California Solids Standards Would Boost Prices Nationally

September 20, 2010 10:42 AM
 

 

 
 
In an attempt to get something for very little, some have advocated adopting California fluid milk solids standards nationally.
 
The Food And Agriculture Policy Research Institute released a new study today on the subject, suggesting farm gate milk prices would initially increase 27¢/cwt while consumer milk prices would jump 17¢/gallon. The farm prices would eventually erode to a 10¢ margin over 10 years as dairy producers adjusted to the higher prices by increasing milk production.
 
The higher in-store milk price would erode sales slightly, about 0.5%, says Scott Brown, FAPRI economist.
 
A 17¢/gallon increase suggests a nearly $2/cwt increase in the wholesale price, since there are 11.62 gallons per hundreweight. Dairy producers typically receive 30% of this price, but under the FAPRI modelling, receive just 27¢, or about 14%. "The [farm] milk price impact is muted more than you might have expected because of the lower butter and cheese prices I have under the scenario as milk production expands," says Brown.
 
"It is a difficult question to decide whether processor margins expand with adoption of California standards," he adds. Complicating the equation is added product and infrastructure costs to reblend milk to the higher solids standards.
 
FAPRI estimates that some 350 million lb. of non-fat solids would be needed to fortify fluid milk nationally. However, 65% of that would likely come at the expense of lower skim milk powder sales internationally.
 
FAPRI also notes that government outlays to purchase surplus milk powder would likely decrease under national fluid milk fortification.
 
For a copy of the study, click here.

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