State Approves 14% Hike in Milk Prices : Agriculture: Agency says supplies are at risk. But consumer groups call the decision ‘welfare for dairy farmers.’

Saying that half the state’s dairy farmers aren’t covering their costs, the Department of Food and Agriculture on Tuesday approved a 14.3% hike in raw milk prices that is likely to significantly boost what California consumers pay for milk.

The decision, giving dairy farmers their second price increase in five months, was immediately criticized by consumer groups. “It’s as if the state is creating a welfare program for dairy farmers,” said Consumers Union spokeswoman Bonnie Maria Burlin.

The department said it acted to shore up farmers’ financial condition “so that the state’s adequate milk supply would not be in jeopardy.”

In an interview, department economist Kelly Krug said there is not a milk shortage currently. Within California, milk production has been increasing steadily, although demand for milk has barely grown. This year, California surpassed Wisconsin as the nation’s leading milk-producing state. Nationally, there is a surplus of milk.

The department is phasing in the price increase over two months, with half the increase coming in December and the rest in January. Taken together, the changes will boost the price of a gallon of raw milk by about 15 cents. If passed on entirely to consumers, the price of a gallon of whole milk in the Los Angeles area could rise to as high as $3.

Craig Alexander, executive director of the Dairy Institute, an organization representing milk processors, which include supermarket chains, said low-fat and skim milk will see steeper price increases. He couldn’t say how much of that will be passed on.

“We’re in the process of evaluating the decision,” he said.

A spokesman for Western United Dairymen, the Modesto dairy group spearheading the drive for the price increase, could not be reached for comment.

Dairy farmers have argued that an increase in farm prices doesn’t necessarily mean retail prices will rise, because grocers can take less profit on milk. Consumers Union and other organizations have argued that milk is the most profitable item in grocery stores.