Los Angeles Times 
Thursday, September 25, 1997

Milk Prices to Rise; Southland to Be Hit Hardest
By CARL INGRAM, Times Staff Writer

   [S] ACRAMENTO--Got milk? Starting Wednesday, it will cost Californians an extra 17 cents a gallon to get it, and most Southern California consumers will pay even more.
   How much more is in dispute, but estimates range from an extra 2 or 3 cents to as high as 27 cents.
   The 17-cent price increase, approved by state regulators last month, will hit Oct. 1 and reflects the added cost dairy farmers can charge processors for raw milk. The hike is the largest single increase in state milk prices in more than two years. The closest was a 12-cent-a-gallon boost in August 1996.
   State officials say all California milk buyers will see the increase reflected at the grocery checkout stand. But in Southern California, an extra rise in price on top of the state-approved increase will occur about two weeks later. This is because the dairies that provide 90% of the region's milk will levy additional fees on processors who buy and bottle milk, typically major supermarket chains.
   The California Dairy Institute, which represents processors, said the "surcharge" imposed by the dairy farmers could add 6% to 10% to the cost of a gallon, or 16 to 27 cents in the Los Angeles Basin.
   But the dairy farmers, represented by the newly organized Southern California Milk Marketing Assn., accused the processors of "fear mongering." They contend that their surcharge--which has yet to be firmly established--will increase the price only 2 or 3 cents a gallon.
   A random survey Wednesday of independent stores and major supermarket chains in the Southland found milk prices ranging from $1.99 to $3.43 a gallon. Because the California milk market is so volatile and marketing influences are so varied, state officials say no one can predict precisely how the new costs of this intra-industry fight will fully play out for the consumer.
   But David Ikari, chief milk regulator at the state Department of Food and Agriculture, said it is the consumer who will pick up the tab.
   "The farmers and the processors are pointing fingers at each other, but the consumer has to pay the final price," he said. "It doesn't make any difference to the consumer who created it, only that the prices are higher."
   Historically at the retail level, Ikari said, "California [milk] prices are among the lowest in the nation," even though its standards for calcium and other minerals often are higher.
   Passage A: The squabble between the farmers and the processors also reflects another twist in the roller coaster course of milk prices in California, where state government sets the minimum that farmers can charge processors. Wholesale and retail prices are not controlled.
   In this dispute, the latest of many long-running fights, dairy farmers are angry that the average amounts they receive for milk have tumbled during the past nine months when measured as a percentage of average retail prices.
   "We have seen the average price that the producer receives for his milk fall steadily since January, but the average retail price has not reacted accordingly," said Jimmie Prince, chief executive officer of the milk marketing group, a cooperative of major dairies.
   But Rachael Kaldor, executive director of the processors' Dairy Institute, said the dairy "surcharges" on top of the state-approved price increase are unnecessary.
   "It is especially hard to understand the need for an additional increase in price when milk production and supply already is at an all-time high," she said, adding that it will be "impossible" for processors to absorb the increase. As a result, she said, processors "will pass on those increases [to consumers]."
   Passage B: The agriculture department, which examines milk prices every two months, granted the 17-cent state increase because dairy farmers faced "critical" higher costs to feed their cows. These expenses constituted more than half the cost of producing the milk, the department said.
   But dairy farmers in Southern California say they need to charge even more to cover higher costs here that are not reflected in the state's price-setting formulas.
   Prince of the milk marketing group said the extra charges to processors are necessary to cover various higher production costs, including quality assurance and certain testing programs.
   Kaldor of the Dairy Institute predicted that the extra cost of the farmers' surcharges would range from 16 cents to 27 cents a gallon in the Los Angeles area.
   But Prince countered that such a severe increase was "basically untrue" and amounted to "fear mongering." He said the processors could absorb the extra dairy charges and that any additional costs to consumers would total only pennies.
   "The increase is slightly less than 3 cents a gallon," he said.
   Currently, the statewide average minimum price that farmers can charge for various classes of milk is $1.10 a gallon. The minimum price hit a record high of $1.54 in December and January and has fallen ever since.
   Passage C: Kaldor also accused the milk marketing group of being "predatory" for taking steps to lock up its market by paying Arizona dairies to keep their milk out of Southern California.
   She conceded that it is legal for the marketing association, which represents five dairy cooperatives, to contract with United Dairymen of Arizona to withhold their milk. But she asserted that it was done to "protect [the association's] monopoly on the milk supply and the inflated prices."
   Prince confirmed that such an agreement had been signed, but would not disclose how much was paid to the Arizona organization. He said the Arizona dairies would keep "a reserve milk supply to be held for emergency use" such as an onslaught of hot weather.
   "It's purely a reserve supply so that we can guarantee a supply of milk to our Southern California processors," Prince said.
   Public policy in California considers milk a food commodity that is vital to good nutrition and public health. The law recognizes that a stable supply of milk, based on the laws of supply and demand along with some regulatory guidance, is in the best interests of citizens, said Ikari, chief of the agriculture department's dairy marketing and milk pooling branch.
   Every two months, Ikari and his economists and analysts determine whether minimum prices will remain the same or be changed, based on formulas that weigh economic factors both in California and throughout the country.
   He said prices paid to dairy farmers in California are lower than those paid in Florida and some Eastern states. But at one point last year, it was determined that the California prices were slightly higher than those paid to dairies of nearby states, and they were subsequently lowered.