Nevada loophole large enough for river of milk; Critics say dairy law fails to create a level field

Chicago Tribune
July 4, 2006
Andrew Martin, Washington Bureau

Perhaps the Milk Regulatory Equity Act of 2005 isn't so equitable after all.

When Congress passed the legislation in March, its supporters maintained that it would close a loophole that had allowed businesses like Hein Hettinga's in Arizona to both produce and bottle milk, selling it at rock-bottom prices, without government regulation.

In fact, the legislation targeted Hettinga for his practices as a so-called producer-handler of milk; he sees his only crime as selling milk for about half the price of many of his infuriated competitors.

But those competitors, namely some of the nation's largest milk bottlers and dairy cooperatives, seem to have friends in the right places. The measure imposed regulations requiring Hettinga to write his competitors a check monthly. The fine print said something more: that the state of Nevada is excluded from federal milk regulations.

So, critics contend, Congress has granted Nevada an advantage over competitors because milk bottlers there do not have to pay federally regulated prices for raw milk and are strategically positioned to ship milk that is not regulated by price into other states such as California --essentially the same things that Hettinga was stopped from doing.

Who helped make it happen? Among those involved was Sen. Harry Reid (D-Nev.), the minority leader in the Senate.

`Creating a big loophole'

Already, a Nevada dairyman is planning to build a milk plant south of Reno that will be supplied by his own dairy farms and other members of the Dairy Farmers of America, a huge cooperative that was a major supporter of the Milk Regulatory Equity Act.

And Dean Foods, the nation's largest milk bottler and another vocal supporter of the Equity Act, has a milk plant in Las Vegas that is well-positioned to take advantage of Nevada 's status, free of federal regulations.

"They are creating a big loophole for anyone in Nevada ," said John Vetne, an attorney who represents dairy interests. "That's the way politics works."

The story of the Milk Regulatory Equity Act of 2005 highlights the hodgepodge and arcane nature of the nation's milk regulations and the political art of logrolling, in which members of Congress swap support for each other's pet projects in order to get them passed.

In this case, lawmakers from Arizona and California had tried for years to find ways to regulate Hettinga, one of the nation's largest dairy farmers.

The effort dates to the mid-1990s, when his competitors in Arizona began urging the Department of Agriculture to regulate Hettinga as part of an overhaul of milk regulations. That failed effort was so contentious that Hettinga once attached stickers to his milk cartons that urged consumers to call Sen. Jon Kyl (R-Ariz.) and complain.

The California congressional delegation, primarily Rep. Devin Nunes (R-Calif.) and Sen. Dianne Feinstein (D-Calif.), joined the fight in 2003 when Hettinga opened a second milk plant in Yuma , Ariz. , that was designed specifically to supply Southern California markets with low-priced milk.

During that same period, Reid made several attempts to extricate Nevada from the network of federal milk regulations and replace the regulations with a state dairy board. The north half of Nevada has long been regulated by a state dairy board, though Clark County, where Las Vegas is located, was part of the Arizona region of federal milk regulations.

In 1999, Clark County was exempted from federal regulations, though it was still technically under federal jurisdiction. But Reid's effort to exempt the entire state--by tacking an amendment onto the agriculture appropriations bill--was unsuccessful.

Reid joined forces with his California and Arizona counterparts about three years ago, and with support from the nation's largest milk bottlers and cooperatives, they spent the intervening years collecting votes. With Senate passage already secured, the House gave final approval in March and President Bush a month later.

There is widespread disagreement about what advantages--if any--a state dairy board will provide for Nevada 's dairy industry.

While critics insist it will give Nevada dairy products an edge, proponents of the act said the legislation simply irons out flaws in regulations, and they characterized claims that the bill would give Nevada a competitive advantage as "a red herring."

"Our dairy farmers do not feel that Nevada represents a significant threat to the California milk market," said Andrew House, an aide to Nunes, the California lawmaker.

Jon Steinberg, a spokesman for Reid, said the act actually increases regulation in Nevada because Clark County now falls under state regulations.

"It creates a level playing field in the West," he said, "and closes some loopholes for small producers."

Irony of the legislation

Mike Compston, executive director of the Nevada State Dairy Commission, said his commission operates in much the same way as federal regulators, setting minimum prices that processors must pay dairy farmers for their raw milk. The advantage of a state order, he said, is that it gives regulators more flexibility to react quickly to market conditions.

But now Hettinga, whose dairy operation was exempt from federal regulation because he was considered a producer-handler, has to pay into the federal pool of revenues, which he says costs him 15 cents for every gallon, money that goes into the pockets of his competitors.

The irony of the legislation is that Hettinga says he could avoid the new regulations by opening a milk plant in Nevada .

Because of the Milk Regulatory Equity Act, Nevada bottlers are required to pay a state-mandated minimum price for raw milk when they buy it from Nevada dairy farms, and that price can be quickly adjusted to ensure that farmers in the state remain competitive. But there are only about 30,000 dairy cows in Nevada , compared to 1.6 million in California , and more than half of Nevada 's grocery-store milk comes from out of state.

Because the Nevada State Dairy Commission cannot regulate out-of-state milk, Nevada bottlers can buy surplus raw milk from places such as Idaho and Utah at market prices and then ship the milk into California and other markets.

"Yes, I could build a plant there," Hettinga said of Nevada . "It costs money and I'm 64 years old. There's no reason not to, but it's just work. And Dean's is already there."

Jim Sinegal, the chief executive officer of Costco, said his stores were able to reduce prices for consumers whenever they could purchase milk from Hettinga. He said he opposed the Milk Regulatory Equity Act because it artificially raised prices and "consumers pay for it."

"It's just special-interest legislation," he said. "There are a couple of very big people who control the milk industry, and they are the ones who are going to make money off it. It's certainly not the free market system, is it?"

ajmartin@tribune.com

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