Dick Groves
Editor, Cheese Reporter

 

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Are Stable Retail Prices Helping To Boost Organic Milk Sales?

Fluid milk is a pretty good bargain for US consumers these days, but that’s not necessarily translating into improved sales. On the other hand, organic fluid milk is kind of expensive (at least relatively speaking), but organic milk sales are continuing to increase.

These points raise at least three questions. First, does consumer demand rise and fall when retail prices for conventional milk products fall and rise? Second, do organic milk sales rise no matter what happens with retail prices?

And third, when it comes to consumer demand, is it better to have relatively consistent or slowly rising prices rather than prices that are relatively low from time to time but also relatively high at other times?

Regarding that first question, by pretty much any measure, retail milk prices for fluid milk are a bargain right now. For example, the Bureau of Labor Statistics (BLS) reports CPIs (Consumer Price Indices) for three fluid milk categories: whole milk (where 1982-84=100), milk, and milk other than whole (for the latter two, December 1997=100).

As we reported last week (for more details, please see “CPI For Dairy Products Falls To Lowest Level In Almost Three Years,” on page 1), the CPI for whole milk in May was 200.588, down 0.2 percent from April, down 5.3 percent from May of 2015 and the lowest whole milk CPI since February of 2011 (which was also the last time it was under 200).

And how are sales responding to these low retail whole milk prices? Pretty impressively, as it turns out.
According to figures from USDA’s Agricultural Marketing Service, during the first four months of this year, whole milk sales were up 4.8 percent from the first four months of last year, and flavored whole milk sales were up 7 percent.

On the other hand, May’s CPI for fresh milk other than whole was 142.518, up 0.2 percent from April but down 5.5 percent from May of 2015. Whereas the CPI for milk other than whole was above 150 during each of the first five months of 2015, it’s been under 150 during each of the first five months of 2016, and under 145 in March, April and May.

And how are sales responding to those low prices? Again according to AMS figures, during the first four months of 2016, compared to the same period in 2015, sales of reduced fat (2 percent) milk were down 1.9 percent, sales of lowfat (1 percent) milk were down 3.9 percent, and sales of fat-free (skim) milk were down an eye-opening 10.3 percent.

So the answer to our first question, about whether consumer demand rises and falls as prices fall or rise, is: it depends. Our guess is that whole milk sales are benefitting from some of the ongoing favorable news about the “newly discovered” health benefits of dietary fat, as well as the fact that whole milk simply tastes better than fluid milk products that have had some or (especially) all of their fat removed.

Related to that point, it’s notable that CPIs for the three different fluid milk categories tracked by the BLS were all at or near record highs back in 2014, but whole milk sales actually increased 48 million pounds from 2013 (sales of reduced fat, lowfat and skim milk all declined in 2014).

As far as organic milk is concerned, according to figures collected by federal order market administrators, retail prices for organic milk during the first half of 2016 were running maybe 10 to 20 cents per half-gallon higher than a year earlier, while AMS figures show that organic milk sales during the first four months of this year were 4 percent higher than during the first four months of last year.

Going back to 2013, market administrators’ figures show that retail organic milk prices have risen fairly slowly and without a lot of volatility (for example, in 2015, average retail organic whole milk prices averaged $4.29 per half-gallon for the entire year, with a low of $4.18 per half-gallon in January and a high of $4.34 per half-gallon in July).

The general consensus is that organic fluid milk sales have been rising in recent years, so it could be concluded that organic milk sales do in fact increase no matter what happens with retail prices.

Finally, what about the impact of retail price volatility on fluid milk sales? There are a number of ways to look at this, but we’ll mention just a couple of them.

First, retail milk prices were relatively high back in 2007 and 2008, then fell in 2009 and 2010 before rebounding in 2011 through 2014 and then falling last year. And milk sales fell in 2007 and 2008 before rebounding in 2009 and 2010 and then dropping for the next four years (the total decline from 2010 through 2014 was more than 4 billion pounds).

It could be argued that milk sales fell over the 2010-2014 period because prices were relatively high, or because prices had become relatively high again and consumers started to get tired of the roller-coaster nature of milk prices.

Second, whether deserved or not, organic milk enjoys a “halo” that conventional milk does not. And so sales of organic milk keep rising, even as prices keep climbing, albeit more slowly than conventional milk prices have at times in recent years.

Can any of this information be used to boost conventional milk sales? Unfortunately, under current milk pricing formulas, milk prices are going to continue to fluctuate, at times significantly, and sales are going to respond accordingly.

It’s pretty difficult to see anything positive as far as retail fluid milk prices and sales trends are concerned (whole milk is a notable exception). Milk is a bargain right now, but sales are declining anyway. A year from now, it might not be a bargain anymore, but sales will probably still be falling.

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.

 

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