CALIFORNIA RULING MAY CUT MILK PRICES IN STATE

ROBERT VOSBURGH

SACRAMENTO, Calif. -- Retailers in California may soon get the green light to offer their shoppers more milk choices -- at cheaper prices -- after a state appeals court ruled that out-of-state processors can sell milk in the state.

The decision, applying specifically to low-fat milk, marks a fundamental departure from California's long-standing rules that have made any type of milk sold in California the most expensive in the United States.

Unless there is an appeal, the ruling means that supermarkets will be able to sell low-fat milk that is unenriched. Since 1962, the California Department of Agriculture has required processors to fortify low-fat product to aid in children's bone development and protect older residents from osteoporosis. The enrichment requirement had effectively kept out-of-state processors from selling milk in the Golden State.

State regulators, milk producers and consumers'-rights groups had opposed dropping the standard, arguing that enriched milk was necessary to guarantee the health of citizens, particularly those who receive public assistance.

"This is a fundamental shift in policy," Elisa Odabashian, policy analyst for Consumers Union, San Francisco, said in a published report following the ruling. "It effectively does away with the higher nutritional standards."

Consumers Union -- which publishes Consumer Reports magazine -- is among those who believe that milk prices are due more to supermarket pricing strategies than the state's milk-nutrient requirements. Odabashian said that supermarket chains are using the state laws to keep prices artificially high. However, critics of the state policy have argued that adding calcium and protein to meet the state's nutrition threshold costs processors between 14 and 22 cents a gallon, an expense that boosts retail prices.

Whatever the cause, no one contests that Californians pay a lot for milk. According to published reports, a gallon of whole milk sold for an average of $2.73 in Los Angeles during the month of July, compared with $2.28 in Portland, Ore., and $2.47 in Arizona.

Out-of-state dairies have long been eager to capture some of California's dairy business, which is worth $3.7 billion, according to state officials. The appeals court ruling last week stemmed from an incident in San Diego five years ago, when Arizona-based Shamrock Foods Co. was ordered by state officials to remove its nonfortified milk from supermarket shelves.

In this latest ruling, the court said that the company could "legally formulate milk to the federal standard" and sell it in California, regardless of the state's higher standards.