If the price that dairy farmers receive for milk drops, then the retail price that consumers pay should go down about the same amount, right?
Not in 1990, according to a study by the U.S. General Accounting Office - an investigative arm of Congress.For example, during 1990 in the Salt Lake area, the study said, the average price farmers received for milk decreased 36 cents a gallon, or 25 percent. But average retail prices in stores fell only 11 cents a gallon, or 4 percent.
But that was better than milk prices nationally, where the retail price of milk actually increased slightly despite sharp drops in the price farmers received.
That cheesed off Sen. Patrick Leahy, chairman of the Senate Agriculture Committee, who suspected that greedy middlemen may be milking consumers. He asked the GAO to investigate the milk price situation and reasons behind it.
While it showed that milk-price drops at the farm level did not bring retail price decreases in 1990, the average retail prices in 1991 finally did start dropping. In fact in the Salt Lake area, retail milk prices then plummeted - and Utahns enjoyed the lowest-priced milk of 27 major urban areas surveyed.
The GAO said it had insufficient data to know why farm-level changes were not comensurate to retail changes - but said higher-than-expected retail prices nationally may be related to higher labor, packaging and energy costs for middlemen and retailers.
The GAO said that in 1990 in the Salt Lake area, the average farm-level price for milk decreased from $1.44 a gallon in January to $1.08 in December. The average retail price decreased from $2.49 to $2.38.
It figured the average mark-up in the Salt Lake area from farm-level to retail prices in 1990 was $1.12 a gallon - the highest ever. In comparison, the average mark-up was 93 cents in 1989 and 85 cents in 1988.
During the first five months of this year, the study said, Salt Lake area farm-level milk prices dropped to $1.04. Retail level prices plummeted to $1.95 - finally catching up to and passing the per gallon decreases in farm-level prices.
From January 1990 to May 1991, retail prices fell 54 cents a gallon while farm-level prices fell 44 cents. Salt Lake was one of only a few areas nationally where retail prices dropped more than farm-level prices.
The GAO also figured that in May 1991, the Salt Lake area tied with Louisville, Ky., for the lowest retail milk price - $1.95 a gallon - among 27 major urban areas surveyed monthly by the Agricultural Department. In comparison in January 1991, Salt Lake City had only the 10th-lowest-priced retail milk.
In May 1991, Salt Lake also had the second-lowest farm-level price - $1.04 a gallon - behind only Minneapolis.
The Economic Research Service of the Agriculture Department said one reason for higher farm-to-retail spreads in 1990 were higher costs for energy, labor and packaging for middlemen.
It added that it probably reflects the instability of markets created by record-high farm milk prices early in the year, low stocks of cheese and strong demand that result in a nearly 3 percent increase in commercial use of all dairy products.