Milk Product Prices Up 9% in 1989 : Dairies: Government regulations contributed to increases. Prices rose for low-fat products in particular.
If you’ve been under the impression after your weekly trip to the grocery store that you’ve been paying more for milk products, you’re right.
In fact, government tinkering, exports and the weather are to blame for a nearly 9% increase in consumer prices for dairy products in the past year, dairy experts say. According to government figures, that is more than double the rate that prices in general have gone up in 1989 and half again as much as all food prices.
And if the news for milk drinkers was not bad enough, the price escalator for all dairy goods not only has been rising but has been speeding up. That is confirmed by Mark Roeder, public affairs coordinator for Giant Food, who said the price of the supermarket chain’s popular 2%-fat milk has risen to $2.49 a gallon, with the government’s consumer price index showing the sharpest increases in dairy products coming in the last three months--up 5% between September and November. That’s an annual rate in excess of 21%.
The development is a boon to some dairy farmers and has reduced government outlays for surplus milk and cheese, but consumers find themselves paying more, especially for increasingly popular low-fat dairy products. Commercial users such as Domino’s Pizza, meanwhile, have to scramble to find enough mozzarella to serve their customers.
The reason for soaring prices goes well beyond consumer preferences, however. Aggressive steps since 1985 under the Agriculture Department’s Dairy Termination Program to reduce surplus production of dairy goods--by paying farmers to slaughter or export more than 1.6 million dairy cattle--have pinched supplies and fueled price increases.
The goal for the Dairy Termination Program was to reduce production. A General Accounting Office study released earlier this year shows that the program not only accomplished that but also led to net savings for the government because of reduced government purchases of surplus cheese, nonfat dry milk and butter.
The GAO study shows that without the program, dairy farmers would have produced about 5% more this year than they did.
James Miller, a dairy specialist with the Agriculture Department, said another important factor in the price increases was a rise in the export of nonfat dry milk, primarily to Mexico and Asian countries. With milk committed to that market, there was less available domestically, adding to the pressure on consumer prices.
“Our exports of nonfat (milk) this year are likely to be the equivalent of 4 billion pounds of skim milk. That is a lot of milk,” Miller said. “Our (overall) milk production is going to come in at 145 billion pounds, so percentage-wise it is not large. But the important thing about dairy is that it takes a very tiny change to make a very large difference in prices.”
The drought of 1988 also has a continuing effect on dairy prices, according to several experts. Robert Vaughn, general manager of the Maryland and Virginia Milk Producers Cooperative Assn., said higher feed costs resulting from the drought-reduced harvest led some farmers to sell cattle for slaughter.
Other experts note that the 1988 drought also affected the quality of forage crops this year, leading to lower productivity in milk cows. In the Washington region, Vaughn said, rising labor and land costs also have further boosted expenses for dairy farmers and have led to cuts in production.
“What is driving the market up is the short supply,” he said. “The reason there is a short supply is that producers have experienced higher production costs, and they have cut back.”
Although prices are high now, the forecast for dairy prices is favorable--for a number of reasons.
Miller notes that the export commitments for nonfat dry milk are set to expire at the end of this year, allowing producers to redirect supplies to the domestic market.
A strong harvest of feed grains this year, meanwhile, has lowered the cost of feeding dairy herds, a factor that should tend to bring down the costs of production next year.
And finally, as the GAO concluded, the Dairy Termination Program’s effects are expected to be only temporary. In 1991, participating farmers are eligible to get back into dairying, a development likely to boost supplies and lower prices.
As for pizza, the fluctuations of the dairy business have had some effect on prices, but Domino’s executives envision an ever-rising demand for mozzarella nevertheless.
“In 1987, we used 106 million pounds and in 1988, we had 125 million pounds,” said Bill Kerans, public relations director for the chain’s distribution arm. “When the figures come in for this year, we expect it to be higher still.”
One dairy item that clearly is bucking the trend of tight supplies is butter, which is subject to a different trend in American life. As concern about cholesterol leads more and more people to try low-fat milk products, huge mounds of unwanted butter are piling up in government warehouses.
In fact, butter is the only dairy commodity the government is buying as surplus these days. Currently, 135 million pounds of it is being stored by Uncle Sam, mostly in limestone caves around Kansas City, Mo.
“The government continues to purchase (butter), while the consumer preference is for lower- and low-fat products,” said Ed Coughlin, director of regulatory affairs for the National Milk Producers Federation. “The leading increases are coming in skim milk products. This year, skim milk sales statistics show increases in the magnitude of over 25% versus the same month a year ago.”
