Retail price caps for milk possible

October 17, 2008
By Dan McLean
Burlington Free Press Staff Writer
Article Here

MONTPELIER -- A government commission might decide to impose price caps on milk sold in Vermont to counteract a side effect of a surcharge designed to bolster the state's dairy farmers.

The Vermont Milk Commission, which has broad regulatory power, met in Montpelier on Thursday to consider a "premium," or a surcharge, that would be paid by milk bottlers to help fund Vermont's dairy farmers. Commission members discussed the possibility of implementing milk price caps to prevent retailers from passing the surcharge along to consumers.

Under its initial proposal, the commission estimated the surcharge to be 39 cents per gallon for 2009. The surcharge, referred to as a "retail fluid milk premium," is determined by establishing a fixed rate the bottlers would pay. The rate will be adjusted from what was originally proposed, said Roger Allbee, the commission's chairman and state secretary of agriculture.

The milk surcharge would be applied to all milk sold in Vermont and would generate about $5 million a year. That money would be spread among 850 dairy farms, giving each farm $5,900 per year, the proposed order said. The state's roughly 200 organic dairy farms would be exempt from the program.

During Thursday's meeting, the commission's special counsel, Daniel Smith, cited the section of law making clear the Milk Commission "has authority to set a retail cap."

Jim Harrison, president of the Vermont Grocers' Association, called the potential milk price caps "an unwarranted intrusion into private enterprise" and an "unprecedented use of price control for one particular commodity."

The Vermont Milk Commission has scheduled a Nov. 18 hearing to consider how much the surcharge should be -- and to weigh the merits of price caps. The commission plans to make its ruling Dec. 8.

"A consumer can shop with their feet every day of the week. We encourage that," Harrison said, referring to the competition between local markets.

Supermarkets, Harrison said, "cannot afford to absorb increases in cost" and will be forced to pass along price increases to consumers. The Vermont Grocers' Association represents 675 stores in Vermont.

"We can't just have our costs go up and be expected to absorb it," said Harrison, who attended the meeting. "To be expected to take it on the chin is little bit unrealistic."

Price caps for milk must be considered, Allbee said, because "we don't want to create a system that is unfair to consumers" in the process of aiding dairy farmers.

The dairy farmers need the aid, he said, because state government's resources are tapped out and dairy farmers will face hardships as milk prices drop. "The government doesn't have any money to put in anymore," he said.

Large supermarkets have had a widening profit margin on milk during the past year, Allbee said. "The farmer price was dropping and retail price was increasing," he said.

Chain supermarket's margin on milk sales "reflects substantial surplus profit," the proposed order said.

"Making your partners in the food business out to be villains and a scapegoat is not a productive use of the commission's time and money and does nothing to move together in a productive fashion," Harrison wrote in testimony submitted to the commission.

Price caps aren't ideal, Allbee said.

The Milk Commission is "not eager" to intervene in how private businesses price goods, he said, but there is "such a big price disparity between what producers get paid and what consumers get charged."

According to the Vermont Grocers' Association survey of a portion of its members, a gallon of 2 percent milk cost $3.38 and sold at retail for $4.09 and a gallon of 1 percent milk cost $3.32 and retailed for $4.21.

Allbee said supermarkets should be permitted to earn "an appropriate margin." He said the upcoming hearing would, in part, seek to determine what that level is. The goal, he said, is create "equitable treatment both for the farmer as well as the consumer."

"How can that wealth be shared in a better way?" Allbee said, referring to the different sectors involved in packaging and selling a gallon of milk.

"The consumers have always been the farmers' best friend, and we don't want to forget them as the process moves forward," said Sen. Bob Starr, D-Essex/Orleans, a commission member.

Regulation is nothing new in the dairy industry.

"Milk pricing is highly regulated and highly complex. ... It's not a free market, never has been," Allbee said.