Published on 05/27/04

Experts say dairy prices will continue to soar

By Cat Holmes
University of Georgia

Skyrocketing gas prices are no secret. But now Americans are noticing higher tabs when they go to pay for milk, pizza and ice cream, too.

That's because milk prices have more than doubled since this time last year, said University of Georgia agricultural economist Bill Thomas. "The base price for milk was $9.41 last year and it's $19.66 now."

The cause? A slew of factors that have combined to create "almost a perfect storm," Thomas said.

What happened

For the past three years, dairy farmers have made some of the lowest prices in history, said Bill Graves, a UGA Extension Service dairy specialist. "For the past two years, they've made 1975 prices."

The result was that many dairy farmers downsized or quit, and the ones who remained added cows.

Another factor is the case of bovine spongiform encephalopathy, or mad cow disease, in a single U.S. dairy cow last December. That cow came from Canada, so the United States stopped imports of Canadian dairy cows. That action cut off a major supply of replacement dairy cows, Thomas said.

To compound the problem, the high price of gas has raised transportation costs, and feed prices have soared.

On top of everything else, the demand for milk started to pick up as the economy improved.

'Perfect storm'

"All of a sudden, we have a higher demand for milk and a low milk supply," Thomas said. "The net effect was to drive the prices up."

The rise in dairy prices is unmistakable at Peppino's Pizzaria, a locally owned restaurant in Athens, Ga. Prominent signs on either side of the cash registers read: "Due to the price of cheese going very crazy, we have to raise the price of [our pizza]."

In a recent survey, 70 percent of the markets surveyed said they've raised their pizza prices or were planning to do so in the near future.

Where's the money going?

"It's sure not going into farmers' pockets," Graves said. "It's the retailers, not the producers, who set the prices. About 30 percent of what you pay goes to the farmer. The other 70 percent goes to processors, distributors and retailers."

Thomas notes that a gallon of milk at the Athens Navy Commissary is $1 cheaper than at the grocery store where he normally shops.

"The higher prices are helping dairy farmers recover, but retailers are definitely making money off milk right now," Thomas said.

Thomas predicts that base milk prices will start to decline in the next couple of months.

"Fluid milk (prices) will continue to increase for the next couple of months and then ... start to come back down," he said. "Will the retail milk prices come back down? That's the big question. And right now, nobody has the answer."

(Cat Holmes is a news editor for the University of Georgia College of Agricultural and Environmental Sciences.)

Cat Holmes was a science writer with the University of Georgia College of Agricultural and Environmental Sciences.