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Buy Milk?

by   SUSAN WOOD

photos by  KEVIN FOX

(Photo of cows feeding)MANY PEOPLE DO. And when they do or even when they don't, the economic, political and physiological milk machine in the top-producing state in the nation often churns like a contented cow.

At odds in California are two heavily funded coalitions sparring over two pieces of pending state legislation that relate to milk's nutritional value and retail prices, deemed among the highest in the nation.

Before one can cry ulcer, relief appears in sight for what dairy insiders call this anything-but-black-and-white matter.

The milk price paid to dairy farmers is plummeting 50 cents a gallon to $1.71 come April 1.

No fooling, Jim Tillison of the Alliance of Western Milk Producers said two weeks ago. This insider knowledge from the executive director of the Sacramento-based dairy industry group was confirmed a week later by the California Department of Food and Agriculture's announcement.

By law, the state department controls dairy farm prices and adjusts them every two months to reflect market conditions. This is a point of contention among critics, including one San Francisco Bay area lawmaker who objects to a regulatory practice that "fosters a protectionist atmosphere" and ultimately leads to high retail prices.

But like several dairy industry advocates, CDFG spokeswoman Myrlys Williams argues the cows and the consumers tend to drive the complicated pricing formula. When the milk supply goes up, prices go down, Williams stressed. CDFG does not control the state's retail prices.

Local retailers, including Safeway Food and Drug, Ray's Food Place and Murphy's Markets, have pledged to pass on the record drop in the farm price to consumers. How much of the savings will turn up on the jug and carton is unknown.

The average retail price of a gallon of milk ranges in region, source, type of milk and store.

As for one of the local biggies Ray's currently sells low-fat milk for $2.95, non-fat for $2.66 and whole milk for $2.99. At the smaller Westwood Market in Arcata, consumers can buy non-fat milk for $2.89 a gallon along with low-fat and whole milk for $3.09.

South to San Francisco, the average retail price for a gallon of whole milk goes for $3.13, according to data released from the U.S. Bureau of Labor Statistics. The federal department reports that since August, retail milk prices have soared from $2.61 a gallon in San Francisco to $3.13 in January. It's this leap that has caused a stir.

State Sen. Jackie Speier, D-Daly City, introduced a bill in mid-February that seeks to repeal the 30-year-old law prohibiting retailers from selling milk below cost.

The proposed legislation takes aim at the government's pricing structure. The bill is intended to attract grocer competition and more shoppers, namely those who may have strayed when the prices went up.

(Photo of farmer attaching milking machine to cow)"It is fundamentally un-American to have a product as essential to child and adult nutrition as milk as the only price-fixed food staple in the grocery basket," the senator said in a statement.

The recent record drop in the farm price doesn't change the senator's strategy, she said from her car phone Thursday, adding prices typically go down in April. Speier's looking for more of a permanent fix, and she's skeptical of the rosy picture because of what she's observed.

"Retailers don't completely pass along the drops to consumers," she said.

But retail managers like Jim Gupton of Murphy's argues his store not only passes along the price drops to consumers, it by and large sells milk at the slimmest margins already. If anything, his customers usually notice when milk prices are high and tell him about it, he added.

The opinions run the gamut as to whether consumers even notice milk prices and, if so, do they shop around for the best bargains.

Arcata resident Mary Stewart, walking across a Safeway parking lot, said she "wouldn't go out of her way" to get the best price on milk, but she definitely pays attention to the prices.

The same goes for shoppers Doug and Doris Nitsch of Sunnybrae, who were also coming out of the Safeway in Arcata one morning. The two have noticed their low-fat milk rise in price recently to $3.09 a gallon.

"That's quite a bit," he said. Still, the couple want the dairy farmers to make a comfortable living because they're from Nebraska, the other "farm country." Dairy farming is considered one of the top industries in Humboldt County.

Fearing the record farm price drop would hurt dairy farmers, the U.S. Department of Agriculture announced this week a $200 million program aimed at providing assistance to family-sized dairy operations.

"Smaller dairy farmers are already being hurt by conditions beyond their control," U.S.D.A. Secretary Dan Glickman said in a statement. "More declines in the price of milk will put many of them in serious financial difficulties."

Farmers may apply at their local U.S.D.A. Farm Service Agency office from April 12 to May 21.

From dairy farmers and processors to retailers, those who oppose Speier's bill claim it will probably hurt small retailers who cannot afford to promote milk as a loss leader. The smaller stores may also lose out if they cannot buy the bulk needed to keep up with increased demand, opponents say.

That's especially true for Fieldbrook General Store owner Bill Daley, who's against the Speier bill. It's already "hard to compete" with the majors, he said. Daley relies on customers on the run, not necessarily the die-hard bargain hunters.

(Chart of Milk Prices No. Ca. vs. Pac. NW)He knows his prices are higher than many grocers. Whether whole, low or non-fat milk, Daley's prices all settle in at about $3.09 a gallon. That's the nature of the general store, he said.

In contrast, Costco Wholesale sells the white stuff in the two-gallon package for $2.60 a gallon for whole milk. Low-fat drops to $2.50, while non-fat is even lower at $2.15.

"We'll hear people say they're going to Waremart, and we kind of cringe," Daley said.

"Economic issues always seem to be tough in Humboldt County," said Ralph Giannini of Humboldt Creamery. The creamery is the only class 1 processor in the county.

As the sales manager, Giannini fears what Speier's bill might do to his small accounts in the 90 locations he juggles. Giannini said he's holding his breath because he's seen retailers already shrinking their margins, but he's happy about the significant price drop.

"That's what the grocers were waiting for. They have to face their customers," he said.

To dairy trade groups, there's a clear reason for the wild ride in milk prices on market shelves this past year.

The culprit's effect may be two-fold, but it goes by one name El Niño.

The tropical weather phenomenon that brought an unusually wet winter to California apparently slowed milk production and affected the cows' feed.

"It is a commodity that's weather related," legislative analyst Rachel Kaldor said. Kaldor represents the Dairy Institute, another dairy trade group based in Sacramento.

The cows weren't eating right and breeding right and therefore not producing right, she said. The seasonal effects were "devastating" to the industry, lasting long after winter, she said. In late spring to early summer, the heat was near unbearable for the cows of the central valley where the majority of California's milk is produced, she said.

In Arcata, mid-sized dairy farmer John Mason admitted his cows, numbering 125, experienced a "rough winter" last season. Some months brought record rainfall here.

South to Ferndale, Jim Regli estimated a 10 percent drop in the amount of milk his cows put out on his dairy farm.

"El Niño it created a difficult year last year," he said.

Regli is personally supportive of the Speier bill, hopeful it will "move more milk," he said. But another Ferndale dairy farmer said he's against the bill.

"As much as everybody wants to see the price of milk go down, it's probably going to squeeze the small grocer," Dennis Leonardi said. He doesn't expect to be hurt by it, though.

Like many dairy farmers, Leonardi rolls with the punches. He's particularly awaiting the most sweeping changes in 20 years in the dairy business. Before the year is out, Leonardi expects the federal pricing structure will change dramatically based on what he's heard. And as with other products sold nationwide, the formula adjustment is anticipated to eventually catch up with California.

Leonardi has noticed his routinely "quiet industry" endure a lot of upheaval lately. His cows' production was also out of whack within the last year, stressed by weather changes.

"Once a dairy cow is stressed, whether it's cold or hot weather, the cow's physiology is stressed and it doesn't recover (right away)," Tillison said, echoing Kaldor's theory. "Cows don't breed in bad weather either."

Price changes thwarted by these conditions are delayed too, dairy industry experts say. The cheese market, another major dairy product, is usually a symptomatic signal of change that fluid milk prices are going to fluctuate.

As with milk's turbulent year from one winter to the next, Tillison calculated that California dairy producers have pumped out five million more gallons of milk from December 1998 to January 1999.

The whole weather theory strikes Mad About Milk spokeswoman Audrie Krause as nonsense. She accused the industry of milking consumers.

"They'll find something to blame no matter what," she said. Like Speier, Krause's Los Angeles-based advocacy group is trying to end the state's prohibition on below-cost retail sales of milk.

In a letter asking the Humboldt Taxpayers League to sign on its support, M.A.M. cites how California's "protectionist" policies have gripped the market to the point the state's consumers are paying the price. The league hasn't taken a position on the matter yet but may do so soon, committee Chair Bill Bertain said last week.

Like Speier, the Mad group with a lengthy list of supporters backing it questions why the state's consumers pay so much when California's the nation's leading producer.

Dairy industry advocates and government market analysts give a variety of explanations. Some, like U.S. Department of Agriculture adviser Richard Stillman, contend that all across the nation milk prices have been high. They're now correcting themselves because the producers ended up performing a familiar economic dance.

"By the time the farmers react to high prices, the supply goes up and prices go down," he said from his U.S.D.A. economic research office in Washington, D.C.

Stillman points to a survey conducted in November by the International Association of Milk Control Agencies. Out of about 25 cities surveyed, it shows the highest supermarket milk prices can be found in Honolulu, where the average teeters between $5.59 to $5.89 a gallon for skim, non-, low-fat and whole milk.

The lowest prices in the survey came from Augusta, Maine, for 1 percent low-fat milk at $1.98 a gallon; Omaha, Neb., at $1.85 for skim milk; and Madison, Wis., at $2.33 for whole milk.

Retailers are partly to blame for high milk prices in this state, Californians for Nutritious Milk spokesman Mike Boccadero said. His Sacramento-based coalition representing dairy farmers was formed to fight another bill pending in the state Senate that eases milk fortification standards and allows out-of-state milk producers to sell their product in California. It was introduced by Sen. Debra Bowen, D-Redondo Beach. Bowen's proposed legislation seeks to prompt lower milk prices by increasing competition in the state.

Currently, California has more stringent nutritional standards.

"Californian consumers are willing to pay a small price for having consistently higher quality," Boccadero said his industry has discovered. His coalition figured the increased value amounts to about a penny an 8-ounce glass or about 14 cents a gallon.

Locally, Humboldt County nutritionist Joyce Houston agrees.

"(California milk is) better for you," said Houston, who opposes Bowen's bill. "We're having enough trouble getting calcium into people."

Boccadero said the same thing. He estimates that, with the tougher standards, 6 percent more calcium goes into whole milk processed in California, between 20 and 33 percent more in low-fat milk and 9 percent more in skim milk.

But these numbers are subject to interpretation, Krause said. She said more solids, as in the calcium-fortified standards, are added to California milk because the state's dairy industry sees the process as a cash cow a way of producing more milk.

Krause said the California dairy industry "misrepresents the standards" because she claims they're just adding more fat.

Boccadero cries foul, asserting the reason why the Mad camp wants to overturn current law maintaining the stringent standards is because it represents a Phoenix, Ariz.-based milk processor that seeks to sell milk in California. He alleges Shamrock Foods, operating under the guises of the Mad camp, would like to devalue California nutritional standards.

Krause called the accusation a "flat-out lie," adding that Shamrock, though a sponsor, is only one in several of those supporting change in California milk legislation. She listed a host of senior groups, along with the United Dairymen of Arizona.

It's not the first time Arizona dairies have tried to infiltrate California markets, Tillison said. He cites a district court decision in January 1998 in which a judge ordered Shamrock to stop selling milk in San Diego because the milk didn't meet the state's standards.

Shamrock spokeswoman Ann Ocana confirmed the "distressing" decision, adding it's under appeal. She called the California dairy industry's claim its milk is more nutritional "a front for inflated prices." Her company wants to see more competition in the Pacific region's milk market.

"Californians should have the option to buy milk sold in the U.S.," Ocana said, emphasizing her processor's milk meets federal standards.

Before the court decision, Shamrock milk was sold in San Diego, one of the top two test markets in the nation.

The milk debate that spansCalifornia's borders has certainly turned into "a political football," Houston said.


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