‘Fair Trade’ Law Complicates Rebates

Question: I take advantage of a lot of refund offers, both at the grocery store and by mail. In one particular instance, I sent in the required proof of purchase and sales receipt to Land O’ Lakes Butter and Cheese with the required form. I was to receive a $1 cash rebate plus two 25-cent coupons. Instead, I received six coupons for a total of $1.20, with the “excuse” that I have enclosed. What I want to know is, what does the California Food and Agricultural Department have to do with rebates? Why don’t they stick to such subjects as pesticides and safe food labeling? And how could $1 in cash create the “potential for sales below cost”?L.S.

Answer: We should let the people in on our little secret--the “excuse” you received from Wisconsin-based Land O’ Lakes Inc., which thanked you for participating in the company’s butter-and-cheese refund program, but which then added the following to its note: “The California Department of Food and Agriculture has ordered Land O’ Lake/Land O’ Lakes to cease and desist its $1.00 rebate offer. The Department assumes that the rebate offer may create the potential for sales below cost. Please accept the $1.20 worth of coupons in place of the $1.00 rebate. We apologize that we are unable to send you a refund check.”

As an old hand in the coupon/rebate supermarket wars, I’m sure you know that practically everything on the stores’ shelves is fair game for discounting, coupons, rebates, two-for-one offers and what-have-you, except for two broad categories: tobacco and liquor. But even here you will find plenty of rebating, discounting and couponing going on, but it’s the manufacturer, distiller or winery sponsoring the offer, not the store.

But what you wandered into, in all innocence, is a cobwebby hold-over (perhaps the only one left) of what, at one time, was a common practice known as “fair trade pricing.” And it’s not unique with California. Several other states are also clinging to this sort of price protection for milk products.

Stores Were Prohibited

Under the guise of protecting the consumer from unfair pricing practices that would affect the quality of the merchandise--and covering hundreds of items--stores were prohibited for about 20 or 25 years from selling “fair trade” merchandise below the stores’ cost until the laws began becoming unglued in the 1950s.

In the case of milk in California, according to David Ikari, branch chief in Sacramento for the Department of Food and Agriculture’s milk stabilization branch, the legislation grew out of a price war in the ‘30s that saw milk get down to about a penny a quart, which prompted producers to simply dump it in the streets. And, for about 40 years after that, before being repealed, minimum prices were legislated at every step in the production of dairy products.

One court decision after another, however, began throwing these fair trade--price-fixing--arrangements out the window. And this opened the way for the proliferation of the discount stores that we have today. It also legitimized the practice of selling “loss leaders” in stores. And gradually, the subject of what a manufacturer’s, and a retailer’s, actual costs were became irrelevant as far as the consumer is concerned.

Except--wouldn’t you know?--in the case of milk and milk products. A store, according to Ikari, can’t sell milk or milk products “below the invoice cost plus the cost of doing business for the supermarket, unless it is doing so to meet a legally competitive price.”

Shadowy Figure

It’s a shadowy figure, at best, that makes it extremely difficult to tell, accurately, whether a coupon offer really drops the real price of butter or cheese below the store’s cost. Note the curious wording on Land O’ Lake’s explanation: “The Department assumes that the rebate offer may create the potential for sales below cost.” (The italics are mine).

The determination is so vague, in fact, that a lot of supermarkets in California, just to be on the safe side, don’t coupon any milk products at all even though a few, such as yogurt and cottage cheese, are exempted.

You say it doesn’t make sense to have this one old fair trade practice--one that goes back to the days of hand-churned butter--still in force?

Well, it wasn’t the idea of the Department of Food and Agriculture. It is simply stuck with enforcing legislation that has become, charitably, anachronistic.

Question: In reference to your recent column on Individual Retirement Accounts, a quick question: my employer has a 401K plan, but I did not participate in it during 1987 because (1) I had not yet been employed for three years and (2) my salary was too high to permit me any voluntary contribution by the employer, though if I had been there three years I would have been able to make an optional deferral of income, myself.

Under those circumstances, should I have treated my $2,000 IRA contribution as a deductible, even though our joint income is well over the $50,000 cutoff?--P.A.B.

Answer: Yes, according to the Internal Revenue Service’s public affairs spokesman, Rob Giannangeli, the $2,000 IRA contribution you made last year was, indeed, deductible. While your employer had a pension plan, that is, you weren’t eligible to participate in it, which--for all practical purposes--was the same thing, for you, as having no plan.

And the fact that your joint income was in excess of $50,000 doesn’t mean a thing as long as you weren’t covered by your employer’s 401K. Giannangeli suggests that you file an amended return as soon as possible.

Both of us, however, are assuming that you really did make the 1987 $2,000 IRA contribution before this past April 15. You didn’t just think about it?

No? Then, by all means, file the amended return.