THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, June 9, 1996 TAG: 9606080493
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: 101 lines
You've seen those dairy ads featuring famous people with ``milk mustaches''?
Well, it might be time for Christie Brinkley, Pete Sampras, Tony Bennett and the rest to lick that milk off their upper lips. They might not want to waste a drop.
Milk is getting more expensive.
The Virginia Farm Bureau estimates the price of a gallon of milk will jump 20 cents to 30 cents during the next few months - and hardly anybody in the milk business disagrees. The Virginia Milk Commission has already charted a 5 cent jump - to an average of $2.44 for a gallon of milk - from April to May in its survey of grocery stores around the state.
The rest of the increase is expected to hit throughout the summer and into the fall. Here's why: Demand for dairy products escalates for use in ice cream; cheese makers gear up for the winter; humid summer days slow down the amount milk cows produce; and hordes of people at the Olympics in Atlanta drain the supply.
Blame the immediate push on milk prices on a grain shortage. The cost of grain makes up about 40 percent of the cost of producing milk.
Grain prices are at a 20-year high due to the worst drought in a century in parts of the South and Southwest. Corn supplies before this fall's harvest are expected to drop to their lowest level in 50 years, according to the United States Department of Agriculture.
Cooperatives representing dairy farmers just this week added a $1 surchage per 100 gallons of milk to make up for some of their higher grain prices, says G.H. Cain, division manager of Mid-America Dairymen Inc. in Roanoke. That translates to about a 6 cents per gallon increase. The 1,250 dairy farmers Cane's group represents sell milk to Marva Maid, Pet, Richfood and other milk brands.
The short-term grain price crunch is the latest in a series of pressures that have forced hundreds of small dairy farmers in the Southeast out of the business, which in turn puts even more of a crimp in the supply.
``There's been some pressure over the last few years to just get bigger or get out,'' says Leonard Bergey, vice president of Bergey's Dairy Farm in Chesapeake.
``Dairy farmers are pretty tough, rugged individuals, so when these things come they're not just going to say, `Oh, I can't do it anymore.' But if it just goes on and on and on, they might say they can't continue.''
Bergey has fended off some of these pressures because the family runs an integrated operation. They raise their own grain for feed, milk the cows, process the milk and distribute it themselves.
``They have really done something miraculous down there,'' says John Beers, of the Virginia Department of Agriculture. ``They've maintained an agricultural operation down there, they've made money, even though the cities have built up around them.''
Other dairy farmers haven't been as successful. Michael Myatt, general manager of the Cooperative Milk Producers Association in Blackstone, Va., says the number of dairy farmers in the state has dropped from about 1,500 a decade ago to just above 1,000.
The same thing has been happening through the Southeast, Myatt says. Land prices are rising as more people moving into the region and suburbs eat up farmland. That makes it difficult for dairy farmers to expand their farms and become more efficient.
In theory, fewer but larger farms would produce more milk.
Pile on the numerous uncontrollable events of this spring and the dairy business is hurting.
The recent run-up in gas prices is even giving the industry some lumps for two reasons: it makes it more expensive to transport milk from the farm to the processing plant, and those plastic milk jugs cost a few more cents to make because they're made of petroleum products.
The cost of a gallon of milk in the grocery store has not risen as fast as the cost of producing it. Rodney Phillips, administrator of the Virginia Milk Commission, says the lag is due to long-time milk-drinker preferences that milk prices don't change like the weather.
``It seems to be the understanding that consumers don't like a lot of change in their milk cost,'' Phillips says. ``They'd rather it be $2.49 this month and if need be $2.79 next month - not go from $2.49 to $2.39 to $2.79.''
So somewhere along the milk chain either the farmers, the processors like Marva Maid, or the grocery stores absorb cost increases as long as possible. Most think the industry has held the line on costs as much as it can this spring.
Many also predict that increasing milk production costs over the past 10 years may be reshaping the industry permanently. That might be bad news for Virginians, who consume about twice as much milk as the state produces.
The farther milk travels, the more it costs. Virginia produces 1 billion pounds of milk a year and its residents drink about 2 billion pounds, the agricultural department's Beers says. The rest is trucked in from nearby states.
``If the dairy farms in Virginia and North Carolina dry up, there will still be milk in the Tidewater area,'' Cain says. ``But somebody's going to be paying the price to bring it in. There's the interest to the consumer - so he can pay reasonable prices for dairy products.''
Although those in the industry confess to an age-old reputation of griping about low profits, they say the high grain costs this time may force even more dairy farmers out of business.
The volume of milk produced in the Southeast this year is already 7 percent to 8 percent lower than last year, Cain says.
``It's a very demanding business,'' he says. ``It's 365 days a year. Quite frankly, it's easier for somebody to go to work at a Volvo plant or an IBM plant and make $30,000 a year plus benefits and have the weekends off.'' ILLUSTRATION: Color photo illustration by BETH BERGMAN/The
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