Supermarket Concentration Harms Farmers and Consumers

Date: 1 Feb 2003 | posted in: Retail | 0 Facebooktwitterredditmail

Supermarket chains in the northeast are using their market power to reap record profits on milk at the expense of both dairy farmers and consumers, according to a new report.

The findings are fueling legislative efforts in several New England states to rein in the power of grocery chains. One proposal in Maine would tax big box retailers to support dairy farms.

The study, “Milk Prices in New England and Neighboring Areas of New York: A Prologue to Action?” by Ronald W. Cotterill, Adam N. Rabinowitz, and Li Tian of the University of Connecticut, examined milk prices at 191 stores in four states and found that, while farm prices have dropped to 25-year lows, retail prices remain at record highs.

Since late 2001, when Congress abolished a price support structure known as the Northeast Interstate Dairy Compact, raw milk prices in New England have dropped from $1.65 a gallon to $1.10. This is well below what it costs farmers to produce milk, which is about $1.50 a gallon.

Meanwhile, consumer prices have inched down only slightly, from $3.09 a gallon to $3.01. The problem, according to the researchers, is that a handful of retail chains and milk processors now dominate the market, leaving farmers with few options for selling their milk and consumers with exorbitant prices. “Consumers in New England are being overcharged at the rate of $144 million per year,” the report concludes.

The study found that, despite efficiencies of size, prices were highest at large supermarket chains and lower at smaller retailers. Wal-Mart’s milk prices were only slightly lower than the high prices charged by established grocery chains.

The study found that prices in New York are much lower—around $2.20 a gallon—due to a 1991 law that bars retailers from charging more than twice what farmers receive for their milk. Massachusetts, Connecticut, and New Hampshire are now considering similar legislation.

Another approach, proposed by Ronald Cotterill, one of the study’s authors, is a “fair share” law. When the consumer price of milk exceeds 1.8 times what farmers receive, then half the additional revenue would be collected from supermarkets and funneled back to dairy farmers.

Vermont meanwhile has launched an extensive investigation of milk prices and is expected to release a report soon recommending legislative action.

Several measures are under consideration in Maine. One would revive a statewide program similar to the regional Compact. Another would levy a handling tax on milk that would be funneled into a subsidy program for farmers.

Another measure would tax big box stores to support dairy farms. The bill would levy a 0.001 percent tax on revenue at stores larger than 10,000 square feet located outside of traditional town centers. (The tax on a typical Wal-Mart supercenter would be roughly $80,000.) The funds would be used for support payments to dairy farms and to reduce property taxes on agricultural land to protect it from development.

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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.