Cost of Milk 20% Higher in Los Angeles : Agriculture: State officials and consumer groups suggest that San Francisco’s and Sacramento’s lower prices reflect lack of competition in the Southland.

The legendary battle for the Southern California food dollar, a state survey suggests, stops at the dairy case.

The state Department of Food and Agriculture said average milk prices in the Los Angeles area are now 20% higher than in the San Francisco or Sacramento areas, a spread that could cost Southland families $100 or more each on milk purchases this year. Average prices for whole milk in Los Angeles were $2.73 a gallon in October, compared to $2.27 in San Francisco and $2.29 in Sacramento, the department said in its latest survey.

Given that what grocers pay for raw milk is about the same, the retail price difference could result in huge profits on milk for Los Angeles-area supermarkets.

The department blamed the large price spread on what it contends is lack of competition among Los Angeles-area supermarkets, in sharp contrast to Northern California, where chains shave prices to ring up milk sales.

The agency’s findings are surprising, because the Los Angeles food market is popularly regarded as among the nation’s most competitive. Seven major chains, and numerous smaller independents, duke it out with double coupons and price specials for Southern California’s shopping dollar.

When it comes to milk, Southern California’s combative grocers have apparently declared a truce. “In Los Angeles, the competition isn’t there,” said David Ikari, chief of the department’s milk stabilization branch.

The price spread concerns consumer activists, who contend that Los Angeles-area grocers are taking in big profits at the expense of families with small children, the largest consumers of milk.

“Without talking to each other, the L.A. supermarkets have agreed to make more profit on milk,” said Harry Snyder, regional director for Consumers Union. “In these hard times, when every penny counts, they are being very unfair.”

Representatives of five Los Angeles-area supermarkets--Vons, Ralphs, Albertson’s, Lucky and Alpha Beta--did not respond to requests for comment on milk prices.

Hughes Markets Vice President Harland Polk said he could not comment because he was unfamiliar with milk prices and production costs in Northern California.

The chairman of Stater Bros. said the survey did not accurately reflect prices charged at the Colton-based grocery chain. Jack H. Brown said Stater Bros., with stores in San Bernardino and Riverside counties, now charges $2.27 for a gallon of whole milk.

“I cannot tell you what 50 cents a gallon would mean (in profits) to this company,” he said. “It is a very substantial number.”

Milk pricing is a sensitive topic because milk is so important to children’s health. Most doctors recommend that growing children drink between three and four glasses of milk daily, as it is rich in calcium needed for strong teeth and bones.

Because there is no dietary substitute for milk, grocers in an uncompetitive market can raise prices without fear of losing many sales. Economists say families tend to buy what they need, regardless of price.

According to L. J. Butler, an agricultural economist at UC Davis, a 10% boost in milk prices would trigger a barely perceptible 1.5% drop in sales. “If the price of milk doubled, you would not stop buying it,” Butler said.

For families who buy large amounts of milk, a few pennies a gallon can add up. At today’s prices, a Los Angeles family using five gallons of milk every week would spend $120 a year more on milk than the same family in San Francisco. It would take a person with an annual income of $20,000 almost two days to earn that amount.

Since retail milk prices were deregulated in 1978, monthly prices in Los Angeles have always floated above prices in San Francisco and Sacramento. For most of that time, the spread reflected slightly higher prices paid to dairy farmers in Southern California for raw milk.

But since mid-1990, the regional price gap has slowly widened, apparently unrelated to raw milk prices. The cost of processing milk in all three cities is about the same, the department said.

The department determines monthly averages by sampling milk prices at each of the major chains in all three areas. In the Los Angeles area--which includes Los Angeles County and part of Orange County--the department collects prices at Ralphs, Vons, Lucky, Albertson’s, Alpha Beta, Stater Bros. and Hughes. The state surveys five markets in San Francisco and five in Sacramento.

Though its survey is far from comprehensive, the department said it is a fair indicator of milk price fluctuations. In interviews, grocery industry representatives did not dispute its findings.

“The fact that prices are rising faster in Southern California has been permitted by competition,” said Robert Boynton, director of the Dairy Institute of California, a trade association for milk processors. The group includes grocery chains. Boynton added: “I would not say there is less competition in the south than in the north.”

Donald Beaver, president of the California Grocers Assn., argued that it is difficult to draw conclusions from milk price comparisons. It is possible that lower meat or vegetable prices in the Southland offset higher milk prices, he said.

“You have to look at everything a consumer is buying,” Beaver said.

But regulators, consumer activists and dairy farmers maintain that prices in Los Angeles are higher because the major chains aren’t competing aggressively for milk sales.

In Northern California, strong independent grocery chains tend to discount the price of milk, a move that helps keep overall prices down, regulators said.

One chain, Cheaper Stores, based in Benicia, is so aggressive that the state Department of Food and Agriculture has charged it with selling milk below cost, a violation of state law. Cheaper Stores is fighting the charges.

Jay Gould of Western United Dairymen, a Modesto-based organization representing dairy farmers, said Northern California has more independent dairy processors, who compete to keep wholesale prices low. In Southern California, most large processors are owned by the supermarket chains, he said.

How much the supermarkets make on milk isn’t known. The state Department of Food and Agriculture audits the supermarket milk business, but the figures are confidential.

Profits are believed to be significant, however. Said Snyder of Consumers Union: “It is probably one of the most profitable food items in the store.”

There are signs that the Los Angeles-area milk business may be seeing more competition.

Price Club, the San Diego-based discounter, is using low prices to siphon off milk sales from Los Angeles grocers, people in the dairy industry say.

Gary Korsmeier, head of California Milk Producers, a large Artesia-based dairy cooperative that supplies most of the major grocery chains, said milk sales at Los Angeles-area supermarkets are down 2% from a year ago, a decline he attributes to competition from Price Club.

A Price Club representative did not respond to a request for comment on milk pricing.

Korsmeier said two chains, Lucky and Albertson’s, are lowering prices in stores located near Price Club outlets, where milk is nearly one-third cheaper than in grocery stores. The two chains are also selling milk in side-by-side gallon containers, similar to Price Club, he said.

“There is a point where prices will have to adjust,” Korsmeier said. Noting that overall retail prices in Los Angeles are climbing, he added: “It does not appear we are there yet.”

Paying More for Milk

Los Angeles grocers consistently charge more for a gallon of whole milk than their counterparts in San Francisco, but that gap isn’t reflected in the farm prices--the amount paid to dairy farmers for raw milk. According to the California Department of Food and Agriculture, the cost of processing milk in both cities is about the same.

The gap in retail prices... Average retail price for a gallon of milk

Source: California Department of Food and agriculture