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Stores blamed for rise in milk prices

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WASHINGTON — A new study by Congress suggests Utahns shouldn't blame dairy farmers for higher milk prices in recent years.

They should eye instead Utah retail stores that doubled their mark-up on milk between 1998 and 2000, and milk processors who also hiked their share. That helped raise the average cost of a gallon of 2 percent milk in Utah from $2.17 to $2.47 in that time.

Meanwhile, average prices received in those years by Utah dairy farmers actually fell 4 cents a gallon, and prices received by Utah cooperatives fell 1 cent a gallon.

That's according to a study Congress ordered to help it make sense of a puzzle: why retail milk prices have continued to climb nationally even though prices paid to dairy farmers are so low that Congress gave them $635 million in emergency assistance.

The U.S. General Accounting Office, a research arm of Congress, looked in-depth at milk prices and distribution in 15 cities — including Salt Lake City — to seek an answer.

It concluded that no one simple reason exists. It said prices vary widely nationally according to local supply-and-demand issues at each step of the milk distribution chain.

In short, while farm prices are low, increases by processors or stores kept raising the final milk price.

For example from 1998 to 2000, milk prices received by dairy farmers and co-ops in Salt Lake City were the lowest among the 15 cities studied — but retail prices paid by Salt Lake customers at retail stores were only the fourth lowest.

Prices that farmers received dropped from 97 cents a gallon in 1998 to 93 cents in 2000 — meaning farmers received exactly the same amount per gallon in 2000 as milk processors. Co-op mark-ups dropped from 11 cents a gallon in 1998 to 10 cents in 2000.

Meanwhile, the average mark-up by Salt Lake retailers nearly doubled from 23 cents a gallon in 1998 to 45 cents a gallon in 2000. That overall mark-up was still lower than average among the 15 cities (sixth lowest among them).

Also, the mark-up by Salt Lake milk processors increased 17 cents a gallon in that time — from 76 cents in 1998 to 93 cents in 2000. Their mark-up was the sixth highest among the 15 cities studied.

On average for the entire 1998-2000 period, the GAO said Salt Lake City farmers received 43 percent of the price of a gallon of milk; co-ops received 4 percent; processors received 36 percent; and retailers received 16 percent.

That is near the averages for the 15 markets studied. They were 43 percent for farmers; 5 percent for co-ops; 33 percent for wholesalers; and 19 percent for retailers.

Besides local supply-and-demand issues — like local "price wars" in Dallas, where retailers actually took losses on milk each year to attract customers — the GAO questioned whether "consolidation" of grocery store chains and milk processors nationally may be decreasing competition and raising prices.

It noted that two of the largest food retailing combinations in history were announced in 1998 — acquisition of sixth-ranked Fred Meyer by top-ranked Kroger, and the merger of fourth-ranked Albertson's with second-ranked American Stores.

E-mail: lee@desnews.com