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Raw Milk, “Moo-n Shine”, and Risk Management

By Jason Foscolo

When planning to profit from an agricultural activity like selling raw milk, farmers often fail to take seriously the risks of regulatory non-compliance.  Meteorological or market risks figure far more prominently in the minds of farmers everywhere. Yet the business of food production, and dairy in particular, is one of the most highly regulated industries in the United States. Compliance with production regulations is itself a form of risk management.

Don’t get too relaxed about regulations! Photo by Lorraine Lewandrowski

Within New York state, the on-farm sale of raw milk is legal. Permits are available from the Commissioner of Agriculture and Markets which allow the permit-holder to sell raw milk provided that a number of conditions are met. Sales must be made directly to a consumer, and must also be made on the farm where the raw milk is produced. Further, a sign must be conspicuously placed near the point of sale which reads: “NOTICE: Raw milk sold here. Raw milk does not provide the protection of pasteurization.” (Chapter 1, New York Code of Rules and Regulations, Section 2.3).

The on-farm sale requirement severely limits the market reach of a raw milk operation. New York dairies may be tempted to circumvent these restrictions using a variety of novel legal and organizational arrangements. These methods are colloquially known as “moo-n shine” strategies and have recently received significant press coverage on National Public Radio and various other media outlets. An example of such a strategy uses a “cow share” program in which shares of a cow or cow herd are sold to members of a “corporation” of consumers in exchange for a cash payment. “Dividends” are paid to membership in raw milk and raw milk products like cheese and yogurt. In another raw milk scenerio, producers label their bottles as “pet-food”, but sell them with the tacit knowledge they are unquestionably destined for human consumption.

The media coverage of these methods has been highly deferential and uncritical. This can be a problem for a New York based dairy operation because the coverage oversimplifies the very complex and thorough web of regulations which govern the sale of milk in this state. It would thus be unwise for any New York based dairy operation to adopt one of these arrangements without very careful consideration. The laws regulating the sale of milk products in the state of New York are written quite comprehensively and prohibit these types of “moo-nshine” arrangements.

The dairy laws are written broadly enough so that the New York State Department of Agriculture and Markets may regulate every transfer of raw milk, regardless of the underlying economic transaction. It is required that every person who “offers for sale or otherwise makes available raw milk for consumption by consumers shall hold a permit to sell raw milk issued by the commissioner.” “Otherwise makes available” for consumption covers other types of raw milk transactions which may not look like the narrowly defined retail model. The law more broadly regulates the simple transfer of raw milk between different parties, regardless of how the money moves back and forth between the buyer and the dairy. Under this regulation, even the gifting of raw milk may be a prohibited transaction.

In 2010, the Appellate Court for the Third Judicial Department1 used this language to rule against the cow-share arrangement used by Meadowsweet Dairy to distribute raw milk products to its membership. The court determined that distributing milk via a cow sharing scheme fell within the meaning of the phrase “otherwise makes available” for consumption.

Courts have yet to review whether pet food labeling schemes can effectively mask the sale of raw milk for human consumption. Given the comprehensive drafting of the statute, it is prudent to assume this stratagem will fail because of the “otherwise make available” language in the regulation. Mislabeling laws pose a further concern for “pet food” method of distribution. Food is mislabeled or misbranded if its labeling is false or misleading (Agriculture and Markets Law § 201(1)), subjecting dairies to further regulatory liability.

Violating the raw milk laws can have quick, ruinous financial consequences for a suspected dairy. The Department of Agriculture and Markets has a vast amount of regulatory authority to interfere with the operation of dairies which do not comply with the raw milk laws. Under Section 20 of the Agriculture and Markets Law, agents of the commissioner “shall have full access” to any farm, factory, business or facility suspected of violating the raw milk or any other Department regulation. (Agriculture & Markets Law § 20). Section 202-b of the law also empowers department agents to seize, impound, or destroy food products which may be unsafe, adulterated, or even mislabeled. (Agriculture & Markets Law § 202-b).

A discussion of whether laws prohibiting the sale of raw milk on a wider basis are over- bearing and unnecessary has no place in a thorough, dispassionate risk management analysis. The dairy laws of the state of New York, as well as the power of state officials to investigate and impound the property of those suspected of violating them, are significant obstacles to the off-farm sale of raw milk. Be skeptical of any scenerio that promises the law to circumvent the law, and accurately assess the potential risks of your agricultural activity.

1 The Third Department covers the counties of Albany, Columbia, Greene, Rensselear, Schoharie, Sullivan and Ulster

Jason Foscolo is a general practice attorney specializing in food and agricultural law issues. If you would like to talk to him about the legal aspects of making great food, including raw milk, he may be reached any time at (479) 799 – 7035, or at jason@jasonfoscolo.com.

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