Retail Milk Price May Fall on State Agency’s Action
Californians are likely to soon see a drop in retail milk prices, reflecting a historic decline in farm prices that goes into effect next month, state officials said Tuesday.
The Department of Food and Agriculture said that the price farmers are paid for milk will fall 50 cents per gallon in April due in part to an increase in the supply of milk. A portion of the decrease is expected to be passed on to consumers, who are paying record prices for milk.
The state sets farm prices based on an arcane formula that takes into account farmers’ costs. It does not regulate retail prices.
The price change comes amid a growing controversy over the high price of milk, a nutritious food, especially for children, for which there are few substitutes.
A coalition of out-of-state dairies has been lobbying for a change in state law that would allow them to sell their lower-priced milk in California. And the Consumers Union has accused California supermarkets of gouging milk consumers.
“We have the highest milk prices in the nation in the state that produces the most milk in the nation,” said Elisa Odabashian, policy analyst for the Consumers Union in San Francisco. According to a state survey, the average price for a gallon of milk in Los Angeles was $3.18 in January, the last month for which figures are available.
Odabashian said she believes it is unlikely that supermarkets will pass the full price decrease on to consumers.
“What we’ve seen is a growing gap between what the farmers make and what consumers are charged for milk,” she said. “Given the political focus on milk prices in California right now, the supermarkets would do well to pass on the reduction, but [we] haven’t seen that in the past.”
At least one Southland grocer plans to pass the full price cut on to consumers.
“The moment the cost is reduced to us, it will be reflected in our retail price,” said Jack Brown, president of San Bernardino-based Stater Bros. “I would think that most of the major chains will lower their price, but I don’t know how much.”
Representatives of Albertson’s, Ralphs and Vons couldn’t be reached for comment. Dave Heylen of the California Grocers Assn., a Sacramento trade group that represents the state’s grocery chains, declined comment on how grocers would react. But he noted that a recent study by UC Davis agricultural economics professor Hoy F. Carman shows that retail prices track changes on the dairy level.
However, that study also shows that retailers pass on a portion of the changes to consumers and that they are quicker to raise prices than lower them.
The California Department of Food and Agriculture adjusts the minimum farm price for fluid milk products every two months using economic pricing formulas. The latest farm milk reduction of 50 cents a gallon to $1.21 a gallon is effective for April and May. It results from sharp decreases in the price of dairy commodities, such as cheese. It is also based on the fact that California milk production has recovered after a decline last year due to the effects of El Nino.
“The cows were stressed by the higher humidity and didn’t produce as much,” Odabashian said. “But now supplies are back up and they’ve lowered prices.”
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Milk Prices
The price that Southern California dairy farmers charge for milk, compared with the average retail price in Los Angeles:
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Retail price: Jan. 4: $3.18
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Farmer price: April/May: $1.21
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Source: AC Nielsen
