Dairy Farmers Concerned About Farm-Retail Price Spread
KARL BERGER
Special Correspondent
WASHINGTON, DC As the
downturn in farm milk prices con
tinues, the hard times threaten to
drive a wedge between those who
make milk and those who market
it.
Consider; since the winter of
1990, milk checks have been
diminished by 25-30 percent.
The decrease almost $5 a
hundredweight translates into
roughly 20 cents a half-gallon.
Therefore, a simple accounting
would conclude that’s the amount
by which retail fluid milk prices
should have dropped as well.
But they haven’t, at least by the
amount, a fact that has not been
lost on hard-pressed dairy farmers.
They’re been grumbling for
months that retail dairy product
prices did not decline as their price
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plummeted. The farmers’ frustra
tion spilled over at a hearing last
month in Washington before the
Livestock, Dairy and Poultry Sub
committee of the House Agricul
tural Committee.
Testifying at that meeting, Jim
Barr, the chief executive of the
National Milk Producers Federa
tion, said that consumers have not
benefitted from low farm milk
prices. Ed Coughlin, another
National Milk official, said a cur
sory comparison using Bureau of
Labor statistics for January 1991
indicated only a 2.1-cent decrease
in average fluid milk prices at the
retail level over a one-year period
in which farm milk prices dropped
the equivalent of 18.3 cents a half
gallon.
And farmers in Wisconsin gar
nered headlines for noting that
retail cheese prices held firm and
Evenings
even increased in the latter half of
1990 while farm prices dropped
more than 20 percent.
The issue is not merely sour
grapes. Lower prices presumably
mean higher consumption and
sales figures were not good for the
dairy industry in 1990. In fact, the
“commercial disappearance” of
dairy products actually declined
2.5 percent in the final quarter of
the year and dropped one percent
compared to year-earlier levels
again in the first quarter of 1991,
according to Jim Fraher, an eco
nomist with Atlantic Dairy
Cooperative.
Nonetheless, the issue has
begun to fade from the dairy
industry’s agenda as retail prices
for various products have begun to
decline (Kraft General Foods, the
nation's largest cheese retailer,
recently announced a 17-cent
—--o
reduction in its wholesale cheese
price) and as agricultural econom
ics weigh in with evidence that
these pricing patterns are nothing
out of the ordinary.
Farmers tend to assume that
retail prices are a simple function
of adding x number of cents onto
processors’ raw milk costs. But
this simple theory ignores the fact
that retail costs are driven by a
complex mixture of factors,
according to Bob Yonkers, a Penn
State University economist Pro
cessors, he said, are often middle
men whose prices are limited by
competition and other factors.
Among the economists who tes
tified at the April hearing were
several from Texas A & M Uni
versity who have studied the rela
tionship between farm and retail
prices of milk from 1979 to 1989.
Their conclusion was that retail
prices do indeed change as farm
prices change, but it is not a one
to-one relationship. Rather, the
retail price goes up or down 38
cents as the farm price goes up or
down $l.
The relationship makes sense,
Yonkers said, when you consider
that the latest U.S. Department of
Agriculture statistics, for 1988,
indicate that dairymen receive 40
cents of every dollar made selling
dairy products to the consumer.
This farm-retail price spread had
grown (the farmers’ share of retail
income has shrunk) in recent years
as marketers have provided more
services in the form of packaging
and the like and as increased effi
ciencies on the farm have driven
down raw milk costs. The 40-per
cent share is an average figure; it
would be somewhat higher for
fluid products; somewhat less; for
manufactured ones, Yonkers said.