Are you getting a fair share of the “retail dollar”?

Mike Converse for Progressive Dairyman

Every quarter of every year, I spend my days reviewing financial statements for America’s milk producers. All that time spent looking at producers’ revenue and expenses has caused me to lose sight of a very interesting part of the bigger picture – the “retail dollar.”

Many of the leaders of our firm have placed a great deal of emphasis on trying to obtain a greater share of the “retail dollar” for our clients and friends in the industry. But what does that really mean?

Your dairy and its statement of income comprise only half of the story – literally. According to May 2007 statistics provided by the USDA, a gallon of fluid milk fetches approximately $3.30 in the supermarket, of which your cooperative has paid you $1.74 for a gallon for Class I milk. Well, $1.74 seems to be just enough to break even these days.

The fact of the matter is that whenever the producer price has increased for you, the dairyman, the retailers have always passed it on by increasing the retail price for your product. When there is an overage in the milk supply, your pay price is decreased, but you will not find milk on the shelves takes a proportional price cut. In the marketplace, somebody wins and somebody loses. Unfortunately, all too often, dairymen have lost.

For an example of this loss, a 10-year review of the Class I producer pay price and the average retail milk prices reveals that dairy farmers have lost about 30 cents a gallon ($2.60 per hundredweight [cwt]) against the average retail milk price over the last 10 years. The greatest disparity in producer pay price and retail prices occurred in 2006 when dairymen lost about 60 cents a gallon ($5.20 per cwt.) out of last summer’s retail milk prices.

To this point, industry cooperation has yielded the CWT program. A program designed to increase producer pay price by removing milk from the U.S. market, but when it comes to gaining a more equitable share of the retail dollar, success will be determined by the marketing efforts of your cooperative. Marketing milk does not simply mean moving your milk into the market. Milk marketers’ number one responsibility is to move our milk into the markets at the right price. PD