Opinion ID: 1565085
Heading Depth: 1
Heading Rank: 5

Heading: The Kentucky Milk Marketing Law

Text: As noted, KRS 260.675 to KRS 260.760 (1960) inclusive, is known as the Milk Marketing Law. In summary, this law prohibits any distributor, processor, bulk milk handler, store, or producer-handler from engaging in any marketing practice established as unreasonable by the Commission (or the Act), for the purpose or with the effect of restraining, lessening or destroying competition or injuring one or more competitors or injuring one or more persons dealing in milk production or to impair or prevent fair competition in the sale of milk and milk products. KRS 260.705. Specifically, this section of the Act prohibits selling  below cost  for the purpose of injuring or destroying competition or with the effect of otherwise injuring a competitor, or destroying competition, or of creating a monopoly. KRS 260.705(a). Farmers, as producers of milk, are not affected by the law. The place it first touches is at the level of so-called processor-distributors. [6] The processor-distributors are required to file with the Commission price schedules which can only be superseded, changed or withdrawn on forms prescribed. KRS 260.710. Regulations of the Commission require that price changes be filed at least twenty (20) days in advance of the proposed effective date. Although the Commission, under restrictions set out in KRS 260.710, may not set or establish a price for the regulation of milk products, it does have the authority to review price schedules to insure that no processor-distributor is selling below cost. Thus, KRS 260.705(1)(a) limits and forbids a practice which would: advertise for sale any article or product at less than the cost thereof to such vendor . . . (Emphasis added). In the case of processor-distributors, KRS 260.680(12) defines cost as follows: Cost to the processor or distributor means the price paid for raw materials, plus the cost of doing business, as evidenced by the standards and methods of accounting regularly employed by such processor or distributor. The cost of doing business means all costs of doing business incurred in the conduct of the business and shall include without limitation that following items of expense: labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, power, supplies, maintenance of equipment, selling costs, transportation, delivery cost, credit losses, all overhead expense, and all types of licenses, taxes, insurance and advertising, . . . . In the case of retailers, KRS 260.680(17) defines Cost as follows: Cost to the store means the invoice price paid by the retailer plus the retailer's cost of doing business, as evidenced by the standards and methods of accounting regularly employed by such store, including, but not limited to, all costs incurred in the conduct of said store such as labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, power, supplies, maintenance of equipment, selling cost, advertising, transportation, delivery costs, credit losses, all overhead expenses, and all types of licenses, taxes, insurance and advertising; KRS 260.715 sets forth the powers and duties of the Commission. The relevant provisions therein authorize an investigation and hearing in response to alleged violations of the Milk Marketing Law or the regulations enacted pursuant thereto. The Commission has the specific authority to suspend or revoke the licenses of processor-distributors and retailers. KRS 260.735. It also has the power to impose fines up to $500 for each violation, and to imprison violators for not less than 1 day nor more than 30 days. KRS 260.991. In essence, the ostensible purpose of the Milk Marketing Law is to prevent any practices that would tend to eliminate competition or tend to create a monopoly. By legislative fiat, one proscribed practice the statute says tends to create a monopoly or unfair competition is the sale of milk products below cost. KRS 260.680(17); KRS 260.710. In a well-reasoned opinion, the trial court found from the evidence presented that the Kentucky Milk Marketing Law, as administered by the Commission, is, in actuality, not an anti-monopoly law but rather, a minimum retail mark-up law. In so finding, the trial court in effect applied the old adage, If it walks like a duck and quacks like a duck, it is a duck. We agree. In prohibiting sales below cost, the statutory definition of cost to the store includes the invoice price paid by the retailer, plus his cost of doing business, including (but not limited to): all cost incurred in the conduct of said store such as labor, salaries, rent, interest, depreciation, power, supplies, maintenance, selling cost, advertising, transportation, delivery cost, credit losses, all overhead expenses, and all types of licenses, taxes, insurance and advertising. The evidence is incontrovertible that many, if not all, of the costs incurred by grocery retailers have nothing to do with the actual cost of selling milk. According to the evidence, the procedure used by the Commission requires the seller to submit all costs incurred by the stores in terms of a percentage of gross sales, (less sales and excise taxes). Prior to this litigation the minimum legal price was determined by adding that percentage to the invoice price of the milk, to determine the cost that was proper, as not being  below cost.  The method was changed to require that the proposed selling price be multiplied by the percentage, with the result being added to the invoice price of the milk. If the result was less than the proposed selling price, the price was legal. If, however, the result was greater than the proposed selling price, then the proposed price was illegal. A review of the proceedings of the Commission for the previous thirteen (13) years reveals that it followed the statutory definition. However, in a directive to all retail stores, dated May 19, 1974, the appellant, Claycomb, as Executive Director of the Commission, declared that a figure of fifteen (15) percent over the invoice cost of milk would . . . be needed in order for the retailer to realize a reasonable profit on the sale of the product. Apparently recognizing that this directive revealed the real purpose of the Act, the Commission rescinded it on September 15, 1975. The trial court found, and we agree, that the mark up required does include an actual profit over and above the cost of selling milk products. It is understandable that the cost of selling items in the grocery department (including milk) is lower than any other department of a grocery store. In the case of Kroger, it is 4% in the grocery department, 15% in the produce department, and 30% in the delicatessen. The evidence also shows that, in the case of Kroger, and most supermarkets, over 8,000 items are offered for sale to the public. Under the Kentucky Milk Marketing Law, only three of those items are singled out for special treatment as to price control. That the Kentucky Milk Marketing Law mandates a minimum mark-up, including a profit, is even more clear by noting what happens as the result of an increase in the invoice price of milk. As an example, it was shown that if the invoice cost of a gallon of ice cream was increased from $1.65 to $1.75, the law as applied would require an increase in selling price from $2.05 to $2.19. As the trial court opined, obviously, the cost of selling the ice cream could not have increased but the law requires the consumer to pay 14 cents more for the product because of a 10 cent increase in price. Under these circumstances, we have no problem in concluding that the Kentucky Milk Marketing Law, while ostensibly and facially an anti-monopoly law, is in actuality and practice, a minimum mark-up law.