Opinion ID: 2261107
Heading Depth: 1
Heading Rank: 3

Heading: Calculation of the Theoretically Lowest Achievable Prices for Milk

Text: Under the controlling statute, the Milk Commission must set the minimum wholesale prices to be paid to milk dealers so as to reflect the lowest prices at which milk purchased from Maine producers at Maine minimum prices can be received, processed, packaged and distributed within the State of Maine at a just and reasonable return. 7 M.R.S.A. § 2954(2)(B) (1979). Before setting the minimum price, however, the Commission must take into due consideration those aspects of the Maine milk industry that tend to raise operating costs or that are important for ensuring an adequate future supply of pure and wholesome milk. 7 M.R.S.A. § 2954(2). In Cumberland Farms, 1977, this Court construed the provisions on minimum price setting as requiring two distinct calculations. First, the Commission must determine the theoretically lowest achievable prices for the sale of milk without regard to whether any Maine dealer is in fact selling at those prices. Having made that determination, the Commission may bring the theoretically lowest achievable prices into line with what is actually achievable under Maine conditions by considering the factors listed in section 2954(2): the need to ensure an adequate supply of milk to the various marketing areas in the state; the prevailing prices in other states; seasonal production and other conditions affecting the costs of production, transportation and marketing; the interests of producers, dealers, and retailers in obtaining a reasonable return on their investment; and, finally, the public need for the establishment of retail milk prices at the lowest practicable levels. See 7 M.R.S.A. § 2954(2); Cumberland Farms, 1977, supra, at 91-92. The Commission set about to determine the lowest achievable prices by considering Dr. Metzger's computation of the theoretically lowest achievable prices. Comparing the actual processing costs reported by Maine dealers with the volume of milk produced by those dealers, Dr. Metzger concluded that a dealer with the capacity to process 60 million pounds of milk per year would show the lowest processing costs per unit of milk sold. Then Dr. Metzger extrapolated from the actual cost data the particular unit processing costs that such a processor would be expected to experience. [5] Applying those extrapolated unit processing costs to the hypothetical 60-million-pound processor, and then hypothesizing a super-efficient scheme for distributing the milk produced by that processor, Dr. Metzger arrived at what he believed were the theoretically lowest achievable prices for milk in Maine. In view of our strictures in Cumberland Farms, 1977, the Commission should not have adopted Dr. Metzger's model. In Cumberland Farms, 1977, we expressly rejected the notion that the lowest actual dealer costs could be taken as the theoretically lowest achievable costs in Maine. 377 A.2d at 91. It was not enough for the Commission to accept an assumption that a dairy of a certain size which incurs the same production costs as Maine's most efficient actual dealer represents the limit of cost-effectiveness in Maine. Rather, the governing statute contemplates an independent investigation into whether and how operating costs could be reduced if a Maine dealer were operating at the theoretical peak of efficiency. The legislature wanted the Commission to be unrestrained by the efficiency standards and cost levels of existing Maine dealers. Although the Commission was aware of firms that specialize in conducting efficiency studies of milk processors in other states, it declined to order any independent efficiency study. [6] The Commission's failure to investigate what cost levels are achievable in Maine, rather than what expenses are presently being incurred, caused it to fall short of meeting the requirements of 7 M.R.S.A. § 2954(2), as construed by Cumberland Farms, 1977.