ICE CREAM PRICES MAY RISE AS BUTTER PRODUCTION SLIDES

BARBARA McDONALD

WASHINGTON -- Supermarket ice cream sales this summer may be affected by a national butter shortage.

Ice cream prices weren't affected through April, but for the 4-week period ended May 23, 1998, there was a 1.8% decrease in gallon volume in ice cream in supermarkets, as reported by ACNeilsen, said Susan Kjellqvist, market research manager for the International Ice Cream Association here.

"Decreases are very unusual. We have seen increases, usually, for the ice cream category," Kjellqvist said.

Nonetheless, supermarket retailers remain optimistic, given ice cream's popularity with consumers. Even though wholesale prices are going up about 20 to 30 cents per unit on half-gallon premium ice creams, Joe Hendrick, ice cream buyer for H.G. Hill Stores, Nashville, Tenn., is predicting that people will still buy it. He said H.G. Hill's ice cream prices won't go up until July 13, the first increase in Nashville since last winter.

"There will be some pretty hefty increases," he observed.

"People aren't buying the low-fat ice cream; they are buying butterfat, and they don't care what it costs," Hendrick added, pointing out that buying ice cream in the supermarket, even at higher prices, is still cheaper than going to an ice cream parlor.

"I think volume will hold up," he concluded.

Kjellqvist of IICA said that ice-cream prices will likely go even higher unless the government allows lower-duty imports of about 40 million pounds of butter.

The price per gallon of ice cream has gone up, said Kjellqvist. This year, average prices were $6.19 in April and $6.16 in May. By comparison, averages prices for April and May of last year were $5.98 and $6.01 per gallon, respectively. Moreover, ice cream was under $6 per gallon for the entire summer of 1997.

Last summer the U.S. Department of Agriculture allocated 34 million pounds of subsidized exports of butter, and "that's about the same amount that we're now short," said Susan Ruland, vice president of communications for the IICA.

"It's hard to tell what the market is going to do, and production of butter is down. We really could use those extra stocks now," she said.

Keith Collins, chief economist of the United States Department of Agriculture here had a different view. He said the main reason for June's record high butter prices is a substantial decline in butter production over the past three years.

He dismissed the idea that exports allowed by the USDA last year contributed very much to the current shortage. Rather, it was due to lack of growth in milk production, influenced by bad weather and low quality hay in parts of the country last year, he said.

"In April, we ran down the nation's butter stocks to a very low level, because there was no growth in milk production, particularly in California," Collins noted.

There was a 2% decline in milk and a 31% decline in butter production from that state, he continued, the nation's chief dairy producer. Half of the milk in the U.S. goes to make cheese, he noted.

Collins told SN that although USDA exported some butter last year, it was a minor amount. He further noted that hardly any butter has been exported this year. Total butter production in the U.S. is 1.2 billion pounds per year, and the butter subsidy exports increased only about 1% between 1996 and 1997.

In early June, the IICA asked the USDA to allow more lower duty butter into the country, and the agency is looking at that proposal, Collins noted. When U.S. Secretary of Agriculture Dan Glickman returns from his trip to China with President Clinton, a decision will be made.

"We're lacking 30% of the stocks we had last year," said Ruland of the IICA. "That's what's driving the price."

Part of the butterfat shortage may also be due to greater consumer demand for full-fat products. According Jill Kasser, spokeswoman for Edy's Grand and Dreyer's ice cream, Oakland, Calif., consumers are "returning to indulgence."

Quoting IRI data, Kasser said the "better-for-you" category is down about 12% over the past 26 weeks, and almost 10% as a category over the past 52 weeks. The category includes light ice cream, fat-free ice cream, no-sugar-added ice cream and frozen yogurt.

Despite increases in the cost of ingredients, Kasser said her company will not cut corners.

"We are obviously committed to maintaining a premium product, and we will never sacrifice the quality to offset the cost of ingredients," she said. "We are looking to contain it internally, but we are looking at increases of 10 to 30 cents per half gallon across the country."