Food Costs Increase and the Smoke and Mirrors of rbST-Free Milk Marketing Rolls On

Terry Etherton

The latest American Farm Bureau Federation (AFBF) Marketbasket Survey was released in July, 2007. The informal survey shows the total cost of 16 basic grocery items in the second quarter of 2007 was $42.95, up about 4 percent or $1.61 from the first quarter of 2007. A total of 82 volunteer shoppers in 32 states participated in the latest survey, conducted during May. Of the 16 items surveyed, 14 increased, one decreased and one stayed the same in average price compared to the 2007 first-quarter survey. Compared to one year ago, the overall cost for the marketbasket items showed an increase of about 8 percent. Regular whole milk showed the largest quarter-to-quarter price increase, up 34 cents to $3.46 per gallon.

As retail grocery prices have gradually increased, the share of the average food dollar that America’s farm and ranch families receive continues to decrease. “In the mid-1970s, farmers received about one-third of consumer retail food expenditures on average. That figure has decreased steadily over time and is now just 22 percent according to Agriculture Department statistics,” AFBF Economist Jim Sartwelle said. AFBF, the nation’s largest general farm organization, conducts its informal quarterly marketbasket survey as a tool to reflect retail food price trends. According to USDA statistics, Americans spend just under 10 percent of their disposable income on food annually, the lowest average of any country in the world.

Milk Price Trends

The most recent Marketbasket Survey has begun to track the prices of conventional milk, rbST-free milk, and organic milk.

No surprises here – rbST-free and organic cost a whole lot more! More of the old “smoke and mirrors” marketing campaign of charging a whole lot more money for nothing. As readers of my Blog know there are no compositional differences within a fat category among conventional, rbST-free and organic milks.

For the second quarter of 2007, shoppers found the average price for a half-gallon of regular whole milk to be $2.22. The average price for one gallon of regular whole milk was $3.46. Comparing per-quart prices, the retail price for whole milk sold in gallon containers was 28 percent lower compared to half-gallon containers, a typical volume discount long employed by retailers.

The average price for a half-gallon of rBST-free milk was $3.01, 36 percent higher than a half-gallon of regular milk. The average price for a half-gallon of organic milk was $3.65, 64 percent higher than a half-gallon of regular milk.

These data agree with my own observations. I was in Minneapolis, MN the week of July 22, 2007 and did an informal survey of milk prices in several different grocery store chains. Interestingly, the differential between conventional and rbST-free was the same for the different chains – the rbST-free cost $1 a gallon more compared to conventional milk! Wonder how these stores got the same markup? That is fodder for another blog.

More Smoke and Mirrors

As readers of my Blog appreciate, attempts to differentiate food based on technologies and management practices used in production when no differences exist, is misleading and creates confusion for consumers. In the rbST-free milk battle, rbST-free milk price is much higher yet farmers get, at best, pennies on the dollars. Net result? The folks “upstream” from the farmer, i.e., processors and retailers, are making a whole LOT of money in this deal! I will write more about this in the future.

To illustrate the dysfunction in the dairy industry a recent “proposal” was shared with me from the Mountain Area Council of Dairy Farmer of America (DFA). DFA is the nation’s largest producer-owned dairy marketing cooperative and food company. DFA markets more than 61.7 billion pounds of milk (total U.S. production is over 180 billion pounds) collected from over 19,100 dairy producers. The proverbial “800 pound” gorilla in the dairy cooperative world!

According to a copy of a letter I received written by Les Hardesty, Chairman, and Gregory Yando, Chief Operating Officer of the Mountain Area Council of DFA, the Mountain Area Council proposes to pay a premium of 50 cents/hundredweight of milk to farmers who don’t use rbST. This premium is being offered even though processors/retailers in that region of the country are apparently only willing to pay 35 cents/hundredweight more for rbST-free milk!!

The story shared with me gets even more bizarre. Since the processors/retailers are refusing to pay the differential between 50 cents and 35 cents (i.e., 15 cents/hundredweight) for rbST-free milk, the Mountain Area Council needs to cash flow the premium they are supposedly proposing. The working idea is that producers who use rbST will be charged an additional 15 cents/hundredweight for their milk…with the proceeds going to cash flow the premium for non-users. What a deal! Not a great way to build goodwill among dairy producers who use one of the best and safest animal biotechnologies approved by the Food and Drug Administration. It will be interesting to track this story to see what actually plays out.

A key take-home message is that in the current $20 milk market, a fair premium for NOT using rbST is about $1.47! Thus, the 50 cent premium is far short of fairly and fully compensating producers to give up using rbST. Not a surprise given that a key part of this “stealing your milk money” marketing campaign is to financially exploit dairy farmers…helps grow the margin at retail.

My encouragement is that dairy producers of America who care about maintaining their choice of using technologies and farming practices they deem appropriate step up to the plate and defend their businesses. If not, we will continue to witness more assaults on the use of other biotechnologies, technologies and farming practices by America’s farmers.

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