy producers find it difficult to remain profitable.  In the past, low milk prices have been offset by low feed costs, and high feed costs have been offset by high milk prices.  In fact, the last occurrence of low milk prices combined with high feed costs was in 1997, which not coincidentally happens to be the last time producers petitioned the Department for assistance. 

Economically, the dairy producers of this State cannot make ends meet.  Current low milk prices coupled with high milk production costs have made it difficult, if not impossible, for the producers of this State to pay their bills.  If the bills cannot be paid, the producer cannot remain in business.  As a result, failure to act immediately could result in the loss of most, if not all, of the remaining 115 dairy producers in this State.  In turn, the rural economy of the larger dairy counties in the northwest and southwest counties of the State will be negatively impacted.

Although emergency action will also be taken to provide producers with a fuel adjustment add-on, this measure is only temporary because it does not provide the full amount of financial assistance needed by the dairy producers.  Additional action beyond that which is being undertaken is not possible due to the lack of financial information available to the Department during the hearing process.

Therefore, unless the proposed amendments are adopted on an emergency basis, the Department will be unable to act in a timely manner to provide the full financial protection to both the New Jersey dairy producer and New Jersey’s consumers.  It is anticipated that it would take approximately a year to adopt a rule through the ordinary rule making process, obtain the required financial information, process and analyze it, conduct a new hearing and issue new rules to protect the New Jersey producer.  Should the fuel adjustment add-on be insufficient to sustain the New Jersey producer while he or she waits for new rules to be adopted through the regular rule making procedure, New Jersey’s supply of local fresh milk could be jeopardized. 

Availability of local fresh milk is especially important during times of milk shortages and adverse weather conditions as evidenced by empty dairy shelves during major storm events and other transportation problems.  Ultimately, loss of availability of local milk will cause much higher prices to consumers and loss of quality New Jersey milk, as dealers will be required to bring milk from more distant locations and pass the additional handling and transportation cost on to the consumer.  Without a local supply of fresh wholesome milk, New Jersey will have little, if any, control over the quality and freshness of the milk its citizens consume since the entire milk supply will be produced outside the State. 

Moreover, if a producer stops farming because it is no longer profitable, the property will lose its farmland assessment status and the producer will most likely be forced to sell their property for development since most will be unable to pay the high taxes associated with large amounts of unfarmed land.  Thus, the loss of the remaining dairy producers will not only be a loss of New Jersey’s supply of fresh wholesome milk, it will be a loss of open space and the agricultural landscape that is critical to the quality of life and individual well-being of New Jersey’s citizens. In addition, the 36 cents per dollar cost of municipal services needed for farmland will increase to the $1.15 per dollar or more needed in services for residential and other development. This would further increase the property tax bills of the residents living in the towns where these farms now exist.

For the reasons set forth above, I conclude and certify that emergency rulemaking is warranted under the imminent peril provisions of the New Jersey Administrative Procedure Act, N.J.S.A. 52:14B-4(c).  A concurrent rule proposal accompanies this emergent adoption and the Department will consider comments from all interested parties prior to adoption of the concurrent proposed rules.

______________________________

Alfred Murray, Director                 
Division of Marketing and Development     
New Jersey Department of Agriculture
Dated:  January ___, 2007

CERTIFICATION OF IMMINENT PERIL

Alfred Murray, Director of the Division of Marketing and Development, New Jersey Department of Agriculture, has proposed pursuant to N.J.A.C 1:30-6.6(a)1, an Emergency Rule with a Concurrent Amendment to increased reporting for licensed processors, dealers and subdealers.  The text of this Emergency Rule Adoption and the attached Statement of Imminent Peril, which includes a statement of reasons describing the imminent peril, have been submitted for my review and concurrence.

I hereby concur with the findings of the Director that an emergency exists warranting the above described Emergency Rule Adoption at N.J.A.C. 2:50.

                                                                                                                                                                                                                                                                                                     ________________________________

Jon S. Corzine

Governor

Dated:  January ____, 2007