Ice Cream Sales Melt as Prices Rise

Just when you really, really want an ice cream cone, the price is rising. But it’s not summertime gouging by producers.

The cost of milk fat, the principal ingredient in ice cream, jumped 71% during the last six months to $2.22 per pound at the end of June. The industry blames a new government pricing system, whereas U.S. Department of Agriculture officials point to a seasonal slowdown in milk production.

Retail prices are up 4% from last year, manufacturers say, triggering a 3% drop in consumption.

Dreyer’s Grand Ice Cream Inc. reported a $4.9-million loss in the first quarter, despite a 13% boost in sales. William Oldenburg, vice president of operations for Oakland-based Dreyer’s, blamed higher production costs stemming directly from milk-fat prices.

A new milk pricing system, adopted in a 1996 farm bill, went into effect in January 2000. It was designed to bring uniformity to covenants that determine how much dairy farmers earn. In the process, the government tied the cost of milk fat to the price of butter, which has nearly doubled since then on increased demand.

But at the same time demand was surging, the new rules also created three price classes for milk fat.

Agriculture Department officials say there are other factors at work.

“What you’re seeing is dairy supplies are down, compared to last year, and demand is up,” said USDA spokesman Jerry Redding. “Across the board, dairy prices are very high. It’s strictly supply and demand.”