Study Points to Fat Profits for Dairy Retailers : Agriculture: Farmers were paid less in 1990, while consumers were paying more, GAO says.

Consumers are paying only slightly less for cheese and milk despite tumbling farm prices that have jeopardized the livelihood of scores of small producers, according to a government study.

“Retailers and others are making a fast buck, while dairy farmers are losing thousands of dollars,” said Sen. Patrick Leahy, chairman of the Senate Agriculture Committee.

The study, conducted by the General Accounting Office, found raw milk prices paid to farmers declined 21.5% nationwide from August, 1990, through April, 1991. But national retail prices for milk, cheese and processed dairy products actually increased from August through October, 1990, before slightly decreasing through May, 1991.

Specifically, the retail price index for milk fell 4.6%, cheese by 0.7% and processed dairy products 0.2%.

Leahy (D-Vt.) said he requested the study in January after reports of price gouging by retailers.

“Somebody is making a lot more, while dairy farmers are making a lot less,” Leahy said in releasing the report, which was completed in late August.

But Scott Ramminger, spokesman for the Milk Industry Foundation, said farm prices were just one of the many components of retail dairy prices, which also reflect the costs of labor, fuel, packaging, transportation, research, marketing and promotion.

“There’s widespread misunderstanding about how much a change in farm prices can change retail prices,” said Ramminger, whose trade organization represents milk processors. “The widening of farm-to-retail price spreads is not unique to the dairy industry; it’s happening across the board in the food industry as a result of a more competitive, dynamic marketplace.”

But David Senter, national director of the American Agriculture Movement, said he was convinced that there had been price gouging by middlemen and retailers as increasing numbers of farmers are forced to liquidate their herds because of the low prices.

“The price gouging is what’s been going on to just merely increase profits--retailers maintaining slightly larger margins and the processors and handlers increasing their spread as well,” Senter said.

The Agriculture Department estimates that farmers will lose $3 billion this year as a result of the lowest prices since 1978.

Producers’ supporters in Congress have been trying to pass dairy relief legislation to boost prices, but the Bush Administration has opposed the proposal passed by the House Agriculture Committee. Efforts to move the bill or an alternative appear stalled.

The GAO said it could not determine what caused the large difference between the farm and retail prices because of a lack of specific cost data. The agency also noted that a given percentage decrease in farm-level milk prices would not necessarily result in the same percentage decrease in retail dairy prices.

In fact, various researchers have estimated that a 10% change in farm-level milk prices, if fully passed on to the consumer, would result in about a 4% change in retail dairy prices if other factors remained unchanged, GAO said.

The GAO said retail prices for dairy products increased about 1% to 2% annually during most of the 1980s, and when compared with other food products, were relatively stable and increased by a smaller percentage than most other foods. But in 1989, retail dairy prices increased by 6.6% and in 1990 by 9.4%.

The GAO also found that the difference between what farmers receive and what consumers pay, the farm-to-retail price spread, increased 14% for dairy products in 1990, the largest increase among the food groups in USDA’s market basket.