Outline of a Fair Share Milk Pricing Policy Program As Requested by Carolyn Orr, Council of State Governments after the February St. Albans, Vermont Meeting on Dairy Policy and Prices

The basic proposition of a fair share milk pricing policy program is the following: Retail milk prices during the low phase of the raw milk price cycle and possibly during the entire raw milk price cycle are high relative to raw milk prices. The large marketing spread is not due to excessive processor margins. It is due to excessive retailer margins. The fair share pricing program will redress the imbalance in prices in the market channel and eliminate part or all of the pricing inefficiency that comes from the exercise of market power by retailers. This pricing inefficiency harms consumers; however, it also harms farmers that receive a price that is below the long run supply price, and it harms processors because they process less milk. The farm level pricing problems of farmers in the Northeast is exacerbated by inter regional distortions in the raw milk price surface as explained in University of Connecticut Food Marketing Policy Issue Paper No. 48 (http://www.fmpc.uconn.edu). Throughout the raw milk price cycle farmers in the upper Midwest and far West are advantaged under current federal milk pricing policies and the activities of state’s in their regions. Hoard’s Dairyman mailbox prices show that farmers in the upper Midwest routinely receive higher prices for raw milk than farmers in the Northeast. This is a price inversion because raw milk should be higher valued in areas of the country where fluid utilization is higher. Such areas include the Southeast and the Northeast.