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Study Finds Widening Gap in Milk Prices

Food: A consumer group sees a bigger rise in how much Southland retailers charge than in what dairy farmers get paid.


The gap between what farmers are paid for their milk and what Southern California retailers charge customers is widening, according to a survey released Tuesday by Consumers Union, the publisher of Consumer Reports magazine.

The report found that supermarket milk prices in the region have risen 12 to 16 cents a gallon since May 1997, whereas the farm price has increased 7 cents during that period.

"Retailers use any increase in the farm price as an excuse to raise the retail price of milk even higher than the farm price increase, and then often fail to pass on to consumers their full savings when the farm price goes down," said Elisa Odabashian, a policy analyst at the San Francisco-based organization and the study's author. This practice by retailers, particularly big supermarkets, tends to widen the price gap, she added.

Supermarkets in the region generally charge among the highest prices for milk--$3.71 to $3.74 for a gallon of whole milk--whereas many neighborhood mom-and-pop stores charge considerably less--as much as $1.36 per gallon, or 57%, less. Two previous surveys by the group, in October 1996 and June 1997, had also drawn the conclusion that shoppers could often do better on milk at the corner convenience store.

Consumers Union analyzed milk prices in 73 food markets in Central and West Los Angeles, the San Fernando Valley and Orange County from May 26 through May 29. It conducted a limited follow-up survey on July 6, after a 12-cent drop in the price paid to dairy farmers.

Economists and retailers, as they have in the past, cautioned that the survey is limited in scope and does not reflect the complexities of dairy pricing and marketing.

Dairy prices in California are determined by the state Department of Food and Agriculture under a complex formula. For four years, California has led the nation in milk production, accounting for 17.6% of the supply in 1997.

"Every week [most big] retailers put some form of milk on sale," said Dave Heylen, a spokesman for the California Grocers Assn., a Sacramento trade group that represents chains and independents. "Consumers have to gauge where to make purchases. Chances are their overall bill will be lower in a supermarket than in a convenience store."

Because "there is no good, reasonably priced, nutritional alternative to milk," Odabashian said, any extra money spent on milk will mean less available to buy other food items.

Consumers Union's first survey of Los Angeles-area milk prices prompted state Atty. Gen. Dan Lungren to launch an investigation of supermarket practices. A year ago, he concluded that major chains had not conspired to fix milk prices.

Even so, Consumers Union in its latest survey reiterated that Ralphs and Hughes (both owned by Food 4 Less), Vons and Lucky charge the same or nearly the same price for milk. That uniformity, the report said, indicated a lack of competition.

Milk prices at the big chains did not always represent the peak. In the San Fernando Valley, for example, Eagle Market in Sherman Oaks sold a gallon of whole milk for $3.89, whereas a Ralphs in Reseda charged $3.74 and a Vons in Woodland Hills charged $3.71.

On June 1, the farm price dropped by 12 cents a gallon in Southern California. In early July, Consumers Union returned to 11 supermarkets to determine whether savings were being passed on to consumers. Ralphs, which in May had the highest milk prices among the region's supermarkets at $3.74, had lowered the price by the full 12 cents. Vons and Lucky passed on 9 cents of the saving to customers.

There's no question that the price chasm is widening. "It has been widening for about 50 years now," said Bees Butler, a UC Davis professor of agricultural economics. "It simply [reflects] the supply and demand for services in the marketing system." Processing, packaging and advertising all add to the cost after milk leaves the farm, he said.

Hoy Carman, also a UC Davis professor, said he recently studied dairy pricing in Los Angeles, the Bay Area and Sacramento and found that retail and farm prices move up and down together. However, he noted, "they increased faster than they decreased."

In Los Angeles, more than in the other markets, retailers attempted to maintain some stability in prices.

Lucky spokeswoman Judy Decker said customers know good value. Seventy percent of Lucky's fluid-milk sales are in a two-gallon "Max Pak," now priced at $4.43.

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