Congressional Watchdog Agency Issues Dairy Pricing Report: Farm-To-Retail Price Spread Continues To Widen

April 13, 1998

The U.S. General Accounting Office (GAO) has concluded the first of a two-part study of dairy pricing which shows that the farm-to-retail price spread continues to expand and that the retail cost of milk is nearly twice what farmers receive -- a mark-up far surpassing virtually every other product in the grocery store.

In August 1997, Vermont Senators Patrick Leahy and Jim Jeffords requested that GAO update its comprehensive 1991 study of dairy pricing. GAO’s new report -- which the Vermont Senators released today, Monday -- adds new evidence to what Leahy and Jeffords have argued for many years -- that dairy farmers are not profiting from escalating retail dairy prices.

GAO’s analysis shows:

• That the retail price of a gallon of milk is nearly double the portion farmers earn from that gallon of milk, a markup that has expanded in recent years (see attached chart).
• There are dramatic differences in the farm-to-retail price spread (the difference between the average retail price of milk and what farmers receive for that gallon) across the country, from a low of $0.51 per gallon in Cincinnati to a high of $1.97 per gallon in Seattle.
• The average price spread has also grown since 1991 from $1.12 then to $1.30 in 1997. [NOTE: earlier research by Cornell University Professor Andrew Novakovic shows that the dairy case is the most profitable part of a supermarket. The product profitability of fluid milk is $16.46 per square foot, while regular grocer items return only $2.32 per square foot.]
• That the retail price index for whole milk increased by 13.7 percent while the farm price index for fluid milk grew by only 1.6 percent.