Authorized by: Al Murray, Director, Division of Marketing and Development, State Board of Agriculture and Charles M. Kuperus, Secretary

Authority: N.J.S.A. 4:1-11.1, 4:1-25, and 4:12A-1 et seq., specifically 4:12A-7 and 4:12A-20

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2005-387

Submit comments by January 6, 2006 to:

Alfred W. Murray, Director
Division of Marketing and Development
New Jersey Department of Agriculture
PO Box 330
Trenton, NJ 08625-0330

The agency proposal follows:

Summary

Pursuant to N.J.S.A. 52:14B-5.1, the rules in this chapter are scheduled to expire on October 4, 2005. In accordance with N.J.S.A 52:14B-5.1c, the submission of this notice of proposal to the Office of Administrative Law extends that expiration date 180 days to April 2, 2006. The Department of Agriculture has reviewed these rules, as amended, and has found them to be necessary, reasonable and proper for the purpose for which they were promulgated.

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 rules proposed for readoption with amendments primarily affect stores licensed by the State of New Jersey to sell milk and milk products, and will also benefit New Jersey milk dealers, producers and consumers. These entities are defined in N.J.S.A. 4:12A-1. By regulating the manner in which stores licensed by the Department of Agriculture display retail prices, the Department can ensure that consumers are properly informed. In addition, the notice requirement mandated by these rules is beneficial because it gives the milk dealer adequate notice of the change so he or she does not have an oversupply of unsaleable milk and it assures all milk bills are paid in a timely manner. Consumers and producers are provided additional protection through the recordkeeping requirements set forth in these rules. These recordkeeping requirements assist the Division of Marketing and Development in determining whether a licensed store has complied with the applicable statutes and rules and regulations of the Division, such as N.J.S.A. 4:12A-1 et seq., N.J.A.C. 2:48-1.1, 2:53-1 and 2:56.

N.J.A.C. 2:53-1, 3 and 4 are reserved.

N.J.A.C. 2:53-2.1 sets forth the requirements for the proper display of current retail prices for milk and milk products offered for sale to the public. In addition, N.J.A.C. 2:53-5.1 and 5.2 define what books and records are required to be maintained by licensed stores and what reports are to be submitted to the Director of the Division of Marketing and Development by licensed stores. In order to prevent predatory pricing, N.J.A.C. 2:53-6.1 and 6.2, define “variable cost” and declare that it is unlawful to offer for sale or to sell milk or milk products below variable cost. Finally, the rules proposed for readoption with amendments require that licensed stores give adequate notice, as set forth in N.J.A.C. 2:53-7.1, to their current supplier of milk and milk products regarding their intent to change suppliers or add suppliers. These rules also require that the store pay all its indebtedness for fluid milk and milk products when the store changes suppliers.

Proposed new rule N.J.A.C. 2:53-5.3 describes the conditions under which information will be held confidential and has been updated to reference privileges and limitations set forth in 7 CFR 205.501 and 205.504 and N.J.S.A. 47:1A-1 et seq. regarding access to information. Proposed amendments to N.J.A.C. 2:53-7.1 were made to clarify that oral notice of intent to change suppliers will no longer be acceptable as a method by which a store may give notice to its supplier of record regarding its intent to change the source of supply. In addition, it establishes the circumstances under which no notice is required. This change is necessary in order to afford licensed stores the same protections afforded to milk dealers and unlicensed stores pursuant to N.J.A.C. 2:53-2.1 and 3.1. A technical amendment was made at N.J.A.C. 2:53-7.1 that changed the term “present supplier” to “supplier of record,” and the definition of “supplier of record” was added to clarify who is to receive notice.

As the Department has provided a 60-day comment period for this notice of proposal, this notice is excepted from the rulemaking calendar requirement, pursuant to N.J.A.C. 1:30-3.3(a)5.

Social Impact

For the reasons set forth in the Summary above and Economic Impact below, the rules proposed for readoption with amendments and a new rule have a positive social impact by assuring that both the dairy industry and consumers will continue to receive the benefit of effective milk control regulation. In particular, the portion of the rules that requires stores to post prices near the dairy case is of great importance to the consumer. Every consumer should know, before they get to the cash register, what they would be required to pay for the product. Without such requirement, stores would be in a position to gouge consumers. 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. Failure to readopt this chapter, as amended, would leave a void in the milk control program and result in unstable markets and destructive competition.

Economic Impact

The rules proposed for readoption with amendments and a new rule are driven by economics and provide a benefit to New Jersey consumers, milk dealers, producers and retail stores. Specifically, these rules benefit New Jersey consumers by creating a market environment wherein adequate supplies of milk and milk products are available to meet consumer demands. Such benefits are a direct result of market stability and competitiveness provided by enforcement of the Division’s rules.

Approximately 111 New Jersey dairy producers receive a direct benefit from the rules proposed for readoption with amendments and a new rule by fostering a marketing and production infrastructure conducive to the maintenance of efficient farming operations. New Jersey's dairy industry is an important segment of the agricultural economy, supplying almost one-eighth of the fluid milk and dairy products used by New Jersey consumers. New Jersey dairy producers are important to the State’s economy, particularly for rural communities. According to the Market Administrators 2004 Annual Statistical Bulletin for the Northeast Milk Marketing Area Federal Order No. 1, the state's approximately 122 dairy farms produced 187 million pounds of milk and 7.1 million pounds of milk fat, valued in excess of $31 million (Federal minimum raw value). The rules proposed for readoption with amendments and a new rule are important tools in insuring that dairy producers receive payment for their products. The rules proposed for readoption with amendments and a new rule will have an economic benefit to New Jersey consumers, as well, by stabilizing milk prices and ensuring a strong dairy industry for the supply of quality milk and milk products.

Milk dealers, dairy producers, retail stores and consumers benefit from the maintenance of a stable, competitive marketplace because the Division’s rules results in the minimization of predatory, disruptive activities. The notice rules assist dealers and subdealers with the collection of money owed for products delivered, help to insure a continuing source of supply to retail stores and provide for the orderly transfer of business.

Compliance costs associated with the rules proposed for readoption will be minimal. For example, the price posting requirements in Subchapter 2 costs stores an average of $10.00 to $15.00 per store per year. Recordkeeping requirements set forth in Subchapter 5 for store records and reports, will require no additional cost because these records are already required to be kept for tax purposes. The prohibition on selling below cost found in Subchapter 6 places no cost burden on stores, but rather guarantees a profit on milk sales. Finally, the requirement to provide notice of intent to change suppliers, as set forth in subchapter 7, is estimated to cost each store approximately $5.00 each time it changes milk suppliers. As independent groceries and convenience stores generally remain with their suppliers for an average of 2.1 years, the cost would be approximately $2.38 per year. Large chain grocery stores typically enter into five-year contracts, causing their cost per year to be approximately $1.00 per year. This cost represents the time required to complete and mail the change notice and any accompanying postage.

Given that the annual licensing fees for the Department’s dairy programs are based on the volume of milk sold per week, the reporting requirements of these rules proposed for readoption with amendments and a new rule will provide the Department with an accurate forecast of the anticipated annual licensing fees to be collected for the following licensing year. As a result, these rules also benefit the State of New Jersey by providing accurate data that its dairy programs can use to determine the amount of funding available for their operating costs.

There is no additional cost for compliance as a result of the rules proposed for readoption with amendments and a new rule as described more fully in the Summary and Social Impact above. In fact, these rules will help ensure more stable business operations for dairy producers, milk dealers and retail stores. There will be a positive economic impact to all parties involved, by fostering timely resolution of complaints and ensuring the orderly flow of milk and milk products to consumers without disruption.

Federal Standards Statement

Executive Order No. 27(1994) and P. L. 1995, c. 65 require State agencies that adopt, readopt or amend State rules exceeding any Federal standards or requirements to include in the rulemaking document a comparison with Federal law. While Federal Milk Order No. 1 (Northeast Marketing Area), 7 CFR 1001.1 et seq., defines raw milk costs, it does not dictate milk prices at which retail stores may sell milk and milk products and therefore has no bearing on the regulation of retail stores. As related to this chapter, the rulemaking requirements 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. Since the rule proposed for readoption with amendments and a new rule does not exceed any Federal standards, a Federal standards analysis is not required.

Jobs Impact

It is not anticipated that the rules proposed for readoption with amendments and a new rule will result in the generation or loss of any jobs.

Agriculture Industry Impact

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

Regulatory Flexibility Analysis

The rules proposed for readoption with amendments and a new rule apply to approximately 300 milk dealers and 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. Uniform standards for all milk dealers and retail stores are necessary to ensure adequate protection to the New Jersey consumer and dairy producer.

As indicated in the Summary above, recordkeeping and reporting requirements are imposed by these rules. Compliance, however, is not anticipated to be overly burdensome because the reports required are designed to be taken directly from ordinary records already kept by the licensees for managerial decision-making purposes. Licensees generally will have the necessary reporting systems currently in place and are not likely to experience the need for additional efforts to comply with these rules. Initial capital costs and annual costs of compliance are minimal for both large and small businesses; therefore, the Department has not applied differing or lesser standards based on business size. While there are compliance and reporting requirements as set forth above, no capital expenditures or professional services will be necessary as a result of the rules proposed for adoption with amendments and a new rule.

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 rules proposed for readoption with amendments and a new rule because they do not affect the growth, development, renewal or conservation of any land area in this State.



Full text of the rules proposed for readoption may be found in the New Jersey Administrative Code at N.J.A.C. 2:53.

Full text of the proposed amendments and new rule follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):


2:53-5.3 Confidentiality

The New Jersey Department of Agriculture will hold confidential any information obtained pursuant to this chapter, which constitutes proprietary commercial or financial information, or is otherwise protected from disclosure under 7 CFR Part 205.501 and 205.504 or the Open Public Records Act, N.J.S.A. 47:1A-1 et seq., subject to the limitations set forth therein.

2:53-7.1 Notice of Intent

(a) As used in this section, “supplier of record” shall mean any supplier of milk or milk products from whom a licensed store has accepted three or more deliveries of milk or milk products.
[(a)] (b) [Unless the licensed store and the present supplier(s) mutually agree to different credit and notice terms, a] A licensed store may change [source of supply] its supplier of record or engage an additional [supply] supplier of milk and milk products once it has complied with [each of] the following requirements:

1. A store shall pay all indebtedness, less any legal rebates and discounts earned, for fluid milk and milk products purchased from the [present] supplier [(s)] of record.

2. A store shall give the [present] supplier of record at least 48 hours actual notice of intent to change suppliers. Actual notice shall be given [orally or] in writing reasonably calculated to be received 48 hours prior to the date and time of the [proposed change] effective date as stated in the notice. Unless the store gives at least 48 hours prior notice to its [existing] supplier of record, the store shall not refuse to accept the next scheduled delivery from the [present] supplier of record.

3. Notice to the supplier of record is not required in the following circumstances:
i. If the Director of the Division of Marketing and Development of the Department of Agriculture finds after investigation that the supplier of record is failing to provide adequate service or to supply products desired by the store or is supplying milk and milk products which do not meet minimum standards of State and Federal health authorities;

ii. If such change is mutually agreeable to all parties;

iii. If the licensed store account is changing ownership, and the new owner accepts two or less deliveries of milk and milk products from the supplier of record. (If the new owner accepts three or more deliveries of milk and milk products from the supplier of record, notice shall be required.) As used herein “changing ownership” must be a bona fide transfer of title to the new owner(s). Transfers of title to another member of the owner’s immediate family or partial change of ownership shall not be considered a change of ownership for purposes of this section; or

iv. If the supplier of record transfers the account to another supplier of milk and milk products; however, if the licensed store is notified in writing of the transfer and accepts three or more deliveries from the new supplier of milk and milk products after the date the written notice is received by the licensed store, notice shall be required;

v. If yogurt is the only product involved.

[(b)] (c) The licensed store shall give notice to the Division of Marketing and Development within three business days of an agreement to change its supplier of record or add suppliers of milk and milk products. Such notice shall be filed by the store, or the new supplier of milk and milk products on its behalf, on the forms provided for that purpose by the Director.

[(c)] (d) A store changing its supplier of record or adding suppliers of milk and milk products without complying with the requirements of [(a)] (b) above may be cited for a violation of this section. A cited store may request a hearing before an Administrative Law Judge pursuant to the Administrative Procedure Act and the Uniform Administrative Procedure Rules, or at an informal hearing pursuant to N.J.S.A. 4:12A-43 provided that, if the total amount owed is in controversy, the amount not in controversy must be paid and the balance referred to the Director for mediation pursuant to N.J.S.A. 4:12A-24.



Charles M. Kuperus, Secretary
New Jersey Department of Agriculture
Dated: August 25, 2005