Group Accuses Supermarkets of Milking Profits

Milk prices at larger Los Angeles-area supermarkets remain high despite a 30% drop over the last four months in the farm price for milk, according to a survey released Wednesday by Consumers Union, publisher of Consumer Reports magazine.

Big supermarkets also continue to charge far more than discounters and mom-and-pop stores--an average of 66 cents per gallon, or 22%, higher in the case of whole milk--said Elisa Odabashian, a policy analyst for Consumers Union and the study’s author.

Supermarket representatives disputed the report, contending that there is competition in milk pricing and that the survey contains inaccuracies. Economists and others also said it is difficult for grocers to lower prices in concert with falling farm prices.

Although many Los Angeles supermarkets dropped retail milk prices by 6% to 10% since October, grocers have yet to push prices down far enough to reflect the drop in the farm price from $1.56 per gallon to $1.16 per gallon since February, the survey concluded. The study involved 77 food markets in Los Angeles and Orange counties.

In response to the farm price decline, many Los Angeles area stores lowered retail whole milk prices by between 22 cents and 40 cents a gallon, to between $3.55 and $3.99 per gallon now, the survey found.

But these price changes do not go far enough to narrow the gap between the farm and retail prices, Odabashian said.

The difference “is extremely large,” she added. “The problem here is when there is an increase of even a penny in the farm price, grocers don’t hesitate to pass it on to consumers. But when there is a drop in farm price, they don’t fully pass it on.”

Farm milk prices are dropping in the state because of a yearly phenomenon known as the “spring flush,” where warm weather prompts cows to produce more milk, economists say.

The supply of milk in California is also increasing because of an expansion of its dairy industry and an increase in milk shipments from other states, said Jerry Siebert, a cooperative extension economist at UC Berkeley.

This is Consumers Union’s second survey of milk pricing since October, when it also found that supermarkets charge a lot more than smaller retailers. The group says it plans to continue the survey every six months to exert pressure on grocers to lower prices.

Both surveys contend that larger grocers charge higher prices for milk because there are no adequate substitutes for it and it’s a staple in many consumers’ diets. Supermarket chains also do not compete heavily for milk sales through advertising and marketing, according to the survey.

Economists say it’s unrealistic to expect the retail price to match the farm price because of complex market conditions. These include the fact that the current farm price reflects market conditions from several months earlier, said Bees Butler, an agricultural economist at UC Davis.

Retailers also try to keep retail milk prices relatively stable in order to hedge wild swings in supply and demand, Butler said.

In addition to the differences between prices at big grocers and smaller outlets, the survey also found that larger grocers nearly match one another on prices.

The California attorney general’s office is continuing an investigation into such alleged price fixing, a probe that it initiated last October at Consumers Union’s request.

Grocers said the report itself shows that there is indeed competition among bigger supermarkets.

“Obviously there is competition here even among the chains,” said Peter Larkin, president of the California Grocers Assn. “There are swings of almost 50 cents here between what some of the larger stores are charging for a gallon of milk.”

Supermarket representatives said they have not received complaints from consumers about milk prices and questioned the report’s accuracy.

“They said one gallon of whole milk in our Northridge store was $3.95. This price is for a two-gallon pack, which makes the cost for each gallon $1.98,” said Judy Decker, a spokeswoman for Lucky Stores.

About 60% of Lucky customers buy their milk in this twin-gallon pack, Decker added.

Vons stores dropped their milk prices to match drops in the farm price, pushing them down 30 cents a gallon in February and 10 cents a gallon a few days ago, said Brian Dowling, Vons director of public affairs.