Dairy Industry: Information on Milk Prices and Changing Market Structure

Each year the United States produces about 7 billion gallons of fluid drinking milk that generate $22 billion in retail sales. Farmers, cooperatives, wholesale milk processors, and retailers all work to move milk from the dairy farm to the consumer. Each of these entities performs a distinct function in the production, processing, distribution, and sale of milk, and each receives a portion of the retail price of a gallon of milk. Fluid milk prices at the farm-level have fallen sharply, prompting Congress to authorize almost a billion dollars in emergency assistance to dairy farmers in the last three years. Fluid milk prices at the retail level, however, have not experienced a similar decline. Concerns have been raised about this growing price spread between farm and retail milk prices. This report examines (1) factors that influence the price of milk as it moves from the farm to the consumer, (2) the proportionate breakdown of the retail price of a gallon of milk received by farmers, cooperatives, wholesale milk processors, and retailers, (3) how changes in farm and retail milk prices affect the farm-to-retail milk price spread, (4) how price changes at any level of the marketing chain relate to changes in price at other levels, and (5) the retail prices of the four types of fluid milk--whole, 2-percent, 1-percent, and skim--in selected markets.