(CN) - The 1st Circuit upheld a federal judge's decision to strike down milk-pricing regulations in Puerto Rico that essentially forced fresh milk processors to subsidize their competitor.
Because milk production in Puerto Rico is seasonal and highly dependent on the variable temperature, dairy farmers and milk processors have long feuded over the surplus milk during months of higher production.
To ease tensions, legislators created a regulatory agency, known as ORIL, to oversee the milk industry.
ORIL capped the price at which processors could sell milk to consumers, but required processors to pay a minimum price for the raw milk from dairy farmers.
The Milk Industry Regulation Act also formed an entity called Industria Lechera de Puerto Rico, or Indulac, to promote the commonwealth's milk industry.
Under ORIL's pricing system, Indulac bought any surplus raw milk from the processors to make butter, cream, cheese and other dairy products - but paid significantly less for the surplus raw milk than processors paid dairy farmers.
Around 1985, Indulac began making and selling ultra-high temperature milk, a non-refrigerated milk substitute that directly competed with fresh milk.
The country's two milk processors, Tres Monjitas and Suiza, sued various Puerto Rican officials, Indulac and the Puerto Rico Dairy Farmers Association, claiming the regulatory scheme violated the Constitution by forcing the processors to essentially subsidize Indulac, their competitor.
Were it not for the regulations, they claimed, Indulac wouldn't be able to compete with ultra-high temperature milk imported from the continental United States. And with no limits on the price of Indulac's milk, its profits soared and its non-refrigerated milk began to dominate the milk market.
U.S. District Judge Daniel R. Dominguez agreed and blocked Puerto Rico from enforcing the regulations.
The Boston-based appeals court affirmed, rejecting the defendants' claim that the hardships caused by the injunction outweighed any alleged harm to milk processors.
Judge Juan Torruella, writing for the three-judge panel, said any hardships were "of (the defendants') own doing."
"Furthermore, we see no reason why ORIL cannot stabilize milk production and protect dairy farmers, while setting rational regulations based on non-arbitrary and non-discriminatory standards," he concluded.
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