Are Milk Prices Too Low?

Sept. 18, 2009— -- When Betty Robeson goes grocery shopping, her dollars don't take her very far.

"It seems like you get very little at the grocery store for a lot of money," the 80-year-old Texas woman said.

But Robeson, who lives on a fixed income, knows she can at least find relief in the dairy aisle. In one local store, she said, she buys milk for just $1.99 a gallon.

"I think it's great," she said. "I'd like prices to stay where they are."

The plummeting price of milk has emerged as one of the few bright spots for consumers in a prolonged recession. Since last year, prices have dropped more than 20 percent, from a nationwide average of $3.89 per gallon in August 2008 to just $2.98.

But the shoppers' boon has become a major source of pain for the country's approximately 67,000 dairy farmers, who are finding that their production costs outweigh their sales. European farmers, meanwhile, are hurting, too, and many have poured milk onto the streets to protest falling prices.

Though existing government programs help cover some American dairy farmers' losses, they're not enough to keep many of them out of the red. The National Milk Producers Federation projects U.S. farmers will see a $12 billion loss in sales this year.

The drop largely has been attributed to a plunge in global demand for dairy products, which has resulted in a glut of milk supply. The recession, melamine milk contamination in China, and renewed competition from other milk-producing countries have all been blamed for dampening worldwide demand.

The resulting price drop is good news to consumers like Nick George, 34.

"Especially in this economy, people need it," George said as he left a New York City supermarket, bags in hand. "If we could get other prices to drop, that'd be good too."

On the flip side, however, Brad Ritter, 32, a third-generation dairy farmer in Byron, Mich., is taking on tens of thousands of dollars in new debt, putting off equipment purchases and cutting the hours of his part-time workers to cope with his sales declines.

"You hold on and do what you can as long as you can," he said.

Dairy industry supporters and lawmakers have sought solutions in everything from new government aid to charitable donations and anti-trust actions. Some farmers even have sent milk cows to slaughter to help lower supply and boost prices, but the effort thus far hasn't reversed the trend.