After holding steady for more than a year -- have dropped 20 cents a gallon at many Washington area supermarkets in the last week.

A gallon of regular Vitamin D milk now typically sells for $1.69 a gallon at Giant and Safeway supermarkets, compared to $1.89 a gallon before.

The price reduction was initiated by Giant, the area's largest food retailer, and was immediately matched by other chains. "Giant started it the price cutting and our policy is to follow them," said Safeway representative Barbara Beizer.

Magruder's, which has five stores in the area, also has reduced milk prices. The Dairy Maid regular Vitamin D milk at Magruder's is $1.59 a gallon, down from last week's $1.69 a gallon. Magruder's traditionally has sold milk for less than the bigger chains.

7-Eleven, the convenience store chain that competes with supermarkets on such items as milk, is watching the milk price movement, according to division manager Bob Bailey, and will make a decision when the chains advertise their weekly prices Wednesday.

"Basically, we are waiting to see what happens day after tomorrow -- they are 20 cents under our house label price now, and obviously we will have to stay competitive," Bailey said. He said that Sunny Dale brand Vitamin D milk sells for $1.89 a gallon at the typical 7-Eleven and that Embassy regular sells for $1.99 a gallon.

Although rival supermarket officials all say it was Giant that started the price cutting, Giant denies that it has launched a price war. "It's just a promotion on our part," said Giant representative Barry Scher.

Three kinds of milk are affected by the price reductions. Vitamin D regular milk, costs $1.69 a gallon, down from $1.89 a gallon; skim milk is $1.39 a gallon, down from $1.59 a gallon; and two percent milk has been reduced from $1.79 a gallon to $1.59 a gallon. Milk prices haven't been that low since the 1981 price war, when regular milk prices slid from $2.09 a gallon on April 1 to $1.69 a gallon on June 7 before they began rising again. The price hit $1.89 a gallon on Aug. 29 and remained at that level until last week.

A few weeks ago, Giant also lowered prices of fresh produce and began a promotion of fruits and vegetables. Safeway immediately matched the reductions.

Scher tried to downplay the significance of the produce price reductions, too. "We have a new look and a new theme with the produce promotion ; we didn't start a price war -- what others do is their own business," he said.

Giant's competitors contend that a supermarket chain initiating major price cuts generally does so to attract new customers and increase sales volume and profit. Some industry officials believe that Giant is particularly eager to lure customers from the small but popular Magruder's, which uses low prices for milk and produce to attract business. The reductions in Giant produce prices were made shortly after Magruder's opened its latest branch in Rockville.

Scher said Giant targeted produce for its fall promotion because fresh produce is more important to consumers today than in the past "and there has been an increase in produce sales."

There also has been a decrease in produce prices since Giant launched its promotion.

Scher said the company did not have price information available on its reductions, but Ernest Moore, a Safeway official, said his company has matched Giant's cuts and gave these examples: potatoes, 79 cents for a 10-pound bag, compared to $1.19 in early September; yellow onions, 12 cents a pound compared to 49 cents before; cucumbers, 12 cents each compared to 25 cents each before, and grapes, 49 cents a pound compared to 99 cents a pound before.