The current conventional wisdom is that food retailers are skimming more and more margin from milk prices. The reality, however, is that as milk prices rise on the farm, there has been a near one-to-one increase in retail prices over the past three years.
Research by Esther Washburn and Andy Novakovic at Cornell University shows farm and retail milk prices have both increased 90¢/gallon from the low point in 2006 to the high points of 2007.
And the share of the consumer dollar received by dairy producers has actually increased with rising prices. In 2006, the “farm share” of the retail milk price was 38%. In 2007, that had climbed to 55%.
“Although the timing of price changes is not contemporaneous, this change at retail more or less mirrors the cost of raw milk for fluid processors,” say Washburn and Novakovic.
And while farm prices shot up 80% in this period, retail prices climbed 30%. “In other words, the retail price moved up to reflect the big increase in raw [milk] input costs, but other costs didn’t increase proportionately,” they say.
Washburn and Novakovic did find that milk prices in major Northeastern cities such as New York and Philadelphia tend to be higher (with higher marketing margins) than secondary cities such as Syracuse, N.Y. For the full report, go to: http://www.cpdmp.cornell.edu/
