(a) The sale by any retailer, wholesale customer, manufacturer, or distributor, including any producer-distributor or nonprofit cooperative association acting as a distributor, of milk, cream, or any dairy product at less than cost is an unlawful practice. This subdivision applies to finished products, and does not apply to sales of bulk milk between handlers.

(b) For purposes of this section, the following terms have the following meanings:

(1) “Cost,” as applied to manufacturers and distributors, means the total consideration paid or exchanged for raw product, plus the total expense incurred for manufacturing, processing, handling, sale, and delivery.

(2) “Cost,” as applied to wholesale customers, means the invoice price charged to the wholesale customer, or the expense of replacement, whichever is lower, plus the wholesale customer’s cost of doing business.

(3) “Cost of doing business,” as applied to wholesale customers, means a wholesale customer’s total operating expense divided by the customer’s total sales income.

(4)  “Total consideration paid or exchanged for raw product,” in the case of market milk or market cream used in the manufacture of Class I products as defined pursuant to Sections 1051.40 and 1051.42 of Title 7 of the Code of Federal Regulations means the current announced regulated minimum price of Class I milk, skim, or cream, payable by handlers to producers as provided in Sections 1051.50, 1051.51, and 1051.52 of Title 7 of the Code of Federal Regulations.

(c) Proof of cost, based on audits or surveys conducted in accordance with generally accepted accounting principles as defined by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, and modified, if necessary, to satisfy the requirements of this section, shall establish a rebuttable presumption of that cost at the time of the transaction of any sale. This presumption is a presumption affecting the burden of proof, but it does not apply in a criminal action.

(d) Nothing in this section shall be deemed to prohibit any of the following activities:

(1) The meeting, in good faith, of a lawful competitive price or a lawful competitive condition.

(2) A distributor’s action in making conditional sales of equipment or other property, extending credit for merchandise purchased, or paying a customer’s obligations not otherwise prohibited by this chapter to another distributor in connection with the transfer of the customer’s business from the latter to the former.

(e) The secretary shall establish, by regulation pursuant to Section 61341, the procedures that shall be used to make the determinations required by this section, including the following:

(1) Any modifications to the generally accepted accounting principles described in subdivision (c) necessary to satisfy the requirements of this section.

(2) Procedures for evaluating efforts to meet lawful competitive prices or conditions.

(3) Other procedures necessary or appropriate to facilitate the application or enforcement of this section.

(Amended by Stats. 2021, Ch. 371, Sec. 3. (AB 425) Effective January 1, 2022.)