Reflecting a national trend, the retail price of milk in the Washington metropolitan area has increased about 20 percent in the last year, with more increases expected.
"I've been in this business for 20 years and I've never seen anything like it," said Charles Gundersheim, zone manager for Embassy Dairy, one of the area's largest suppliers. "If it keeps going, we'll be over $2 a gallon one of these days."
A number of factors have combined to drive up the price of milk, several experts say. They cite bad weather leading to lower production, higher beef prices leading to increased consumption of cheese, higher production costs and inflation generally.
A year ago, Giant and Safeway -- the two largest food retailers in the area -- were selling Vitamin D, Grade A milk for $1.55 a gallon. The current price for the same gallon is $1.87. Embassy, which is a subsidiary of the Southland Corp. -- owners of 7-Eleven stores -- is selling milk at $1.85 a gallon in 7-Eleven stores. Embassy also is a major supplier to restaurants and industrial food suppliers.
The milk price increase has been softened somewhat for consumers by Giant and Safeway, which have been offering coupons reducing the price by 30 cents a gallon with purchases of $7.50 or more. A representative for Giant estimated that 80 percent or more of the chain's customers spend at least $7.50 when shopping.
The local increase mirrors an increase in milk prices nationally. The price of a gallon rose about 19 percent from January through December of 1978. Although there are some indications that the rate of increase may be slowing, consumers of milk can expect to pay prices as high, if not higher, for the next few months.
According to several experts, some of the factors related to the price increase are at work simultaneously. With beef prices increasing, consumers have turned to cheese as a meat substitute -- driving up the demand for and the price of cheese. At the same time, with beef prices rising, dairymen are "culling" their herds, slaughtering marginal dairy cows and selling the meat for packaged and canned meat products.
Bad weather last year reduced production at the same time that demand increased, aggravating the price increase for milk and dairy products. Although the average production per cow has increased, the amount has not kept pace with the decline in the number of dairy cows or the increased demand.
Since 1950 the number of dairy cows in the United States has been reduced by roughly 50 percent. Milk production, which was 117 billion pounds in 1950, was 122 billion pounds in 1978. Productivity has roughly doubled in 28 years. Cheese consumpton, which averaged 7.9 pounds per person in 1960, increased to 16.3 pounds by 1977. In 1978, the wholesale price of American cheddar cheese increased from $1 a pound in January to $1.17 in November. Cheese production in 1978 increased only slightly over 1977.
For the first time in at least two years, according to one Department of Agriculture official, the market price for milk has remained above the government support price -- currently $9.64 per 100 pounds or hundred weight -- for a sustained period of time. The market price went above the support price in July and has been increasing steadily since then.
Under federal law the price of milk is determined by a complicated formula that uses the price paid in the Minnesota-Wisconsin market for manufacturing-grade milk as the starting point. Manufacturing-grade milk is used to make cheese and other milk byproducts, such as nonfat dry milk. The price of fluid milk -- milk sold for direct consumption -- is set by adding a fixed amount -- which is set by the government and varies from area to area throughout the approximately 40 "order areas" in the nation -- to the market price of manufacturing-grade milk.
In January 1978, the manufacturing-grade milk price in the Minnesota-Wisconsin market was $8.91. By December, after a steady, uninterrupted increase every month, the price had risen to $10.60 -- an increase of 19 percent. The December price will serve as the basis for setting February milk prices for the entire country.
Tom Smith, research associate for the consumer-oriented Community Nutrition Institute, said that the "price of milk has gone up needlessly." Smith blamed the government price-support system for increasing milk prices. "The magnitude of this increase, if any increase is justified, is just too great," Smith said.
The government, which supports prices by buying dairy products, has more recently curtailed purchases and begun selling some of its supplies in an attempt to stabilize prices. The government had 9.2 million pounds of cheese for government programs in November 1978 compared to 54.5 million pounds the preceding year. The government has sold butter back to the dairy industry at 110 percent of the support purchase price, according to the Department of Agriculture.
The wholesale price of butter dropped from about $1.24 to $1.11 in December, an indication that the price increases for dairy products may begin to ease sometime this year.