Understanding the complex world of milk prices

I’ve written several dairy industry stories over the past few months. Learning the complex world of milk and dairy pricing has been an education.

Browsing the reader comments on my stories, it’s clear many people don’t have a clear understanding of how the price is determined for that gallon of milk they buy at the grocery. I’m going to attempt to lay out in this post the major factors affecting the price of milk in Maine.

Here’s a breakdown of where the money went for a gallon of whole milk sold in Maine in January, courtesy of the Maine Dairy Industry Association:

  • $4.61 was the average price paid by a Maine consumer for a gallon of whole milk in January.
  • $3.71 was the minimum retail price in January, as set by the Maine Milk Commission. This means a retailer could not sell a gallon of whole milk for less than this amount. This number can be changed by the commission.
  • $3.35 was the minimum amount a retailer could pay a Maine processor for a gallon of milk in January. This number is also set and subject to change by the Maine Milk Commission.
  • $1.91 was the minimum amount Maine dairy farmers received for that same gallon of milk in January. The baseline for this number is set by the federal government, and can be increased through a few¬†mechanisms, such as the “producer margin, by the Maine Milk Commission.

One more important number: $2.38. This is the amount a Maine farmer would need to receive for that same gallon of milk to break even when the cost of production (including feed and fuel costs) are taken into account.

Now, the price a Maine consumer pays for that same gallon of whole milk in the grocery store is actually set by the retailer and can be (and usually is) higher than the minimum retail price. Retailers can sell it for as much as the market can bear.

That’s what Julie-Marie Bickford was referring to when she said farmers have both hands tied behind their backs, while retailers are more free to adjust the price to increase their profit margin.

The minimum retail price set by the commission is designed to already include a profit margin. Anything on top of that is additional profit for the retailer.

The commission tracks the retail price of milk throughout the state. Keeping in mind that the minimum retail price for a gallon of whole milk in January¬†was $3.71, here’s a rundown of the milk prices you saw on grocery store shelves in January:

The Shaw’s in Bangor was selling gallons of Oakhurst and Hood whole milk for $4.99, while it sold gallons of Garelick Farms for $4.79 and its store brand for $3.92.

The Walmart in Brewer was selling a gallon of Oakhurst for $5.18, a gallon of Garelick Farms for $4.98, and a gallon of its store brand for $3.99.

The Hannaford in Brewer was selling a gallon of Oakhurst for $4.74, a gallon of Garelick Farms for $4.54, a gallon of Hood for $4.50 and a gallon of its store brand for $3.92.

In southern Maine, prices were roughly the same.

The Hannaford in South Portland in January sold a gallon of Oakhurst’s whole milk for $4.74, a gallon of Hood for $4.50 and a gallon of its store brand for $3.92.

It’s interesting to look at these numbers. Walmart, contrary to what you might think, had the highest milk prices in the state compared to the other major grocery stores.

This just a very basic primer on dairy and milk prices. If you have any questions, I’ll try to answer them. Just email me at wrichardson@bangordailynews.com.

Whit Richardson

About Whit Richardson

Whit Richardson is Business Editor at the Bangor Daily News. He blogs about Maine business, entrepreneurs and the economy.