HIGHER MILK PRICES ARE PROBED IN NORTHEAST

ROBERT VOSBURGH

HARTFORD, Conn. -- Consumer advocacy groups have long complained about the high retail price of milk in many states, and their cries may finally be reaching the ears of the law, SN has learned.

Connecticut Attorney General Richard Blumenthal said that his office, in cooperation with the attorneys general of Vermont and Massachusetts, is preparing to announce the findings of a nearly completed probe into milk prices in the Northeast/New England region.

"We're nearing a conclusion to our investigation, and planning the next steps in response to the problems of market concentration that we found," he told SN.

Possible remedies range from "a lawsuit in court to [a] possible agreement that resolves some of these very significant issues," he said, declining to be more specific until the official investigation is completed and the conclusions publicly announced. That could come as early as July, he said.

Blumenthal cited a recent report by the University of Connecticut -- which blamed supermarkets and diary processors for high fluid milk prices -- as a component of the inquiry being led by his office. There has also been a "great deal" of independent research conducted by state investigators, he said.

And, like the university's study, he noted that his own investigation also covers the "entire market," including supermarket retailers.

"The dangers of monopolistic pricing are supported by the findings of the University of Connecticut report, which show a high degree of dominance by a small number of producers and retailers."

The study, conducted by the university's Food Marketing Policy Center, concluded that some $50 million of the $130 million increase in milk sales across the New England region has gone straight into the coffers of supermarkets and processors since the Northeast Dairy Compact went into effect in 1997.

That agreement was approved and enacted by the federal government and six New England states as a price-control program designed to keep smaller processors from going out of business. It works by setting a minimum price paid by processors to dairy farmers.

Instead, it has become a tool retailers and suppliers have used to increase their profit margins on fluid dairy products, the report concluded.

According to the study, milk prices grew from an average of $2.49 a gallon just before the compact took effect, to $2.78 a gallon by the beginning of 2000. Within that 29-cent increase, processors and retailers were drinking up 11 cents of that.

In contrast, the actual increase caused directly by implementation of the compact was determined to be 4.5 cents a gallon, researchers found.

While the report quotes suppliers and retailers as saying the price hike is due to the terms outlined in the compact, the larger issue under examination by the attorneys general includes the impact of consolidation on the marketplace. Blumenthal said "market concentration" is a focus of his office's probe.

"We've done a great deal of research, but I can't be more specific at this point," he said.

To be sure, milk price increases have been garnering more top spots in the headlines than in previous years. Just last August, The Wall Street Journal ran a story looking at high prices in the Chicago market, in an article entitled, "Could the High Price of Milk Be a Byproduct of Supermarket Mergers?"

And, California has been the site of a long-running debate over milk prices and that state's pricing formula and supply regulations. The San Francisco-based Consumers Union has been spearheading a grassroots effort to overturn the current hierarchy, and otherwise dog the industry for some of the highest prices in the nation. The group, publishers of Consumer Reports magazine, regularly has been issuing position papers and price surveys of various California markets, as well as challenging the state's price formula in court.