State to Reconsider Milk Price Decision : Agriculture: Consumer group challenges pricing formula. Dairy farmers defend increase.
The state Department of Food and Agriculture, in a rare move Thursday, reopened hearings on a year-old decision that has driven retail milk prices in California to their highest levels ever.
Consumers Union, the nonprofit publisher of Consumer Reports, had requested the review, calling the state-imposed price increase a “hidden tax to consumers.” It is the first time in memory the department has agreed to reconsider a pricing order.
The department sets farm prices, which are what dairy farmers charge processors for milk. Though retail prices are not regulated, changes in farm prices affect what consumers pay.
In November, 1993, at the urging of dairy farmers, the department changed the formula it uses to calculate farm prices, boosting them by 15 cents a gallon. The department said a new formula was needed because half the state’s 2,200 dairy farmers weren’t making enough money to cover production costs.
With the new formula in effect, a state survey shows, the average retail price for a gallon of whole milk hit $3.02 in the Los Angeles area in October, an all-time high. The amount is 14.3% higher than in October, 1993, when the average price was $2.64.
Consumers Union wants the department to scrap the current formula and return to the old method of calculating milk prices, which was based in part on production costs in California and consumer demand for milk. The current formula is linked to the price the federal government sets for cheese in the Midwest.
A return to the previous formula would lower farm prices by an estimated 12.5 cents a gallon, which translates to a reduction of about 25 cents retail.
California’s dairy farmers have countered Consumers Union’s request with one of their own. Arguing that farmers are not earning an adequate return, they are seeking an adjustment to the current formula that would boost farm prices by 1.6 cents a gallon. That translates into a retail price increase of about 3 cents a gallon.
Under state rules, Food and Agriculture Secretary Henry J. Voss must make a decision on the proposals within 62 days. There was no indication Thursday on how he might decide.
The hearing again draws attention to the upward march of milk prices in the state at a time when there is a nationwide surplus of milk. Consumers Union argues that California has kept its milk prices “artificially high,” protecting dairy farmers at the expense of consumers, especially the poor.
The organization argues that the price hikes forced low-income families to allocate a bigger chunk of their food dollars to milk. Many physicians consider milk important to children’s health, and there is no comparably priced substitute for it.
Harry Snyder, co-director of the West Coast office of Consumers Union, said state-mandated prices have encouraged farmers to step up milk production, though demand isn’t growing. The surplus should be causing prices to fall, he said.
Jay Goold, vice president of Western United Dairymen in Modesto, said farmers need a price increase to help cover higher production costs caused primarily by increased feed costs, a lingering result of last year’s floods in the Midwest. He attributed the increased production to more efficient farming methods that result in higher yields per cow.
Goold said the impact of the Consumers Union proposal would be severe, putting farmers back to where they were more than a year ago and possibly putting many of them out of business.
