August 5, 1977

Mr. Robert Duxbury, Secretary 
Department of Agriculture 
Anderson Building 
Pierre, South Dakota 57501

Official Opinion No. 77-67

Volume discounts under Dairy Marketing Act

Dear Mr. Duxbury:

You have requested an opinion based on the following factual situation:

FACTS: 

At the present time, the South Dakota Marketing Commission is allowing dairy wholesalers operating in South Dakota to give volume discounts to retailers pursuant to administrative rules found at ARSD 12:29:04, 12:29:05 and 12:29:06.  The allegation has been made that these regulations are in violation of SDCL 37-3-17.

Based on the above facts, you have asked the following specific question:

QUESTION: 

Does the South Dakota Dairy Marketing Commission have legal authority to provide by rule for volume discounts to retailers?

It is my understanding that the present volume discount system, pursuant to the above-cited administrative rules, basically operates as follows:

A retailer of dairy products makes application to the Secretary of the Department of Agriculture for a volume discount.  The application must contain information as to the total dollar amount of purchases of milk and milk products during a preceding base period.  If the average monthly dollar volume is great enough to fall into one of the discount categories established by rule, the applicant is issued a certificate of eligibility and may receive the appropriate discount from his supplier.  The amount of the discount is based on a percentage of the dollar volume of the retailer which is the wholesale price as that term is defined in SDCL 37-3-9(11). Certificates of eligibility are issued annually and expire on December 31 of each year.

In my opinion the applicable statutes are: 
    
37-3-17. Nothing in § § 37-3-8 to 37-3-72, inclusive, shall prevent differentials which make only due allowance for difference in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which dairy products are sold or delivered to purchasers; except that at no time shall such price be less than the minimum price established by the dairy marketing commission. 
    
37-3-41. It shall be the duty of the dairy products marketing commission to determine by investigation, study and proceedings in compliance with chapter 1-26, the minimum dock prices of dairy products defined in § 37-3-9.  The commission shall use the facts, guidelines, and formulas outlined for the commission by the secretary of agriculture, in determining the minimum dock prices of such dairy products, and may determine and designate different minimum dock prices for various natural marketing areas.  The commission shall determine the minimum wholesale prices of such products for various methods of handling and delivery to the retailer.  The commission shall require and verify that all processors have paid any additional premiums over and above the federal order minimum prices direct to producers, or through their marketing association, to the qualified shed producers on a marketable basis.

SDCL 37-3-17 recognizes the fact that the wholesaler's total cost in delivery of a product may vary from retailer to retailer and authorizes allowances when such differences occur.  However, the last provision of that section imposes a definite limitation on price differentials wherein it states “that at no time shall such price (the price paid by the retailer) be less than the minimum price established by the dairy products marketing commission.”

In my opinion, this means that a retailer whose price of a dairy product to the public is the minimum wholesale price established by the commission plus the minimum “cost to the retailer” mark-up established by SDCL 37-3-9(10), is not entitled to any volume discount on that product regardless of his dollar volume.  The retail price is then the minimum price established by the Commission and the last part of SDCL 37-3-17 prohibits any volume discount in this event.

The Dairy Marketing Act only requires the establishment of minimum prices which the processor and retailer are to receive.  The Act does not place a maximum or ceiling on the wholesale or retail price.  If, in fact, competition and other factors have caused the minimum price to also become the maximum market price, SDCL 37-3-17 renders the volume discount system unavailable.

The answer to your question is yes.  Subject to the qualifications herein discussed, the commission has authority to provide for a system of volume discounts.

Respectfully submitted,

William J. Janklow
Attorney General

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