April 15, 2004
By Bruce Mohl, Globe Staff

This summer is shaping up to be a dairy disaster, with consumers being forced to pay more for everything from a glass of milk to an ice cream cone.

A tightening national milk market is having a ripple effect throughout the dairy industry, driving retail prices for butter and cheese to record levels. Raw milk prices are expected to jump as much as 50 cents a gallon over the next two months in Massachusetts, pushing retail prices, already at $3.19 a gallon, to what could be record highs.

Ice cream parlors and manufacturers are getting pounded the hardest. Not only are they facing steep price increases for milk and cream, but the cost of vanilla and cocoa has also soared.

Vince Petryk, the owner and founder of J.P. Licks, said he worries that impending price increases could be a product killer for ice cream. ``The perception with ice cream is that it's supposed to be cheap,'' he said. ``Most customers think $3 is too much to pay for an ice cream cone already.''

Still, Petryk said he would have to raise the price of his small five-ounce cone by 10 percent, from $2.95 to $3.25.

Tim Hopkins, vice president and general manager of the retail division at Friendly's Ice Cream in Wilbraham, said ice cream manufacturers have had to choose between raising prices or shifting to less costly ingredients. He said Friendly's and most of the other premium ice cream makers have chosen to raise prices by about 14 percent, on average.

The timing of the higher dairy prices this year is unusual, because spring is typically when milk supplies are the most plentiful and when prices are the lowest.

But this year a number of factors have combined to reduce milk supplies and drive up prices, which has been good news for dairy farmers who have struggled with low prices and the high cost of feed the last two years.

Federal regulators who set the farm price of milk say that production so far this year has been almost flat, up 0.2 percent through February, while demand has remained fairly strong. Dairy cooperatives across the nation have tried to keep prices high by voluntarily paying their members to take more than 30,000 cows out of production. Also, the artificial growth hormone that induces a third of the nation's dairy herds to produce more milk is in short supply. Monsanto Corp. of St. Louis, which makes the growth hormone, began rationing the product last month after federal regulators uncovered quality control problems at an Austrian plant that produces it.

At the same time, milk imports are scarce, because supplies are tight internationally, in part because of a drought in Australia. Efforts to build up US herds have also been hurt by a ban on dairy cattle imports from Canada because of a case of mad cow disease discovered there last May.

When the price farmers are paid for their milk hit a 25-year low last spring, consumers didn't notice because retail prices didn't drop. In Massachusetts, retail milk prices haven't gone below $2.99 a gallon since October 1999.

But when the farm price staged a brief comeback last September, the major supermarket chains increased the price of their store-brand milk to $3.09 a gallon. The retail price held steady at that level for several months, even when the farm price subsided. Now farm or raw milk prices are on the rise again, jumping 15 cents this month, to $1.47 a gallon. They are expected to increase as much as 40 to 50 cents over the next two months.

Dairy processors such as Garelick Farms and H. P. Hood are the middlemen between dairy farmers and retailers, but industry officials say the processors operate on set profit margins and pass on to retailers any increase or decrease in the farm price.

Whether the retailers will pass along those increases to consumers is unclear. Stop & Shop has already increased the price of its store-brand milk to $3.19 a gallon. A company spokeswoman declined to say whether its retail milk prices will rise in tandem with the farm prices.

Terry Donilon, a spokesman for Shaw's, also declined to forecast what will happen with that chain's prices. "We will continue to monitor what our competitors do," he said. "We are committed to remaining competitive, understanding the fact that consumers are price conscious."

Some analysts say that supermarkets enjoy large profit margins on the sale of milk, as much as $1 a gallon.

Prices for cheese and butter have already reached record levels. William Gillmeister, an agricultural economist at the Massachusetts Department of Food and Agriculture, said prices of cheese and butter are hitting record highs on almost a daily basis on the Chicago Mercantile Exchange.

The price of cheese hit $2.20 a pound yesterday, he said, and the price of butter reached $2.31 a pound, more than double what it was eight months ago. "These are phenomenally high cheese prices, and butter prices are equally strong," he said.

Bruce Mohl can be reached at mohl@globe.com.
© Copyright 2004 Globe Newspaper Company.

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