Dairy Industry: Information on Milk Prices and Changing Market	 
Structure (15-JUN-01, GAO-01-561).				 
								 
Each year about 7 billion gallons of fluid drinking milk are	 
produced in the United States yielding approximately $22 billion 
in annual retail sales. Farmers, cooperatives, wholesale milk	 
processors, and retailers participate in the process of moving	 
milk from the dairy farm to the consumer. Each of these entities 
performs a distinct function in the production, processing,	 
distribution, and sale of milk and each receives a portion of the
retail price of a gallon of milk for the functions they perform. 
Recently, fluid milk prices at the farm-level have fallen	 
sharply, prompting Congress to authorize almost a billion dollars
in the past three years of emergency assistance to dairy farmers 
to help mitigate the effects of low farm-level milk prices. At	 
the same time, fluid milk prices at the retail level have not	 
experienced a similar decline. Consequently, the growing price	 
spread between farm and retail milk prices has raised concerns.  
This report examines (1) factors that influence the price of milk
as it moves from the farm to the consumer, (2) the proportionate 
breakdown of the retail price of a gallon of milk received by	 
farmers, cooperatives, wholesale milk processors, and retailers, 
(3) how changes in farm and retail milk prices affect the	 
farm-to-retail milk price spread, (4) how price changes at any	 
level of the marketing chain relate to changes in price at other 
levels, and (5) the retail prices of the four types of fluid	 
milk--whole, 2-percent (or reduced fat), 1-percent (or low-fat), 
and skim (or fat-free)--in selected markets.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-561 					        
    ACCNO:   A01023						        
  TITLE:     Dairy Industry: Information on Milk Prices and Changing  
             Market Structure                                                 
     DATE:   06/15/2001 
  SUBJECT:   Dairy industry					 
	     Dairy products					 
	     Marketing						 
	     Prices and pricing 				 

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GAO-01-561
     
Report to Congressional Requesters

United States General Accounting Office

GAO

June 2001 DAIRY INDUSTRY Information on Milk Prices and Changing Market
Structure

GAO- 01- 561

Page i GAO- 01- 561 Milk Prices and Changing Market Structure Letter 1

Appendix I Objectives, Scope, and Methodology 7

Appendix II Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer 15

Appendix III Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets 26

Appendix IV Retail Prices for Four Kinds of Fluid Milk in Selected Markets
63

Appendix V Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets 79

Appendix VI Consolidation Trends and the Degree of Concentration in the
Dairy Industry 96

Appendix VII Research Measuring the Impact of Concentration and Market Power
on the Dairy Industry and Fluid Milk Sector 107

Appendix VIII GAO Contacts and Staff Acknowledgments 120 Contents

Page ii GAO- 01- 561 Milk Prices and Changing Market Structure Tables

Table 1: Portion of the Retail Price of a Gallon of 2- Percent Milk Received
by Farmers, Cooperatives, Wholesale Milk Processors, and Retailers for 15
Markets, March 1998 Through September 2000 26 Table 2: Increases or
Decreases in the Farm- to- Retail Price Spread

for a Gallon of 2- Percent Milk for 15 Markets, March 1998 Through September
2000 28 Table 3: Correlation Between Farm- Level Price Changes and

Changes in Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Milk for 15 Markets, March 1998 Through September 2000 29 Table 4:
Correlation Between Cooperative- Level Price Changes and

Changes in Wholesale and Retail Prices for a Gallon of 2- Percent Milk for
15 Markets, March 1998 Through September 2000 30 Table 5: Correlation
Between Wholesale- Level Price Changes and

Changes in Retail Prices for a Gallon of 2- Percent Milk for 15 Markets,
March 1998 Through September 2000 30 Table 6: Average Annual Retail Price
for a Gallon of 2- Percent Milk

in Selected Markets, 1998 31 Table 7: Average Annual Retail Price for a
Gallon of 2- Percent Milk

in Selected Markets, 1999 32 Table 8: Average Annual Retail Price for a
Gallon of 2- Percent Milk

in Selected Markets, 2000 32 Table 9: Atlanta, Georgia, Market, Per Gallon
Milk Prices, March

1998 Through September 2000 80 Table 10: Boston, Massachusetts, Market, Per
Gallon Milk Prices,

March 1998 Through September 2000 81 Table 11: Charlotte, North Carolina,
Market, Per Gallon Milk

Prices, March 1998 Through September 2000 82 Table 12: Cincinnati, Ohio,
Market, Per Gallon Milk Prices, March

1998 Through September 2000 83 Table 13: Dallas, Texas, Market, Per Gallon
Milk Prices, March

1998 Through September 2000 84 Table 14: Denver, Colorado, Market, Per
Gallon Milk Prices, March

1998 Through September 2000 86 Table 15: Miami, Florida, Market, Per Gallon
Milk Prices, March

1998 Through September 2000 87 Table 16: Milwaukee, Wisconsin, Market, Per
Gallon Milk Prices,

March 1998 Through September 2000 88

Page iii GAO- 01- 561 Milk Prices and Changing Market Structure

Table 17: Minneapolis, Minnesota, Market, Per Gallon Milk Prices, March 1998
Through September 2000 89 Table 18: New Orleans, Louisiana, Market, Per
Gallon Milk Prices,

March 1998 Through September 2000 90 Table 19: Phoenix, Arizona, Market, Per
Gallon Milk Prices, March

1998 Through September 2000 91 Table 20: Salt Lake City, Utah, Market, Per
Gallon Milk Prices,

March 1998 Through September 2000 92 Table 21: San Diego, California,
Market, Per Gallon Milk Prices,

March 1998 Through September 2000 93 Table 22: Seattle, Washington, Market,
Per Gallon Milk Prices,

March 1998 Through September 2000 94 Table 23: Washington, D. C., Market,
Per Gallon Milk Prices, March

1998 Through September 2000 95 Table 24: Share of Milk Delivered By the Four
Largest Dairy

Cooperatives in Selected Markets for the Month of December, 1997- 1999 99
Table 25: Recent Major Acquisitions of Dairy Processors in the

United States by Suiza Foods Corporation and Dean Foods Company 100 Table
26: Percentage of Fluid Milk Marketed by the Top Four Fluid

Milk Processors in 14 Selected Markets, for the Month of December, 1997-
1999 101 Table 27: Market Share of the Top Four Supermarkets in Selected

Markets in 1992 and 1998 103

Figures

Figure 1: Selected Fluid Milk Markets with the Corresponding Defense
Commissaries Used for Our Analysis of Milk Prices, and the Federal Milk
Marketing Order Areas- January 1, 2000 10 Figure 2: Selected Fluid Milk
Markets and the Corresponding

Federal Milk Marketing Orders (as they existed prior to January 1, 2000),
Used In Our Analysis of Concentration at the Dairy Cooperative and Processor
Levels 13 Figure 3: Estimated Costs of Marketing a Gallon of 2- Percent Milk

in the New York Metropolitan Area, 1995 22 Figure 4: Farm, Cooperative,
Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Atlanta, Georgia, Market 33

Page iv GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 5: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Boston, Massachusetts, Market 35 Figure 6: Farm,
Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Charlotte, North Carolina, Market 37
Figure 7: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Cincinnati, Ohio, Market 39 Figure
8: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Dallas, Texas, Market 41 Figure 9:
Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Denver, Colorado, Market 43 Figure
10: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Miami, Florida, Market 45 Figure 11:
Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Milwaukee, Wisconsin, Market 47
Figure 12: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Minneapolis, Minnesota, Market 49
Figure 13: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the New Orleans, Louisiana, Market 51
Figure 14: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Phoenix, Arizona, Market 53 Figure
15: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Salt Lake City, Utah, Market 55
Figure 16: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the San Diego, California, Market 57
Figure 17: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Seattle, Washington, Market 59
Figure 18: Farm, Cooperative, Wholesale, and Retail Prices for a

Gallon of 2- Percent Fluid Milk for the Washington, D. C., Market 61

Page v GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 19: Atlanta, Georgia, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk 64 Figure 20: Boston, Massachusetts, Market, Retail
Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 65 Figure 21: Charlotte, North
Carolina, Market, Retail Prices for

Whole, 2- Percent, 1- Percent, and Skim Milk 66 Figure 22: Cincinnati, Ohio,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 67 Figure 23: Dallas, Texas, Market,
Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 68 Figure 24: Denver, Colorado,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 69 Figure 25: Miami, Florida, Market,
Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 70 Figure 26: Milwaukee, Wisconsin,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 71 Figure 27: Minneapolis, Minnesota,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 72 Figure 28: New Orleans, Louisiana,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 73 Figure 29: Phoenix, Arizona,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 74 Figure 30: Salt Lake City, Utah,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 75 Figure 31: San Diego, California,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 76 Figure 32: Seattle, Washington,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 77 Figure 33: Washington, D. C.,
Market, Retail Prices for Whole,

2- Percent, 1- Percent, and Skim Milk 78

Abbreviations

AMS Agricultural Marketing Service DOD Department of Defense ERS Economic
Research Service GAO General Accounting Office NASS National Agricultural
Statistics Service

Page 1 GAO- 01- 561 Milk Prices and Changing Market Structure

June 15, 2001 The Honorable Russell D. Feingold The Honorable Patrick J.
Leahy United States Senate

Each year about 7 billion gallons of fluid drinking milk (fluid milk) are
marketed in the United States yielding approximately $22 billion in annual
retail sales. Farmers, cooperatives, wholesale milk processors, 1 and
retailers participate in the process of moving milk from the dairy farm to
the consumer. Each of these entities performs a distinct function in the
production, processing, distribution, and sale of milk and each receives a
portion of the retail price of a gallon of milk for the functions they
perform. Recently, milk prices at the farm- level have fallen sharply,
prompting the Congress to authorize about $675 million dollars in the past
year of emergency assistance to dairy farmers to help mitigate the effects
of low farm- level milk prices. At the same time, fluid milk prices at the
retail level have not experienced a similar decline. Consequently, the
growing price spread between farm and retail milk prices has raised
concerns.

At your request, we reexamined issues pertaining to fluid milk pricing and
marketing and updated the information included in our October 8, 1998,
report. 2 This report examines (1) the factors that influence the price of
milk as it moves from the farm to the consumer, (2) the proportionate
breakdown of the retail price of a gallon of milk received by farmers,
cooperatives, wholesale milk processors, and retailers, (3) how changes in
farm and retail milk prices affect the farm- to- retail milk price spread,
(4) how price changes at any level of the marketing chain relate to changes
in prices at other levels, and (5) the retail prices of the four types of
fluid milk- whole, 2- percent (or reduced fat), 1- percent (or low- fat),
and skim (or fat- free)- in selected markets. In addition, you asked us to
provide information on consolidation and concentration trends in the dairy

1 Wholesale milk processors include bottlers and major retail food chains
with bottling plants, and cooperatives that process, package, and distribute
fluid milk for sale to retailers. We did not include other entities that
market milk at the wholesale level.

2 Dairy Industry: Information on Prices for Fluid Milk and the Factors That
Influence Them (GAO/ RCED- 99- 4, Oct. 8, 1998).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 561 Milk Prices and Changing Market Structure

industry and what is known about the impact of concentration on fluid milk
prices.

To provide this information, we conducted a comparative analysis of fluid
milk prices at each level of the marketing chain for selected markets in 14
states nationwide and the District of Columbia during the period of March
1998 through September 2000. 3 Except for our retail price comparison of the
four types of milk, our analysis generally focused on 2- percent milk sold
in gallon containers- the largest volume of milk sold nationwide.

In summary, we found the following:

 As we reported in 1998, prices at all levels of the fluid milk marketing
chain are determined by the interaction of numerous supply and demand
factors. A number of factors influence the supply of milk that entities at
one level of the fluid milk marketing chain are willing to sell to entities
at the next level, including the costs incurred in the production and
marketing of fluid milk; government policies that establish minimum prices
for unprocessed milk used for fluid purposes; the degree of competition
existing in the market place; and the price that the entities expect to
receive for the milk. Similarly, the retail price of milk and substitute
goods, along with the size, age, tastes, and income levels of the population
living in a given marketing area, can influence that area?s demand for fluid
milk. Furthermore, the retail price of milk is influenced by retailers?
operating costs, their need to earn a return on their investment, and other
factors, such as the pricing strategies which retailers and their
competitors use to set prices for milk and other products. Since we last
reported on this issue, the most significant changes affecting fluid milk
prices are the modifications made to the federal milk marketing order
system, including the method used to set minimum prices for unprocessed milk
in federally regulated markets. These changes resulted in the federally
established minimum prices for fluid milk being higher in most markets than
they would have been if the changes had not been made.

 Between March 1998 and September 2000, on average, farmers received 43
percent, cooperatives 5 percent, wholesale milk processors 33 percent, and
retailers 19 percent of the retail price of a gallon of 2- percent milk in

3 The 15 markets included in our report are: Atlanta, Boston, Charlotte,
Cincinnati, Dallas, Denver, Miami, Milwaukee, Minneapolis, New Orleans,
Phoenix, Salt Lake City, San Diego, Seattle, and Washington, D. C.

Page 3 GAO- 01- 561 Milk Prices and Changing Market Structure

the markets we reviewed. However, these numbers varied widely depending on
the specific market. For example, the farmers? portion of the price of a
gallon of 2- percent milk ranged from 35 percent to 52 percent, while
retailers collected anywhere from 2 percent to 33 percent, depending on the
location analyzed.

 For the period we reviewed, the price spread between farm- level and
retail- level milk prices increased in 9 of the 15 markets. Retail prices
remained steady or increased in 12 of the 15 markets. However, farm- level
prices in almost all of the markets showed no statistically significant
trend when we compared prices at the beginning and end of our review period.
Farm prices did experience considerable volatility, with price peaks in
certain months that were significantly higher than other months.

 As expected, changes in milk prices at one level of the milk marketing
chain had the tendency to translate directly to price changes at the next
immediate level for our review period. For example, we found a strong
correlation between changes in farm and cooperative prices and between
wholesale and retail prices in most of the markets we reviewed. In contrast,
the correlation between changes in farm- level and retail- level prices was
weaker.

 Retail prices for the four kinds of milk varied significantly in the
markets we analyzed. For example, we found that some markets sold 1- percent
milk at the lowest price while others sold skim and 2- percent milk at the
lowest price.

 The dairy industry, like much of the agricultural sector, has faced an
increased amount of consolidation in the past decade. As a result, dairy
farms, cooperatives, wholesale milk processors, and retail grocery stores
have all witnessed consolidation leading to fewer, but larger, players in
the industry and a greater degree of concentration at each level of the
marketing chain. For example, between 1997 and 1999 in 11 of the 14 federal
markets for which we could obtain data, the degree of concentration-
measured as the market share of the top four players in the market-- at the
cooperative level increased from 72 to 77 percent. At the wholesale level
for these 14 federal markets, the degree of concentration increased from 69
to 76 percent. If high levels of concentration occur in a market or industry
that lacks competition or has barriers to entry, it can raise concerns and
lead to a federal investigation or intervention by the Federal Trade
Commission (FTC) or the Department of Justice. In recent years, FTC and
Justice have intervened in several cases where merger and consolidation
activities of dairy processors or retail grocery stores would have reduced
competition in some markets. However, only a limited amount of research has
been conducted to determine the impact of concentration on fluid milk
prices. The relevant studies that we reviewed show mixed results about the

Page 4 GAO- 01- 561 Milk Prices and Changing Market Structure

effects of concentration on prices. While some studies reported that the
increased concentration could lead to greater market power and higher
prices, others noted that the increased concentration led to greater
economies of scale and lower costs.

We presented a draft of this report to USDA and DOD for comment. USDA and
DOD officials generally agreed with the information presented in the report.
The agencies also provided us with technical clarifications that we
incorporated as appropriate.

This report is divided into seven appendixes, each describing an aspect of
our analysis of fluid milk prices in 15 markets between March 1998 and
September 2000. Appendix I describes in detail our objectives, scope, and
methodology. Appendix II describes the factors that influence prices as milk
moves from the farmer to the consumer. Appendix III provides information on
average fluid milk prices at the farm, cooperative, wholesale, and retail
levels; changes in farm and retail milk prices and how they affect the farm-
to- retail price spread; and the extent to which price changes at one level
in the milk marketing chain are related to price changes at other levels.
Appendix IV compares retail prices of whole, 2- percent, 1- percent, and
skim milk. Appendix V provides the average monthly prices of the four types
of milk at each level of the milk marketing chain. Appendix VI provides
information on consolidation trends and concentration levels in the dairy
industry. Appendix VII provides a technical review of recent research to
measure the effects of industry concentration and market power on fluid milk
prices.

We provided the U. S. Department of Agriculture (USDA) and the Department of
Defense (DOD) with a draft of this report for their review and comment. On
May 18, 2001, we met with officials from USDA?s Agricultural Marketing
Service (AMS) including the Chief Economist of AMS, Economic Research
Service, and others to obtain their oral comments on the draft report. The
USDA officials generally agreed with the information presented in the
report, but reiterated their concerns about our use of commissary prices as
proxy for wholesale milk prices. (USDA officials had raised similar concerns
for our 1998 report.)

According to the officials, commissary prices may not be a good surrogate
for wholesale prices because (1) some of the commissaries are not in close
proximity to the markets we analyzed, (2) the wholesale price data were
derived from a single store in each market we analyzed, and (3) the
commissary price is generally based on contracts awarded to the Agency
Comments

Page 5 GAO- 01- 561 Milk Prices and Changing Market Structure

lowest- cost bidder and may not reflect the wholesale prices paid by
retailers in a given market. However, commissary prices were the best
surrogate we could obtain for wholesale prices. Actual wholesale price data
are considered proprietary industry data and were unavailable. We generally
agree with USDA?s concerns that commissary prices may not be fully
representative of wholesale prices because they are derived from a single
store in each of the markets and are often based on contracts awarded to the
lowest- cost bidder. However, we disagree with USDA?s comment that the
commissaries we selected were not in close proximity to the markets we
analyzed. As displayed in figure 1 in appendix I, for almost all of the 15
markets included in our analysis, the commissary that we selected was within
the marketing area being analyzed.

USDA officials also provided us with technical comments that we incorporated
into the report as appropriate.

In its comments on a draft of this report, DOD stated that it agreed with
the milk price information obtained from the defense commissaries. In
addition, DOD provided us with technical comments that we have included as
appropriate.

To update our information of the major factors influencing milk prices, we
contacted several national dairy experts working with the federal
government, cooperatives, processors, or in academia. We also reviewed
legislation, studies, and other publications detailing current trends and
transformations in the structure of the dairy industry. To update our
information on the pricing relationships among the various levels of the
milk marketing chain, we analyzed milk prices in 15 selected markets
nationwide, ensuring that (1) these markets provided geographical coverage,
(2) at least one market was located in each of the new federal milk
marketing orders, and (3) the selected markets included both state and
federally regulated markets. For these 15 markets, we obtained data on the
prices received by farmers, cooperatives, wholesale milk processors, and
retailers, from USDA, a state milk control agency, DOD, and a private data-
collection company. We limited our data collection efforts to whole, 2-
percent, 1- percent, and skim milk sold in gallon containers- which together
constitute about 66 percent of the milk sold in the United States. We
limited our detailed data analysis primarily to 2- percent milk sold in
gallon containers. As a result, our analysis may not reflect pricing trends
for all types of milk. (See app. I for a detailed description of our scope
and methodology.) We did not verify the accuracy of the data we received
because we did not have access to the information

Page 6 GAO- 01- 561 Milk Prices and Changing Market Structure

from which they were compiled. We therefore attributed all the data used in
our analysis to the source from which we obtained it. To provide information
on trends in consolidation in the dairy industry and the impact of
concentration on fluid milk prices, we analyzed national and regional milk
marketing data collected by USDA for the month of December for the
consecutive years of 1997, 1998, and 1999, and reviewed recent academic and
government studies on this issue.

We conducted our review from July 2000 through May 2001 in accordance with
generally accepted government auditing standards.

As arranged with your offices, unless you publicly announce its contents
earlier, we will make no further distribution of this report until 30 days
after the date of this letter. At that time, we will send copies to the
Senate Committee on Agriculture, Nutrition, and Forestry; the House
Committee on Agriculture; other appropriate congressional committees;
interested Members of Congress; the Honorable Ann M. Veneman, Secretary of
Agriculture; the Honorable Donald H. Rumsfeld, Secretary of Defense; the
Honorable Mitchell Daniels, Jr., Director, Office of Management and Budget;
and other interested parties. Copies will also be made available to others
upon request.

If you or your staff have any questions about this report, please contact me
or Anu Mittal at (202) 512- 3841. Other key contributors to this report are
listed in appendix VIII.

Lawrence J. Dyckman Director, Natural Resources

and Environment

Appendix I: Objectives, Scope, and Methodology

Page 7 GAO- 01- 561 Milk Prices and Changing Market Structure

In April 2000, Senators Feingold and Leahy requested that GAO examine a
number of issues concerning the pricing and marketing of fluid drinking milk
(fluid milk) in the United States. Specifically, they asked us to update the
information contained in our 1998 report, entitled Dairy Industry:
Information on Prices for Fluid Milk and the Factors That Influence Them
(GAO/ RCED- 99- 4, Oct. 8, 1998). This report examines (1) the factors that
influence the price of milk as it moves from the farm to the consumer, (2)
the proportionate breakdown of the retail price of a gallon of milk received
by farmers, cooperatives, wholesale milk processors, and retailers, (3) how
changes in farm and retail milk prices affect the farm- toretail milk price
spread, (4) how price changes at any level of the marketing chain relate to
price changes at other levels, and (5) the retail prices of the four types
of fluid milk- whole milk, 2- percent (or reducedfat), 1- percent (or low-
fat), and skim (or fat- free) milk- in selected markets. In addition, you
asked us to provide information on consolidation trends in the dairy
industry and the impact that the resulting concentration has had on the
price of fluid milk.

To obtain current information on the major factors that influence the price
of milk as it moves from the farm to the consumer, we updated the
information contained in our October 1998 report by reviewing documents and
interviewing officials from the U. S. Department of Agriculture?s (USDA),
Agricultural Marketing Service (AMS), Economic Research Service (ERS), and
Rural Business- Cooperative Service. We also obtained documents from and the
views of academic researchers at Cornell University, the University of
Connecticut, the University of Wisconsin, and Texas A& M University, and
industry representatives of the Food Marketing Institute and International
Dairy Foods Association. In our report, we use Cornell University?s 1995
data on the cost of marketing a gallon of 2- percent milk in the New York
metropolitan area because it is the most current data available. We also
asked the various government officials, academic researchers, and industry
representatives that we contacted to comment on the current relevance and
accuracy of these data.

To obtain information on the proportionate breakdown of the retail price of
a gallon of fluid milk received by farmers, cooperatives, wholesale milk
processors, and retailers; changes in farm and retail prices and their
effect on farm- to- retail price spreads; and the relationship among price
changes at different marketing levels, we obtained information on milk
prices in 15 selected markets throughout the United States. These markets
were selected because (1) the data were available for these locations, (2)
they provided geographical coverage of the nation, and (3) they represented
Appendix I: Objectives, Scope, and

Methodology

Appendix I: Objectives, Scope, and Methodology

Page 8 GAO- 01- 561 Milk Prices and Changing Market Structure

both state- and federally- regulated markets. For these markets, we
collected data on the prices received by farmers, cooperatives, wholesale
milk processors, and retailers for March 1998 through September 2000. We
limited our data collection efforts to the sale of whole, 2- percent, 1-
percent, and skim milk sold in gallon containers, which constitute about 66
percent of the fluid milk sold in the United States.

No precise method exists by which to calculate or determine the price that
farmers receive for fluid milk. Because dairy farmers receive a blend price
for their milk- which is the average price for milk used for fluid and
manufactured products- it is not possible to precisely calculate the value
of milk used for just fluid milk. Any selected method only provides an
approximation of the value received by farmers for milk that is to be used
for fluid purposes, and should not be viewed as a precise measure.
Therefore, to determine an estimated farm- level price for fluid milk, we
used data provided by AMS. AMS developed an adjustment, which we deducted
from the announced cooperative Class I price, to obtain the estimated farm-
level fluid milk price for each of the selected cities in our review except
San Diego, California which is not covered by the Federal Milk Marketing
Order program. 1 The AMS- developed adjustment takes into consideration
farm- to- plant hauling costs, cooperative dues and capital assessments,
mandatory advertising and promotion costs, competitive and receiving
credits, and a representative estimate of the value of reimbursements to
cooperatives for the services performed for handlers and for transportation
costs not covered by the order minimum price. An AMS official noted that
values of some of the items that make up the adjustment are not available
for the fluid milk market in a specific city, but rather for all the milk
used in an entire order?s marketing area in which the city is located.
Therefore, an order- wide value used for any of these items provides an
estimate rather than the actual city- level value for the item. Also, the
values for two of the adjustment items- reimbursements to cooperatives for
services performed for handlers and for transportation costs not covered by
the order minimum price- were not readily available so they were estimated
indirectly based on other reported data items and, in some cases, anecdotal
information provided by industry members. However, even after considering
these limitations, AMS believes that the estimated farm level price provides
a good representation of the price that

1 Under the federal milk marketing orders, a classified pricing plan
provides different classes and minimum prices for milk depending on how the
milk is used. Milk used in fluid products is placed in Class I, which is the
highest- priced class. Milk used for various manufactured products is placed
in lower- priced classes.

Appendix I: Objectives, Scope, and Methodology

Page 9 GAO- 01- 561 Milk Prices and Changing Market Structure

dairy farmers receive for fluid milk. For the farm- level price for the San
Diego, California, market, we used the California mailbox price data that
are collected by the state. The mailbox price is the weighted average of the
prices received by all dairy farmers in the market and therefore is computed
as the total net dollars received for milk divided by the total pounds of
milk marketed.

To determine cooperative- level prices, we used AMS? announced cooperative
prices to represent prices that wholesale milk processors paid to
cooperatives. Wholesale milk processors in federally regulated markets
generally purchase milk from cooperatives and pay the federal minimum price
for fluid milk plus premiums that are negotiated between cooperatives and
wholesale milk processors. The announced cooperative price is the Class I
milk price announced by the major cooperative in each of the markets. The
announced cooperative price does not apply to all Class I sales in federally
regulated markets and is not necessarily the price actually received for all
of the fluid milk sold by the major cooperative. The announced cooperative
prices have not been verified by USDA as actually having been paid by
handlers. For San Diego, California- a state- regulated market- we used the
minimum fluid prices established by the state. Data on the premiums paid in
excess of these minimums were not available for this market. See appendix II
for a detailed discussion of over- order premiums.

To determine wholesale- level prices, we used the prices paid by the
Department of Defense?s Commissary Agency under competitive and non-
competitive contracts to wholesalers. We used commissary prices as a
surrogate for privately established wholesale prices because (1) defense
commissaries sell groceries at cost to active and retired military personnel
and (2) wholesale price data are considered proprietary by industry
officials and were not available to us. According to Defense Commissary
officials, the commissary network of stores ranks seventh in the United
States in terms of sales volume for supermarket chains. For each of the 15
markets we reviewed, we selected a nearby commissary and the Defense
Commissary Agency provided us with the monthly wholesale prices that
selected commissaries paid for gallons of whole, 2- percent, 1- percent, and
skim milk. We recognize that these locations may not provide an ideal match
with the other price data analyzed for a given location; however, these were
the best wholesale data that we could obtain. In those locations where
commissaries sold more than one brand of milk, we obtained the prevailing
price for the brand that had the highest sales volume for the period we
reviewed. Figure 1 shows the locations of the

Appendix I: Objectives, Scope, and Methodology

Page 10 GAO- 01- 561 Milk Prices and Changing Market Structure

15 selected markets, corresponding commissaries, and the federal milk
marketing order areas.

Figure 1: Selected Fluid Milk Markets With the Corresponding Defense
Commissaries Used for Our Analysis of Milk Prices, and the Federal Milk
Marketing Order Areas-- January 1, 2000

Source: Based on USDA and Defense Commissary Agency information.

Pacific Northwest

Upper Midwest

Appalachian Southeast Central

Southwest Western

Northeast Florida Arizona/ Las Vegas

Mideast Hanscom Air Force Base

Department of Defense Commissaries Fluid Milk Markets Federal milk marketing
order areas Not federally regulated

Fort Bragg Charlotte

New Orleans Naval Air Station Kelly Air

Force Base San Diego

Atlanta Miami New Orleans Everett

Naval Station

Fitzsimons U. S. Army Garrison Fort McCoy

Wright Patterson Air Force Base

Denver Salt

Lake City

Boston Washington, D. C. Cincinnati Minneapolis

Seattle Bolling Air Force Base

Athens Naval Supply Corps School

Key West Naval Air Station Dallas Hill Air Force Base

Great Lakes Naval Training Center

San Diego Naval Station Luke Air

Force Base Milwaukee

Phoenix

Appendix I: Objectives, Scope, and Methodology

Page 11 GAO- 01- 561 Milk Prices and Changing Market Structure

For retail- level prices, we contracted with A. C. Nielsen, a private data
collection and analysis company, to obtain average monthly retail prices for
gallons of whole, 2- percent, 1- percent, and skim milk for supermarkets
with yearly sales exceeding $2 million for the markets included in our
analysis.

To determine the (1) proportionate breakdown of the retail price of a gallon
of milk received by farmers, cooperatives, wholesale milk processors, and
retailers; (2) how changes in retail and farm prices affect the farm- to-
retail price spread; and (3) how price changes at any level of the marketing
chain relate to changes in prices at other levels, we limited our analysis
to 2- percent milk, which currently represents the largest volume of
reduced- fat milk sold nationwide. Therefore, our analysis of 2- percent
prices may not necessarily reflect pricing patterns and trends for the other
three kinds of milk. (Appendix III includes graphs that show the
relationships among the farm, cooperative, wholesale, and retail prices for
a gallon of 2- percent milk for each of the 15 markets.) Because farm- level
and cooperative- level prices reflect a higher milkfat content than is
present in 2- percent milk, we adjusted these prices to reflect the value of
removing milkfat and replacing it with skim milk. 2 This adjustment allowed
us to use farm- and cooperative- level prices that were comparable to the
wholesale- and retail- level prices for our analysis.

To determine the degree that farm and retail prices had changed and the
effect these changes had on the farm- to- retail price spread from March
1998 through September 2000 for each of the 15 markets, we used a
statistical procedure to estimate farm- level and retail prices at the
beginning and end of the period. 3 We used estimated rather than actual
prices to reduce the influence of the starting and ending months and years

2 For San Diego, California, we used prices that were adjusted for 2-
percent milkfat and 10- percent nonfat milk solids so that they were
comparable with retail milk sold in that state.

3 A regression procedure was used for each market to determine whether the
price could be reliably predicted as a function of time for both farm- level
and retail prices. This procedure allowed us to estimate initial and final
prices for farm- level and retail prices that take into account the
variability in these price series during the 31- month period. A
statistically significant relationship indicates that a stable trend, either
up or down, was found between price and time. For statistically significant
relationships, a final price estimate (computed for the last month of our
data series) was calculated and compared to an estimated price calculated
for the first month. In the absence of a statistically significant
relationship- when no trend differing from zero was found- initial and final
estimates of price are the same, even if actual beginning and final prices
differ.

Appendix I: Objectives, Scope, and Methodology

Page 12 GAO- 01- 561 Milk Prices and Changing Market Structure

selected for our analysis in markets in which there was considerable month-
to- month variability in milk prices. The differences between the estimated
initial and final prices represent the trend changes during the period. In
some cases, this difference may be zero because there is no apparent trend.
We calculated the change in the farm- to- retail price spread as the
estimated retail price difference minus the estimated farm price difference.

To describe the relationship between price changes at any given level in the
milk marketing chain and price changes at the other levels, we tested for
correlations between price changes at the various levels for each of the 15
markets included in our analysis. Specifically, we calculated coefficients
describing the degree of correlation between changes in farm- level prices
and price changes at the cooperative, wholesale, and retail levels; price
changes at the cooperative- level and price changes at the wholesale and
retail levels; and price changes at the wholesale and retail levels. In
appendix III, we report those correlation coefficients that are
statistically different from zero at the 95- percent confidence level.

To provide information on the retail prices for four kinds of milk, we
analyzed the retail price data that we obtained from A. C. Nielsen. These
data are arrayed in appendix IV for each of the selected 15 markets for
March 1998 through September 2000.

To obtain information on consolidation trends in the dairy industry, we
reviewed reports and studies by USDA, dairy and supermarket industry
organizations, and academic experts. We interviewed USDA officials and other
dairy industry experts regarding the structural changes occurring in the
dairy industry and retail food industry. To determine the degree of
concentration at various levels of the fluid milk marketing chain, we
estimated the market share of the four largest dairy cooperatives and the
four largest wholesalers in each of 14 federally- regulated markets included
in our review. For this analysis, we obtained proprietary data from USDA for
those federal milk marketing order areas (as they existed prior to January
2000), that corresponded to the 14 selected markets. For each of the 14
markets, we analyzed data on total milk deliveries by dairy cooperatives and
on total fluid milk processed by wholesalers during the month of December in
1997, 1998, and 1999. Figure 2 shows the locations of the 14 markets and
their corresponding federal milk marketing order area as it existed prior to
January 2000. In addition, we obtained data from the Economic Research
Service on market share of the four largest supermarkets in 1992 and 1998
for the 15 markets included in our review.

Appendix I: Objectives, Scope, and Methodology

Page 13 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 2: Selected Fluid Milk Markets and the Corresponding Federal Milk
Marketing Orders (as they existed prior to January 1, 2000), Used in Our
Analysis of Concentration at the Dairy Cooperative and Processor Levels

Source: Based on USDA information.

To obtain information on the impact of concentration and market power on
fluid milk prices, we summarized the methods and results of several economic
studies relating to market power in the dairy industry or fluid milk market.
We reviewed the economic literature on this issue and discussed our
observations about these studies with several USDA officials and other
agricultural economists familiar with dairy and industrial organization. We
also analyzed the economic issues surrounding

Pacific Northwest

(Seattle)

Upper Midwest

(Minneapolis)

Carolina

(Charlotte)

Southeast

(Atlanta, New Orleans)

Eastern Colorado

(Denver)

Southeastern Florida

(Miami)

Central Arizona

(Phoenix)

Chicago Regional

(Milwaukee)

Texas

(Dallas)

Ohio Valley

(Cincinnati)

New England

(Boston)

Middle Atlantic

(Washington, D. C.)

Great Basin

(Salt Lake City)

Appendix I: Objectives, Scope, and Methodology

Page 14 GAO- 01- 561 Milk Prices and Changing Market Structure

the application of market power models to the dairy industry and the fluid
milk market.

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 15 GAO- 01- 561 Milk Prices and Changing Market Structure

Each year the United States processes about 7 billion gallons of the
approximately 20 billion gallons of raw milk into fluid milk products, such
as flavored milks, buttermilk, whole, 2- percent, 1- percent, and skim milk,
that yield approximately $22 billion in retail sales. The rest of the raw
milk supply is used to produce manufactured products, such as butter, ice
cream, yogurt, powdered milk, and cheese. Dairy farmers receive a price for
unprocessed milk, and each entity involved in the processing and marketing
of fluid milk adds value to the product and receives a portion of the
difference between the farm and retail price. (This difference is known as
the price spread.) This appendix describes how unprocessed milk prices are
determined at the farm level and the factors that influence the price of
milk as it moves from the farm to the retail level. In addition, it provides
information on the costs associated with marketing milk, as estimated by
researchers at Cornell University, and industry officials? views regarding
these estimates. We could not obtain specific cost data for our analysis
because wholesale and retail cost data in the private sector are
proprietary.

Farm level prices for the unprocessed milk that is sold for use in fluid
milk products are determined by supply and demand forces that are influenced
by federal and state dairy programs. Federal and state programs ensure that
farm prices do not fall below a minimum level or provide a safety net for
individual farmers who lack market power compared with other entities, such
as wholesale milk processors and retailers. The primary federal programs
include the milk marketing order and dairy price support programs.

About 70 percent of the milk produced in the United States is regulated
under the federal milk marketing order program. The federal program sets
minimum prices that must be paid to farmers for unprocessed fluid grade milk
in specified marketing order areas. These prices vary by the class of
product for which the milk is used, and for milk used in fluid products the
minimum price also varies by location.

Since our last report, the method for determining the minimum price for
fluid milk under the federal milk marketing order program has changed as a
result of reforms authorized by the Federal Agriculture Improvement and
Appendix II: Factors That Influence the Price

of Fluid Milk as It Moves From the Farm to the Consumer

Federal and State Policies Influence Milk Prices at the Farm Level

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 16 GAO- 01- 561 Milk Prices and Changing Market Structure

Reform Act of 1996 (1996 farm bill). 1 As of January 1, 2000, minimum prices
are no longer based on the price of Grade B milk- manufacturing- grade milk
that can only be used for manufactured dairy products- in Minnesota and
Wisconsin. Under the revised program, USDA uses the following four classes
of milk prices: (1) Class I prices for milk used for fluid purposes; (2)
Class II prices for milk used for soft manufactured products such as yogurt
and ice cream; (3) Class III prices for milk used in hard cheese production;
and (4) Class IV prices for milk used for butter and powdered milk. This
modification to the order recognizes that the markets for cheese and butter/
powdered milk are distinct and therefore should be priced separately. Under
the revised federal milk marketing order program, the minimum price that
processors pay for Class I milk is based on the higher of the Class III or
Class IV price in each month. 2 In addition, for milk used for fluid
products, Class I differentials are also added to the higher of the Class
III or Class IV prices to set the minimum Class I price in every county of
the contiguous 48 states. USDA estimates that after the changes went into
effect on January 1, 2000, the average Class I differential increased by 7
cents per hundredweight.

Dairy farmers who sell milk to wholesale milk processors who are regulated
by a federal milk marketing order receive an average price or blend price
that is based on the weighted average of the four usage classes for all the
raw milk sold to all processors regulated by that marketing order. The
average price of milk they receive depends, in part, on the extent that the
total milk supply in an order is being used for fluid or manufacturing
purposes. For example, in some areas of the country, such as the Southeast
region, fluid milk accounted for a greater proportion of a dairy farmer?s
milk check- about 66 percent in October 2000. However, in that same month,
in other parts of the country, such as the Upper Midwest region, fluid milk
prices accounted for only about 20 percent of a dairy farmer?s milk check.
Buyers of milk regulated by federal and state programs are permitted to pay
farmers prices in excess of the established minimums- known as over order
premiums.

1 The 1996 farm bill authorized USDA to reform the federal milk marketing
order program to include (1) the consolidation of the existing 31 milk
marketing orders to between 10 and 14 orders and (2) revising the basic
formula price which is used to set the federal minimum price for milk.

2 According to a USDA estimate, in calendar year 2000, this change resulted
in about a $1.76 per hundredweight increase in the Class I milk price in
calendar year 2000.

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 17 GAO- 01- 561 Milk Prices and Changing Market Structure

Some areas, such as California, which are not under the federal milk
marketing order program, are covered by state programs. In these areas,
dairy farmers are paid the minimum milk prices that are established by the
state government. These minimum prices may be higher than federal minimum
prices.

In addition to federal and state regulatory programs that enforce minimum
milk prices, in 1996, the Congress approved the creation of the Northeast
Interstate Dairy Compact for six New England states. 3 The Compact
supplements federal and state programs by setting the minimum price to be
paid by processors for fluid milk marketed in the six- state area. In July
1997, the Compact set a minimum price of $16.94 per hundredweight for fluid
milk, and that minimum price has not changed. Consequently, in months when
the federal minimum price for fluid milk for the Northeast milk marketing
order falls below the Compact price, milk processors in that order must pay
at least the Compact price on their Class I use. In other months, when the
federal minimum price is higher than the Compact price, milk processors must
pay at least the federal minimum price. Since the Compact price was
established, federal minimum prices in the Northeast milk marketing order
have ranged between $13.50 to $20.50 per hundredweight. Dairy farmers from
other states that supply milk to the Compact area also benefit from the
Compact set minimum. A number of other regions in the country, such as some
southeastern states, are considering the adoption of similar compact
arrangements.

Farm- level prices are also influenced by the dairy price support program
created in 1949. This program supports farm- level prices by providing a
standing offer from the government to purchase butter, cheese, and nonfat
dry milk at specified prices. The prices offered for these dairy products
are intended to provide sufficient revenue so that dairy product
manufacturers can pay farmers, on average, the legislatively mandated
support price. This program has the effect of providing a floor for the
price of milk used for manufacturing purposes. As a result, it influences
the price that farmers receive for milk used for fluid purposes under the
milk marketing order program because the support price sets a floor below
which manufacturing product prices are unlikely to fall for very long. The
price support program offers a safety net to all dairy farmers, including
those

3 The six compact states include Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, and Vermont. The Compact is scheduled to terminate,
unless reauthorized, by September 30, 2001.

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 18 GAO- 01- 561 Milk Prices and Changing Market Structure

who do not participate in federal or state milk marketing orders. The 1996
farm bill provided for the dairy price support program to terminate by the
end of 1999. However, the Congress has twice extended the program and the
current authority extends the program through calendar year 2001.

The decrease in farm- level milk prices from the latter part of 1999 through
2000 has been largely attributed to record increases in production during
1998 through 2000. During this time period, milk production increased by
almost 7 percent, and even though demand was relatively strong, it was not
strong enough to absorb the increase in production without decreasing the
price. According to USDA, farm- level prices for milk in 2001 are recovering
due to a decline in milk production and continued strong demand for milk.

The price at which cooperatives sell raw milk to wholesale milk processors
is influenced by the minimum price established by federal and state milk
marketing order programs, the cost of services that the cooperatives
provide, the relative market power of cooperatives and milk processors, the
supply of milk available from farmers, and the demand for fluid and
manufactured milk products by consumers.

About 83 percent of all milk produced in the United States is marketed
through dairy cooperatives that are owned and financed by farmer- members. 4
Cooperatives can either (1) process, package, and distribute fluid milk or
manufactured dairy products to retail outlets for sales to consumers or (2)
sell the unprocessed milk to wholesale milk processors who process, package,
and distribute fluid milk or manufactured dairy products for sale to retail
outlets. 5 Cooperatives operate like corporate businesses to perform
services for their members. Some distinctive features of cooperatives
include member- user ownership and control, services at cost to their
members, and distribution of income to their members on the basis of their
patronage. For example, Land O? Lakes, one of the largest dairy cooperatives
in the country, serves over

4 Milk not marketed through cooperatives is sold directly to processors or,
in some instances, is processed into dairy products by farmers themselves.
Cooperatives processed and marketed about 14 percent of all fluid milk
produced in 1997, down from about 16 percent in 1992.

5 See our report entitled Dairy Industry: Information on Marketing Channels
and Prices for Fluid Milk (GAO/ RCED- 98- 70, Mar. 16, 1998) for more
information on the role of cooperatives and other entities in the marketing
of fluid milk. Services Provided by

Dairy Cooperatives Affect the Price of Milk

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 19 GAO- 01- 561 Milk Prices and Changing Market Structure

11,000 members and processes about 12 billion pounds of milk annually.
According to company documents, all Land O? Lakes members are owners of the
cooperative and participate in a democratic process by which they direct the
policies of the organization, and they share the profits of the business
based on their business volume.

Most dairy cooperatives require that farmers sign a 1 year membership
agreement that commits them to market all of their milk through the
cooperative. 6 In return, the cooperative commits to performing a variety of
services for its members. Some reasons that farmers join dairy cooperatives
are to:

 guarantee a market outlet for their milk,

 gain bargaining power to obtain the best price in the market,

 have their milk marketed efficiently, including the assurance that their
milk will be accurately weighed and tested, and

 be effectively represented in legislative, regulatory, and public
relations matters.

Cooperatives generally sell unprocessed milk that will be used for fluid
purposes to wholesale milk processors at prices above the federal or state
minimums. In federally or state- regulated markets, any differences between
the prices charged to the wholesalers and the minimum prices are known as
over- order premiums. Over- order premiums are set by the marketplace and,
in part, compensate cooperatives for the services they provide to
wholesalers. These services include (1) transporting milk from different
milk- producing areas, (2) scheduling milk deliveries to coincide with
demand, and (3) standardizing the component content of milk deliveries. In
addition, over- order premiums reflect both market conditions and market
power acquired by cooperatives relative to processors. According to some
dairy experts, actual supply and demand conditions in the market have a
greater impact on the amount of over- order premiums charged by cooperatives
than the market power exercised by the cooperatives. In commenting on a
draft of this report, a USDA official stated that over- order premiums
offset the market power of cooperatives relative to processors. According to
this official, processors may have market power that is attributable to
concentration in the industry and because they are purchasing a perishable
commodity.

6 Typically, these agreements are self- renewing.

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 20 GAO- 01- 561 Milk Prices and Changing Market Structure

The price at which wholesale milk processors 7 sell fluid milk to retailers
is influenced by the price that wholesalers pay to acquire the unprocessed
milk; the costs they incur for processing, packaging, and distributing fluid
milk to retail outlets; the wholesalers? need to earn a return on investment
in order to remain in business; and consumer demand for fluid milk.
Wholesalers provide processing services including pasteurization,
homogenization, and the standardization of milkfat and nonfat solids in
flavored milks, buttermilk, whole, 2- percent, 1- percent, and skim milk.
Wholesalers also package these products into a variety of types and sizes of
containers and arrange for their distribution to retail outlets for sale to
consumers. In addition to shipping the products to retailers, some
wholesalers provide different levels of in- store service, according to
industry officials. For example, some wholesalers provide a full range of
services to retailers including unloading the milk on the store dock,
restocking the dairy case, and removing outdated or leaking containers,
while others may not provide any services to retailers beyond delivering
products to the shipping docks. Differences in wholesale- level prices
reflect differences in any or all of these factors.

Furthermore, according to dairy industry officials we contacted, in some
highly regulated markets, state regulations may increase both wholesale and
retail milk prices. For example, an official from one of the nation?s
largest grocery wholesalers told us that the distribution of milk in North
Dakota is restricted to wholesale distributors that are state approved.
Consequently, milk can only be delivered to retail stores on trucks that are
owned by an approved wholesale distributor. This requirement prohibits
retailers and non- approved wholesale distributors from using their own
trucks to deliver milk to retail stores, which in some cases may be a less
costly and more economical delivery method, especially in isolated, rural
areas.

Typically, wholesale cost and pricing data for the private sector are not
available to the public because such data are considered proprietary and do
not reflect standard terms of sale. Furthermore, any sharing of cost or
pricing data with competitors or others could be considered a violation of
state and/ or federal antitrust laws. However, in 1997, researchers at
Cornell University published a study that estimated these costs based on

7 Wholesale milk processors include bottlers and major retail food chains
with bottling plants, and cooperatives that process, package, and distribute
fluid milk for sale to retailers. We did not include other entities that
market milk at the wholesale level. Wholesalers?

Processing, Packaging, and Distributing Costs Influence the Price of Fluid
Milk

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 21 GAO- 01- 561 Milk Prices and Changing Market Structure

information obtained from a survey of wholesalers. The researchers surveyed
35 well- managed plants that were operated by 23 companies. 8 The 35 plants
in the sample included 22 proprietary plants, 5 cooperative plants, and 8
supermarket- owned plants. The plants processed an average of 28 million
pounds of milk per month, ranging from slightly more than 13 million pounds
to more than 51 million pounds. Distribution cost estimates were based on
large accounts served by the plants, including supermarkets, large
convenience stores, and club stores.

The Cornell researchers estimated that in 1995, the total cost to sell a
gallon of 2- percent milk for a large supermarket in the New York
metropolitan area was about $2.12. (This amount also included an estimated
19 cents per gallon for handling costs incurred by the retailer and the
retailer?s return on investment.) According to officials of dairy
cooperatives, wholesalers, and retailers of fluid milk, the estimates
developed by the researchers at Cornell University were generally
representative of the cost of performing fluid milk processing and marketing
functions in 1995. However, many of the costs included in the Cornell study
have increased significantly since 1995. We were unable to identify any
other study with more recent estimated costs and the Cornell study has also
not been updated.

In addition, dairy industry experts told us that the costs for distributing
milk in other markets could be significantly higher than the 10 cents per
gallon estimated in the study for the New York metropolitan area. In
particular, distribution costs in rural markets could range as high as 25
cents to 40 cents per gallon of milk. According to one industry official,
delivery costs to rural markets are higher than some urban markets because
wholesalers have to deliver smaller quantities of fluid milk products to
more isolated, rural stores. These additional costs are often reflected in
higher wholesale and retail prices for fluid milk in these areas. Figure 3
shows the various estimated costs associated with marketing a gallon of 2-
percent milk through supermarkets in the New York metropolitan area in 1995.

8 E. M. Erba, R. D. Aplin, and M. W. Stephenson, An Analysis of Processing
and Distribution Productivity and Costs in 35 Fluid Milk Plants. R. B. 97-
03, Department of Agricultural, Resource, and Management Economics. (Ithaca,
NY: Cornell University, 1997).

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 22 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 3: Estimated Costs of Marketing a Gallon of 2- Percent Milk in the
New York Metropolitan Area, 1995

Furthermore, industry representatives told us that the Cornell study did not
include a wide range of marketing costs that wholesalers incur. They stated
that, in recent years, wholesalers have had to engage in a variety of new
marketing activities due to the changing nature of demand for milk products
and competition in the beverage market. For example, a 1999 report
commissioned by the Fluid Milk Processor Promotion Board found that between
1995 and 1999, the annual growth rate in fluid milk consumption was about 0.
4 percent, whereas the annual growth rate in consumption of other competing
beverages, such as soft drinks, fruit juices, and bottled water, was 3.7
percent. The report found that fluid milk

,

2%

Selling ($ 0.05)

* 3%

Return on investment ($ 0.06)

 3%

Administrative ($ 0.07)

 5%

Distribution ($ 0.10)

 5%

Packaging ($ 0.10)

 11% 

Plant ($ 0.24)

62% 

Raw product ($ 1.31)

 9%

Retailing ($ 0.19)

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 23 GAO- 01- 561 Milk Prices and Changing Market Structure

is experiencing intense competition from branded beverages that have co-
opted many of the benefits of milk, for example, juices that have been
fortified with calcium. According to dairy industry experts, as other
beverage competitors have eroded the market share of fluid milk products,
milk processors have had to be more creative in providing a wider range of
products, in a wider assortment of packaging, for a broader variety of
outlets. Consequently, they have incurred higher costs for (1) research and
development of new products and packaging, (2) new packaging machinery and
equipment, (3) packaging materials, (4) handling and distribution, and (5)
advertising and promotion for both new and existing products. These elevated
marketing costs are ultimately reflected in higher wholesale and retail
prices for fluid milk.

When retailers sell fluid milk to consumers, the prices are influenced not
only by supply and demand considerations that determine the overall retail-
level market price for fluid milk, but also by specific considerations that
affect prices at individual retail outlets. To determine the overall price
charged at the retail level, the quantity of fluid milk supplied by
retailers is influenced by the prices that retailers have to pay wholesalers
to acquire the product; retailers? operating costs, such as labor, rent, and
utilities; the volume of milk sold; and their need to earn a return on
investment to stay in business. On the other hand, the amount of fluid milk
that consumers purchase at the retail level is influenced by factors beyond
the price of fluid milk, such as the size, age, income levels, and tastes of
the population in the marketing area, and the prices of substitutes. Studies
performed by economists and others over the years have shown that the demand
for milk at the retail level is relatively insensitive to changes in price
because of the lack of close substitutes. Generally, these studies have
concluded that a 1- percent increase or decrease in the price of fluid milk
will result in less than a 1- percent decrease or increase in the quantity
that consumers will purchase. However, several industry officials told us
that they believe that the demand for milk in recent years, although still
relatively insensitive to changes in price, has become more sensitive than
in the past. In commenting on a draft of this report, USDA officials
disagreed with the views of industry officials and believe that demand for
milk is generally insensitive to milk price changes.

Additional considerations influence the manner in which retail prices for
milk are set at individual retail outlets. To meet their stores? goals, such
as profit maximization and increased market share, retailers use a
combination of strategies for pricing fluid milk. In developing these
pricing strategies, retailers consider their retailing costs, the prices
charged by Retail Milk Prices

Depend on the Pricing Strategies Used by Retailers

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 24 GAO- 01- 561 Milk Prices and Changing Market Structure

their competitors, the role that milk prices play in attracting customers to
their stores, the convenience offered by their store compared with other
stores, and their desire to build an image of quality or low prices for
their stores. The retail pricing strategies that are primarily based on a
retailer?s operating costs are generally referred to as vertical pricing
strategies, whereas those strategies that are based on responding to prices
charged by competitors are referred to as horizontal pricing strategies.
Retailers generally use a combination of horizontal and vertical pricing
strategies when setting prices for fluid milk.

Retailers who emphasize a vertical pricing strategy set retail prices in a
manner that allows them to recoup (1) the price paid to wholesalers; (2)
operating costs such as rent, labor, interest expense, and general overhead;
and (3) a return on investment. Some retailers charge different markups on
various products sold in their stores while seeking an overall profit margin
target for the store. For example, a retailer wishing to promote a low- cost
image for the store may sell gallons of 2- percent milk at or near cost
while raising the price of other items in the store. On the other hand,
retailers wishing to increase the profitability of their dairy products
might maintain relatively high prices for fluid milk but set lower prices
for other items in the store. Retailers? pricing strategy choices will
depend on their views about the importance of milk prices versus the prices
of other products sold in their stores in influencing consumers? overall
perceptions about their stores.

Retailers who emphasize a horizontal pricing strategy set fluid milk prices
in response to the prices being charged by competitors in their area.
Retailers who emphasize such strategies are very sensitive to price levels
at neighboring retail outlets and will adjust their prices accordingly to
create an image of lower or more competitive prices. Also, retailers who
emphasize horizontal pricing strategies may be less sensitive to market
signals on the wholesale price of milk. Instead, they may continue to price
milk at a certain price even though wholesalers have either increased or
decreased prices.

Furthermore, retail prices are influenced by state regulations and
customers? desire for convenience or high quality. For example, state
regulations that prohibit wholesalers and retailers from selling milk below
cost can result in higher retail milk prices. Such regulations prevent
retailers from using lower- priced milk as a means of attracting more
customers to their stores. In addition, according to industry officials,
retail prices for fluid milk may be influenced by the fact that some
consumers are willing to pay a higher price for convenience and quality. For
example,

Appendix II: Factors That Influence the Price of Fluid Milk as It Moves From
the Farm to the Consumer

Page 25 GAO- 01- 561 Milk Prices and Changing Market Structure

convenience stores sell only a limited number of items, allowing consumers
to purchase fluid milk quickly and spend less time in the store. As a
result, these stores can charge a higher price for fluid milk than
supermarkets charge primarily for the convenience that they provide.
Similarly, retail stores that emphasize high- quality products may stock
widely recognized brand- label fluid milk products for which their customers
are willing to pay a higher price because they associate the brand label
with better quality. Industry officials told us that some retailers believe
that a stable retail price for milk may also help create an impression of
high quality. However, some recent research on milk price stability
indicates that some consumers value price variability over stable prices
because it allows them to take advantage of lower prices. 9

9 ?Empirical Tests of the Argument that Consumers Value Stable Retail Milk
Prices?,

Journal of Agribusiness, 18- II (2000): 155- 72.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 26 GAO- 01- 561 Milk Prices and Changing Market Structure

This appendix summarizes our analysis of farm- to- retail prices for a
gallon of 2- percent milk in 15 selected markets nationwide for March 1998
through September 2000. Our analysis includes information on (1) the
proportionate breakdown of the price of a gallon of milk received by
farmers, cooperatives, wholesale milk processors, and retailers; (2) how
changes in farm and retail milk prices affect the farm- to- retail milk
price spread; and (3) how price changes at any level of the marketing chain
relate to changes in prices at other levels. We limited our analysis to
gallons of 2- percent milk because in recent years sales of milk products
with a reduced fat content have increased and account for about 63 percent
of all retail sales of fluid milk. Of this amount, sales of 2- percent milk
account for about 55 percent of the total sales of milk with a reduced fat
content. The farm and cooperative prices, which are included in our analysis
and presented in this appendix, have been adjusted for 2- percent milkfat.
Our analysis of 2- percent milk prices may not reflect pricing patterns and
trends for the other three kinds of milk. Complete data on prices for all
four kinds of milk- whole, 1- percent, and skim as well as 2- percent- are
presented in appendix V.

Between March 1998 and September 2000, on average, farmers received 43
percent, cooperatives 5 percent, wholesale milk processors 33 percent, and
retailers 19 percent of the retail price of a gallon of 2- percent milk in
the markets we reviewed. However, these numbers varied widely depending on
the specific market. For example, the farmers? portion of the price of a
gallon of milk ranged from 35 percent to 52 percent, while retailers
collected anywhere from 2 percent to 33 percent. Table 1 provides these data
for each of the selected markets.

Table 1: Portion of the Retail Price of a Gallon of 2- Percent Milk Received
by Farmers, Cooperatives, Wholesale Milk Processors, and Retailers for 15
Markets, March 1998 Through September 2000

Selected market area Percent received by farmers Percent received

by cooperatives Percent received

by wholesale milk processors Percent received

by retailers Percent received

by wholesale milk processors

and retailers

Atlanta, GA 39 6 31 24 55 Boston, MA 47 5 23 25 48 Charlotte, NC 42 5 29 24
53 Cincinnati, OH 50 5 36 9 45 Dallas, TX 52 4 65 (21) a 43 Denver, CO 38 4
24 33 57

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Portion Received by Farmers, Cooperatives, Wholesale Milk Processors, and
Retailers

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 27 GAO- 01- 561 Milk Prices and Changing Market Structure

Selected market area Percent received by farmers Percent received

by cooperatives Percent received

by wholesale milk processors Percent received

by retailers Percent received

by wholesale milk processors

and retailers

Miami, FL 43 7 34 16 50 Milwaukee, WI 46 5 29 21 49 Minneapolis, MN 35 4 32
30 62 New Orleans, LA 40 6 52 2 54 Phoenix, AZ 50 3 36 11 47 Salt Lake City,
UT 43 4 36 16 53 San Diego, CA 35 7 28 31 58 Seattle, WA 45 4 18 33 52
Washington, DC 46 5 17 32 49 Average for the 15 markets 43 5 33 19 52

a Our analysis shows that retailers in the Dallas market received a negative
return on a gallon of 2- percent milk for the 31- month period. According to
an AMS official, this is because a price war was occurring in Dallas during
this time period.

Source: GAO?s analysis of farm level and cooperative price data provided by
USDA, wholesale price data provided by the Defense Commissary Agency, retail
price data provided by A. C. Nielsen, and for San Diego, the mailbox and
Class I price data provided by the California Department of Food and
Agriculture.

From March 1998 through September 2000, the price spread between farm- level
and retail- level milk prices increased in 9 of the 15 markets. Retail
prices remained steady or increased in 12 of the 15 markets. 1 However,
farm- level prices showed no statistically significant trend when we
compared prices at the beginning and end of our review period. Farm prices
did experience considerable volatility, with price peaks in certain months
that were significantly higher than other months. Table 2 provides these
data for each of the selected markets. 2

1 In one of the three markets where the average retail price decreased, it
was because of a price war. 2 The values used to calculate increases or
decreases in retail and farm- level prices in table 2 are based on
statistical estimates of initial and final prices for these two levels, not
the actual observed prices recorded in the first and last month of the
period for which we have data. The method for calculating these estimates is
described in app. I. The changes in the farm- to- retail price spread are
the differences between the changes in retail- and farm- level prices from
March 1998 to September 2000 and consequently are determined from the
statistically estimated initial and final prices for the retail and farm
levels. Changes in Farm and

Retail Prices and the Price Spread

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 28 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 2: Increases or Decreases in the Farm- to- Retail Price Spread for a
Gallon of 2- Percent Milk for 15 Markets, March 1998 Through September 2000

Selected market area Increases or decreases in the farm- to- retail price
spread

Atlanta, GA $. 53 Boston, MA .45 Charlotte, NC a Cincinnati, OH .88 Dallas,
TX (. 99) Denver, CO a Miami, FL .15 Milwaukee, WI (. 24) Minneapolis, MN
.41 New Orleans, LA .26 Phoenix, AZ .38 Salt Lake City, UT .35 San Diego, CA
(. 24) Seattle, WA .89 Washington, DC a a No statistically significant
change was observed in the price over the 31- month period and therefore
represent a constant price for the market.

The strongest correlation between price changes occurs between any level and
its adjacent level in the marketing chain. For example, in most of the
markets we analyzed, there was a strong correlation between changes in farm
prices and changes in cooperative prices. Similarly, changes in wholesale
prices were generally reflected in changes in retail prices. In contrast,
changes in the prices received by farmers less frequently correlated with
changes in retail prices than they did with changes in cooperative or
wholesale prices. As discussed in appendix II, many factors other than farm
or wholesale prices influence the price of fluid milk at the retail level.
Tables 3 through 5 present data on our correlation analysis for price
changes at the four marketing levels. The values of correlation coefficients
presented represent estimates of the degree that price changes at one level
in the milk marketing chain are associated with price changes at other
levels. Correlation Between

Price Changes at the Four Marketing Levels

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 29 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 3: Correlation Between Farm- Level Price Changes and Changes in
Cooperative, Wholesale, and Retail Prices for a Gallon of 2- Percent Milk
for 15 Markets, March 1998 Through September 2000

Selected market area Correlation coefficients for cooperative prices
Correlation coefficients for

wholesale prices Correlation coefficients for retail prices

Atlanta, GA .9952* .6684* .0916 Boston, MA .9994* .7197* .5485* Charlotte,
NC .9967* .8780* .6787* Cincinnati, OH .9995* .5501* .2302 Dallas, TX .9986*
.1391 .4452* Denver, CO .9980* .7788* .6198* Miami, FL .9913* a .4988*
Milwaukee, WI .9995* (. 0290) .6997* Minneapolis, MN .9995* .5684* .4588*
New Orleans, LA .9956* .7477* .4326* Phoenix, AZ .9941* .7318* .2938 Salt
Lake City, UT .9984* .5722* .4873* San Diego, CA .7342* .7064* .5411*
Seattle, WA .9999* .7593* .2244 Washington, DC .9998* .7297* .6430*

Note: In calculating the correlation coefficients for each market, we
omitted the months for which data were missing.

*Indicates that the correlation coefficient is statistically significant (i.
e., p < .05). However, we have not included the p- values in the table. a We
could not calculate the correlation coefficients for the wholesale level for
Miami, Florida, because

the wholesale price did not change during our analysis period.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 30 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 4: Correlation Between Cooperative- Level Price Changes and Changes in
Wholesale and Retail Prices for a Gallon of 2- Percent Milk for 15 Markets,
March 1998 Through September 2000

Selected market area Correlation coefficients for wholesale prices
Correlation coefficients for retail prices

Atlanta, GA .6564* .1484 Boston, MA .7161* .5414* Charlotte, NC .8601*
.6989* Cincinnati, OH .5450* .2253 Dallas, TX .1664 .4156* Denver, CO .7926*
.6358* Miami, FL a .5443* Milwaukee, WI (. 0136) .6957* Minneapolis, MN
.5667* .4745* New Orleans, LA .7791* .4831* Phoenix, AZ .7632* .3475* Salt
Lake City, UT .5561* .4761* San Diego, CA .9667* .7077* Seattle, WA .7593*
.2274 Washington, DC .7288* .6429*

Note: In calculating the correlation coefficients for each market, we
omitted the months for which data were missing.

*Indicates that the correlation coefficient is statistically significant (i.
e., p < .05). However, we have not included the p- values in the table. a We
could not calculate the correlation coefficients for the wholesale level for
Miami, Florida, because

the wholesale price did not change during our analysis period.

Table 5: Correlation Between Wholesale- Level Price Changes and Changes in
Retail Prices for a Gallon of 2- Percent Milk for 15 Markets, March 1998
Through September 2000

Selected market area Correlation coefficients for retail prices

Atlanta, GA .0823 Boston, MA .7153* Charlotte, NC .4510* Cincinnati, OH
.7459* Dallas, TX (. 5796)* Denver, CO .5719* Miami, FL a Milwaukee, WI (.
3925)* Minneapolis, MN .3257 New Orleans, LA .7715* Phoenix, AZ .5492* Salt
Lake City, UT .7312* San Diego, CA .7968* Seattle, WA (. 1000) Washington,
DC .2200

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 31 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: In calculating the correlation coefficients for each market, we
omitted the months for which data were missing.

*Indicates that the correlation coefficient is statistically significant (i.
e., p < .05). However, we have not included the p- values in the table. a We
could not calculate the correlation coefficients for the wholesale level for
Miami, Florida, because the wholesale price did not change during our
analysis period.

Tables 6 through 8 show the average annual price for a gallon of 2- percent
milk in the 15 markets for each of the four marketing levels during 1998,
1999, and 2000. Figures 4 through 18 present average monthly data for the
period of March 1998 through September 2000 on farm, cooperative, wholesale,
and retail prices for gallons of 2- percent milk in each of the 15 markets.
Gaps in any of the lines shown in the figures are the result of unavailable
data.

Table 6: Average Annual Retail Price for a Gallon of 2- Percent Milk in
Selected Markets, 1998 Selected market area Farm price Cooperative price
Wholesale price Retail price

Atlanta, GA $1.09 $1.27 $2.17 $2.71 Boston, MA 1.14 1.28 1.83 2.41
Charlotte, NC 1.14 1.27 2.13 2.72 Cincinnati, OH 1.11 1.23 1.89 1.91 Dallas,
TX 1.11 1.20 2.34 2.57 Denver, CO 1.05 1.16 1.76 2.68 Miami, FL 1.29 1.49
2.56 2.98 Milwaukee, WI 1.04 1.16 1.78 2.42 Minneapolis, MN 0.97 1.07 2.00
2.82 New Orleans, LA 1.08 1.26 2.68 2.74 Phoenix, AZ 1.06 1.12 1.83 2.02
Salt Lake City, UT 0.97 1.08 1.84 2.17 San Diego, CA 1.17 1.34 2.15 3.20
Seattle, WA 1.04 1.13 1.69 2.06 Washington, DC 1.14 1.26 1.75 2.52

Comparison of Average Annual and Monthly Prices for 2- Percent Milk

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 32 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 7: Average Annual Retail Price for a Gallon of 2- Percent Milk in
Selected Markets, 1999 Selected market area Farm price Cooperative price
Wholesale price Retail price

Atlanta, GA $1.20 $1.38 $2.24 $2.88 Boston, MA 1.30 1.44 2.02 2.68
Charlotte, NC 1.24 1.38 2.18 2.84 Cincinnati, OH 1.22 1.35 2.23 2.48 Dallas,
TX 1.22 1.32 2.76 2.14 Denver, CO 1.17 1.30 2.06 2.93 Miami, FL 1.38 1.59
2.56 3.10 Milwaukee, WI 1.17 1.29 1.83 2.44 Minneapolis, MN 1.10 1.21 2.11
2.95 New Orleans, LA 1.20 1.38 2.85 2.87 Phoenix, AZ 1.17 1.23 1.99 2.24
Salt Lake City, UT 1.10 1.20 2.07 2.47 San Diego, CA 1.10 1.38 2.25 3.20
Seattle, WA 1.19 1.28 1.69 2.58 Washington, DC 1.24 1.36 1.85 2.57

Table 8: Average Annual Retail Price for a Gallon of 2- Percent Milk in
Selected Markets, 2000 Selected market area Farm price Cooperative price
Wholesale price Retail price

Atlanta, GA $1.04 $1.24 $2.20 $3.07 Boston, MA 1.22 1.36 2.03 2.74
Charlotte, NC 1.09 1.24 2.00 2.79 Cincinnati, OH 1.07 1.19 2.12 2.52 Dallas,
TX 1.09 1.19 2.89 1.86 Denver, CO 0.99 1.12 1.77 2.77 Miami, FL 1.23 1.46
2.56 3.11 Milwaukee, WI 1.02 1.15 2.08 2.26 Minneapolis, MN 0.98 1.09 2.10
3.11 New Orleans, LA 1.06 1.25 2.81 2.90 Phoenix, AZ 0.99 1.09 1.97 2.29
Salt Lake City, UT 0.93 1.03 1.96 2.41 San Diego, CA 0.93 1.09 1.95 2.81
Seattle, WA 1.02 1.11 1.47 2.70 Washington, DC 1.10 1.23 1.52 2.56

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 33 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 4: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Atlanta, Georgia, Market 1998 1999 2000

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Dollars per gallon

Retail price Wholesale pri ce Cooperati ve pri ce Far m pr i ce

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 34 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Atlanta, Georgia, market, the farm price is the USDA estimated
farm level Class I price adjusted to 2- percent milkfat content; the
cooperative price is the announced cooperative Class I price for Atlanta
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Athens Naval Supply Corps School; and the
retail price is the A. C. Nielsen price for the Atlanta market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 35 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 5: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Boston, Massachusetts, Market

1998 1999 2000 0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Retail price Wholesale price Cooperative price Farm price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 36 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Boston, Massachusetts, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the effective cooperative Class I price for Boston
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Hanscom Air Force Base; and the retail price
is the A. C. Nielsen price for the Boston market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 37 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 6: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Charlotte, North Carolina, Market

1998 1999 2000 0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Retail price Wholesale price Cooperative price Farm price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 38 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Charlotte, North Carolina, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative Class I price for
Charlotte adjusted to 2- percent milkfat content; the wholesale price is the
price paid by the commissary at Fort Bragg; and the retail price is the A.
C. Nielsen price for the Charlotte market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 39 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 7: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Cincinnati, Ohio, Market 1998 1999 2000

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 40 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Cincinnati, Ohio, market, the farm price is the USDA estimated
farm level Class I price adjusted to 2- percent milkfat content; the
cooperative price is the announced cooperative Class I price for Cincinnati
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Wright Patterson Air Force Base; and the
retail price is the A. C. Nielsen price for the Cincinnati market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 41 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 8: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Dallas, Texas, Market 1998 1999 2000

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

Ju ne

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 42 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Dallas, Texas, market, the farm price is the USDA estimated
farm level Class I price adjusted to 2- percent milkfat content; the
cooperative price is the announced cooperative Class I price for Dallas
adjusted to 2- percent milkfat content; the wholesale price is the GAO
estimated price paid by the commissary at the Kelly Air Force Base; and the
retail price is the A. C. Nielsen price for the Dallas market. Because data
were not available for all wholesale 2- percent milk prices except September
2000, we estimated these prices as equal to the lower of the whole milk
prices or the 1- percent milk prices.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 43 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 9: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of 2-
Percent Fluid Milk for the Denver, Colorado, Market

1998 1999 2000

Retail price Wholesale price Cooperative price Farm price

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 44 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Denver, Colorado, market, the farm price is the USDA estimated
farm level Class I price adjusted to 2- percent milkfat content; the
cooperative price is the announced cooperative Class I price for Denver
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Fitzsimons U. S. Army Garrison; and the retail
price is the A. C. Nielsen price for the Denver market. Gaps in any of the
lines are the result of unavailable data.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 45 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 10: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Miami, Florida, Market 1998 1999 2000

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Retail price Wholesale price Cooperative price Farm price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 46 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Miami, Florida, market, the farm price is the USDA estimated
farm level Class I price adjusted to 2- percent milkfat content; the
cooperative price is the announced cooperative Class I price for Miami
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Key West Naval Air Station; and the retail
price is the A. C. Nielsen price for the Miami market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 47 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 11: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Milwaukee, Wisconsin, Market

1998 1999 2000 Dollars per gallon

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 48 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Milwaukee, Wisconsin, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative GClass I price for
Milwaukee adjusted to 2- percent milkfat content; the wholesale price is the
price paid by the commissary at the Great Lakes Naval Training Center; and
the retail price is the A. C. Nielsen price for the Milwaukee market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 49 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 12: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Minneapolis, Minnesota, Market

1998 1999 2000 0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 50 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Minneapolis, Minnesota, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative Class I price for
Minneapolis adjusted to 2- percent milkfat content; the wholesale price is
the price paid by the commissary at Fort McCoy; and the retail price is the
A. C. Nielsen price for the Minneapolis market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 51 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 13: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the New Orleans, Louisiana, Market

1998 1999 2000 0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Dollars per gallon Mar.

June Sept.

Dec. Mar.

June Sept.

Dec. Mar.

June Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 52 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the New Orleans, Louisiana, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative Class I price for New
Orleans adjusted to 2- percent milkfat content; the wholesale price is the
price paid by the commissary at the New Orleans Naval Air Station; and the
retail price is the A. C. Nielsen price for the New Orleans- Mobile market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 53 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 14: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Phoenix, Arizona, Market

1998 1999 2000 Dollars per gallon

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 54 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Phoenix, Arizona, market, the farm price is the USDA estimated
farm level Class I price adjusted to 2- percent milkfat content; the
cooperative price is the announced cooperative Class I price for Phoenix
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Luke Air Force Base; and the retail price is
the A. C. Nielsen price for the Phoenix market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 55 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 15: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Salt Lake City, Utah, Market

1998 1999 2000 Dollars per gallon

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 56 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Salt Lake City, Utah, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative Class I price for Salt
Lake City adjusted to 2- percent milkfat content; the wholesale price is the
price paid by the commissary at the Hill Air Force Base; and the retail
price is the A. C. Nielsen price for the Salt Lake City- Boise market. Gaps
in any of the lines are the result of unavailable data.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 57 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 16: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the San Diego, California, Market

1998 1999 2000 Dollars per gallon

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. Jun

e Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 58 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the San Diego, California, market, the farm price is the
California mailbox price adjusted to 2- percent milkfat content; the
cooperative price is the Southern California Class I price adjusted to 2-
percent milkfat content; the wholesale price is the price paid by the
commissary at the San Diego Naval Station; and the retail price is the A. C.
Nielsen price for the San Diego market.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 59 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 17: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Seattle, Washington, Market

1998 1999 2000 Dollars per gallon

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price Wholesale price

Retail price

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 60 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Seattle, Washington, market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative Class I price for Seattle
adjusted to 2- percent milkfat content; the wholesale price is the price
paid by the commissary at the Everett Naval Station; and the retail price is
the A. C. Nielsen price for the Seattle market. Gaps in any of the lines are
the result of unavailable data.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 61 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 18: Farm, Cooperative, Wholesale, and Retail Prices for a Gallon of
2- Percent Fluid Milk for the Washington, D. C., Market

1998 1999 2000 Dollars per gallon

0.50 0.75

1.00 1.25

1.50 1.75

2.00 2.25

2.50 2.75

3.00 3.25

3.50 3.75

Farm price Cooperative price

Wholesale price Retail price

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept.

Appendix III: Analysis of Farm- to- Retail Prices for 2- Percent Milk in
Selected Markets

Page 62 GAO- 01- 561 Milk Prices and Changing Market Structure

Note: For the Washington, D. C., market, the farm price is the USDA
estimated farm level Class I price adjusted to 2- percent milkfat content;
the cooperative price is the announced cooperative Class I price for
Washington, D. C. adjusted to 2- percent milkfat content; the wholesale
price is the price paid by the commissary at the Bolling Air Force Base; and
the retail price is the A. C. Nielsen price for the Washington, D. C.
market.

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 63 GAO- 01- 561 Milk Prices and Changing Market Structure

This appendix provides information on the average retail price for whole, 2-
percent, 1- percent, and skim milk in 15 selected markets for the period of
March 1998 through September 2000. We found that the retail pricing patterns
varied significantly in the markets we analyzed. For example, in the Seattle
market from March 1998 through September 2000, the average price for 2-
percent milk was generally lower than the average price for whole, 1-
percent, or skim milk. On the other hand, for this period in the Minneapolis
market, the average price of skim milk was generally lower than the price of
whole, 2- percent, or 1- percent milk. In other markets, such as San Diego,
the lowest- priced milk shifted among 2- percent, 1- percent, and skim over
the same period. Figures 19 through 33 provide information on the average
retail price for each of the four kinds of milk for the 15 markets for the
period of March 1998 through September 2000. Appendix IV: Retail Prices for
Four Kinds of

Fluid Milk in Selected Markets

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 64 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 19: Atlanta, Georgia, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Atlanta market.
Whole milk

2- Percent milk 1- Percent milk Skim milk

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00 June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 65 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 20: Boston, Massachusetts, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Boston market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 66 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 21: Charlotte, North Carolina, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Charlotte market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 67 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 22: Cincinnati, Ohio, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Cincinnati market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 68 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 23: Dallas, Texas, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Dallas market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 69 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 24: Denver, Colorado, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Denver market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 70 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 25: Miami, Florida, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Miami market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

Jun e

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 71 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 26: Milwaukee, Wisconsin, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Milwaukee market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 72 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 27: Minneapolis, Minnesota, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Minneapolis
market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 73 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 28: New Orleans, Louisiana, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the New Orleans-
Mobile market.

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Whole milk 2- Percent milk 1- Percent milk Skim milk

June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 74 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 29: Phoenix, Arizona, Market, Retail Prices for Whole, 2- Percent, 1-
Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Phoenix market.
Whole milk

2- Percent milk 1- Percent milk Skim milk

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00 June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 75 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 30: Salt Lake City, Utah, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Salt Lake City-
Boise market.

Whole milk 2- Percent milk 1- Percent milk Skim milk

1998 1999 2000 Dollars per gallon

Mar. Sept.

Dec. Mar.

Sept. Dec.

Mar. Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00 June June

June

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 76 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 31: San Diego, California, Market, Retail Prices for Whole, 2-
Percent, 1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the San Diego market.
Whole milk

2- Percent milk 1- Percent milk Skim milk

1998 1999 2000 Dollars per gallon

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 77 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 32: Seattle, Washington, Market, Retail Prices for Whole, 2- Percent,
1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Seattle market.

Whole milk 2- Percent milk 1- Percent milk Skim milk

1998 1999 2000 Dollars per gallon

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Appendix IV: Retail Prices for Four Kinds of Fluid Milk in Selected Markets

Page 78 GAO- 01- 561 Milk Prices and Changing Market Structure

Figure 33: Washington, D. C., Market, Retail Prices for Whole, 2- Percent,
1- Percent, and Skim Milk

Note: The retail price is the A. C. Nielsen price for the Washington, D. C.
market. Whole milk

2- Percent milk 1- Percent milk Skim milk

1998 1999 2000 Dollars per gallon

Mar. June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. June

Sept. 1.00 1.50

2.00 2.50

3.00 3.50

4.00

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 79 GAO- 01- 561 Milk Prices and Changing Market Structure

This appendix provides data for the period March 1998 through September 2000
on the average monthly retail- and wholesale- level prices for a gallon of
whole, 2- percent, 1- percent, and skim milk, and cooperative- and farm-
level prices for a gallon of unprocessed milk, for 15 selected markets.
These data are presented in tables 9 through 23. Appendix V: Monthly Retail,
Wholesale-,

Cooperative-, and Farm- Level Prices for Four Kinds of Fluid Milk in
Selected Markets

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 80 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 9: Atlanta, Georgia, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.32 $1.49 $2.27 $2.20 $2.15 $2.12 $2.54 $2.58 $2.47 $2.56 Apr. 1.32
1.50 2.27 2.18 2.12 2.08 2.62 2.66 2.59 2.65 May 1.29 1.45 2.23 2.15 2.09
2.05 2.57 2.60 2.45 2.55 June 1.25 1.41 2.23 2.15 2.09 2.05 2.61 2.65 2.51
2.60 July 1.15 1.31 2.13 2.12 1.93 1.87 2.67 2.72 2.54 2.61 Aug. 1.32 1.50
2.24 2.15 2.04 1.95 2.70 2.74 2.55 2.64 Sept. 1.45 1.63 2.24 2.15 2.10 2.06
2.73 2.76 2.65 2.73 Oct. 1.47 1.65 2.39 2.28 2.13 2.02 2.75 2.79 2.69 2.76
Nov. 1.48 1.66 2.28 2.01 2.13 1.95 2.79 2.81 2.70 2.77 Dec. 1.59 1.74 2.29
2.29 2.28 2.19 2.79 2.84 2.73 2.80 1998

Avg. 1.36 1.54 2.26 2.17 2.11 2.03 2.68 2.71 2.59 2.67 Jan. 1.65 1.81 2.43
2.43 2.43 2.42 2.81 2.85 2.75 2.83 Feb. 1.68 1.85 2.43 2.43 2.43 2.43 2.80
2.83 2.66 2.78 Mar. 1.59 1.76 2.43 2.43 2.43 2.43 2.73 2.80 2.71 2.78 Apr.
1.12 1.29 2.11 2.04 2.03 1.99 2.75 2.80 2.65 2.75 May 1.19 1.36 2.24 2.18
2.15 2.14 2.62 2.67 2.61 2.68 June 1.21 1.38 2.27 2.20 2.15 2.15 2.68 2.74
2.67 2.73 July 1.19 1.37 2.25 2.20 2.15 2.15 2.78 2.84 2.75 2.82 Aug. 1.20
1.38 2.25 2.18 2.12 2.12 2.76 2.79 2.72 2.78 Sept. 1.34 1.53 2.25 2.18 2.12
2.12 2.81 2.84 2.79 2.85 Oct. 1.48 1.67 2.30 2.20 2.15 2.15 3.00 3.05 2.96
3.04 Nov. 1.52 1.71 2.30 2.20 2.15 2.15 3.17 3.21 3.19 3.25 Dec. 1.21 1.38
2.25 2.20 2.15 2.05 3.12 3.17 3.16 3.20 1999

Avg. 1.36 1.54 2.29 2.24 2.21 2.19 2.84 2.88 2.80 2.87 Jan. 1.18 1.35 2.25
2.20 2.15 2.15 3.09 3.12 3.09 3.13 Feb. 1.14 1.34 2.24 2.16 2.10 1.95 2.94
2.99 2.90 2.97 Mar. 1.15 1.35 2.24 2.21 2.20 2.09 2.96 3.00 2.94 3.01 Apr.
1.17 1.36 2.24 2.21 2.20 2.09 3.09 3.13 3.10 3.15 May 1.20 1.39 2.24 2.21
2.20 2.09 2.92 2.98 2.95 3.00 June 1.20 1.39 2.24 2.21 2.20 2.09 3.11 3.17
3.16 3.20 July 1.23 1.43 2.24 2.21 2.20 2.09 2.97 3.05 3.02 3.08 Aug. 1.19
1.41 2.30 2.25 2.18 2.07 3.05 3.13 3.09 3.14 Sept. 1.18 1.40 2.30 2.12 2.09
2.06 2.99 3.07 2.90 2.99 2000

Avg. 1.18 1.38 2.25 2.20 2.17 2.08 3.01 3.07 3.02 3.07 Note: For the
Atlanta, Georgia, market, the farm level price is the USDA estimated farm
level Class I price for 3.5 percent milkfat content; the cooperative price
is the announced cooperative Class I price for Atlanta for 3. 5 percent
milkfat content; the wholesale price is the price paid by the commissary at
the Athens Naval Supply Corps School; and the retail price is the A. C.
Nielsen price for the Atlanta market. Prices may not average due to
rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 81 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 10: Boston, Massachusetts, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.36 $1.51 $1.61 $1.66 $1.65 $1.60 $2.53 $2.37 $2.35 $2.30 Apr. 1.36
1.50 1.61 1.66 1.65 1.60 2.53 2.40 2.34 2.27 May 1.36 1.50 1.61 1.66 1.65
1.60 2.53 2.41 2.36 2.30 June 1.36 1.50 1.61 1.66 1.65 1.60 2.53 2.40 2.36
2.29 July 1.36 1.50 1.86 1.91 1.90 1.85 2.53 2.44 2.37 2.28 Aug. 1.36 1.50
1.86 1.91 1.90 1.85 2.55 2.39 2.32 2.25 Sept. 1.45 1.59 1.86 1.91 1.90 1.85
2.56 2.40 2.31 2.28 Oct. 1.47 1.61 1.86 1.91 1.90 1.85 2.55 2.40 2.33 2.27
Nov. 1.48 1.62 1.86 1.91 1.90 1.85 2.55 2.40 2.29 2.21 Dec. 1.56 1.70 2.06
2.11 2.10 2.05 2.59 2.49 2.33 2.31 1998

Avg. 1.41 1.55 1.78 1.83 1.82 1.77 2.55 2.41 2.34 2.28 Jan. 1.63 1.77 2.13
2.18 2.17 2.12 2.70 2.59 2.51 2.42 Feb. 1.67 1.81 2.17 2.22 2.21 2.16 2.82
2.70 2.62 2.56 Mar. 1.58 1.72 2.08 2.13 2.12 2.07 2.80 2.69 2.62 2.55 Apr.
1.36 1.50 1.86 1.91 1.90 1.85 2.71 2.64 2.50 2.44 May 1.36 1.50 1.86 1.91
1.90 1.85 2.68 2.58 2.48 2.42 June 1.36 1.50 1.86 1.91 1.90 1.85 2.69 2.61
2.49 2.43 July 1.36 1.50 1.86 1.91 1.90 1.85 2.69 2.63 2.51 2.46 Aug. 1.36
1.50 1.86 1.91 1.90 1.85 2.68 2.62 2.50 2.43 Sept. 1.36 1.50 1.86 1.91 1.90
1.85 2.68 2.62 2.51 2.45 Oct. 1.54 1.68 2.05 2.01 2.09 2.04 2.82 2.77 2.67
2.58 Nov. 1.58 1.72 2.29 2.25 2.21 2.20 2.90 2.89 2.78 2.69 Dec. 1.36 1.50
2.07 2.03 1.99 1.98 2.85 2.82 2.72 2.67 1999

Avg. 1.46 1.60 2.00 2.02 2.02 1.97 2.75 2.68 2.58 2.51 Jan. 1.36 1.50 2.07
2.03 1.99 1.98 2.85 2.77 2.73 2.63 Feb. 1.36 1.50 2.07 2.03 1.99 1.98 2.82
2.74 2.68 2.64 Mar. 1.36 1.50 2.07 2.03 1.99 1.98 2.79 2.72 2.64 2.62 Apr.
1.36 1.50 2.07 2.03 1.99 1.98 2.81 2.73 2.67 2.64 May 1.36 1.50 2.07 2.03
1.99 1.98 2.82 2.74 2.69 2.67 June 1.36 1.50 2.07 2.03 1.99 1.98 2.83 2.75
2.72 2.67 July 1.36 1.50 2.07 2.03 1.99 1.98 2.83 2.73 2.71 2.67 Aug. 1.36
1.50 2.07 2.03 1.99 1.98 2.84 2.74 2.71 2.67 Sept. 1.36 1.50 2.07 2.03 1.99
1.98 2.84 2.74 2.72 2.67 2000

Avg. 1.36 1.50 2.07 2.03 1.99 1.98 2.83 2.74 2.70 2.65 Note: For the Boston,
Massachusetts, market, the farm level price is the USDA estimated farm level
Class I price for 3. 5 percent milkfat content; the cooperative price is the
effective cooperative Class I price for Boston for 3. 5 percent milkfat
content; the wholesale price is the price paid by the commissary at the
Hanscom Air Force Base; and the retail price is the A. C. Nielsen price for
the Boston market which includes Rhode Island and parts of New Hampshire.
Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 82 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 11: Charlotte, North Carolina, Market, Per Gallon Milk Prices, March
1998 Through September 2000 Farm Cooperative Wholesale Retail Year Month
Whole 2% 1% Skim Whole 2% 1% Skim

Mar. $1.37 $1.49 $2.30 $2.21 $2.22 $2.15 $2.68 $2.66 $2.68 $2.68 Apr. 1.38
1.50 2.30 2.21 2.22 2.15 2.67 2.63 2.65 2.66 May 1.33 1.45 2.14 2.11 2.13
2.05 2.68 2.65 2.67 2.68 June 1.30 1.41 2.08 2.05 2.07 1.99 2.62 2.61 2.61
2.66 July 1.19 1.31 1.97 1.95 1.95 1.89 2.69 2.67 2.68 2.68 Aug. 1.36 1.50
2.16 2.07 2.02 1.95 2.75 2.72 2.74 2.74 Sept. 1.50 1.63 2.28 2.19 2.14 2.07
2.80 2.78 2.80 2.81 Oct. 1.51 1.65 2.28 2.17 2.12 2.04 2.84 2.82 2.85 2.85
Nov. 1.53 1.66 2.24 2.15 2.10 2.02 2.85 2.83 2.86 2.86 Dec. 1.61 1.74 2.30
2.23 2.18 2.10 2.86 2.85 2.88 2.88 1998

Avg. 1.41 1.54 2.21 2.13 2.12 2.04 2.74 2.72 2.74 2.75 Jan. 1.68 1.81 2.40
2.35 2.32 2.30 2.93 2.91 2.95 2.95 Feb. 1.72 1.85 2.43 2.43 2.43 2.43 2.98
2.97 3.02 3.02 Mar. 1.63 1.76 2.34 2.32 2.30 2.29 3.01 2.99 3.04 3.04 Apr.
1.15 1.29 1.99 1.97 1.95 1.93 2.85 2.83 2.86 2.87 May 1.22 1.36 2.05 2.04
2.02 2.00 2.72 2.71 2.74 2.76 June 1.24 1.38 2.13 2.12 2.10 2.08 2.72 2.71
2.74 2.76 July 1.23 1.37 2.09 2.08 2.05 2.03 2.71 2.70 2.73 2.75 Aug. 1.23
1.38 2.05 2.06 2.05 2.20 2.70 2.68 2.71 2.73 Sept. 1.38 1.53 2.20 2.20 2.20
2.20 2.80 2.77 2.80 2.81 Oct. 1.52 1.67 2.30 2.28 2.28 2.24 2.88 2.88 2.90
2.92 Nov. 1.57 1.71 2.32 2.30 2.30 2.26 3.04 3.02 3.06 3.07 Dec. 1.24 1.38
2.02 2.00 2.00 1.98 2.97 2.94 2.97 2.96 1999

Avg. 1.40 1.54 2.19 2.18 2.17 2.16 2.86 2.84 2.88 2.89 Jan. 1.21 1.35 2.02
2.00 2.00 1.98 2.90 2.87 2.88 2.88 Feb. 1.19 1.34 2.02 2.00 2.00 1.98 2.92
2.89 2.90 2.90 Mar. 1.20 1.35 2.02 2.00 2.00 1.98 2.86 2.81 2.81 2.80 Apr.
1.22 1.36 2.02 2.00 2.00 1.98 2.72 2.70 2.72 2.73 May 1.24 1.39 2.02 2.00
2.00 1.98 2.75 2.74 2.76 2.77 June 1.24 1.39 2.02 2.00 2.00 1.98 2.84 2.79
2.78 2.78 July 1.28 1.43 2.02 2.00 2.00 1.98 2.78 2.75 2.78 2.78 Aug. 1.24
1.41 2.02 2.00 2.00 1.98 2.73 2.69 2.73 2.76 Sept. 1.24 1.40 2.02 2.00 2.00
1.98 2.87 2.84 2.87 2.87 2000

Avg. 1.23 1.38 2.02 2.00 2.00 1.98 2.82 2.79 2.80 2.81 Note: For the
Charlotte, North Carolina, market, the farm level price is the USDA
estimated farm level Class I price for 3. 5 percent milkfat content; the
cooperative price is the announced cooperative Class I price for Charlotte
for 3.5 percent milkfat content; the wholesale price is the price paid by
the commissary at Fort Bragg; and the retail price is the A. C. Nielsen
price for the Charlotte market. Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 83 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 12: Cincinnati, Ohio, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.35 $1.47 $2.15 $1.89 $1.89 $1.85 $1.42 $1.42 $1.41 $1.39 Apr. 1.35
1.48 2.15 1.89 1.89 1.85 1.53 1.54 1.57 1.56 May 1.31 1.43 2.15 1.89 1.89
1.85 1.84 1.86 1.89 1.89 June 1.24 1.36 2.15 1.89 1.89 1.85 2.00 2.00 2.02
2.01 July 1.14 1.27 2.09 1.89 1.89 1.80 2.02 2.01 2.03 2.02 Aug. 1.33 1.46
1.99 1.85 1.80 1.75 2.00 1.96 1.99 1.98 Sept. 1.48 1.60 2.09 1.89 1.89 1.80
2.05 2.03 2.03 2.02 Oct. 1.50 1.62 2.09 1.89 1.89 1.80 1.92 1.90 1.88 1.86
Nov. 1.51 1.63 2.09 1.89 1.89 1.80 2.04 2.04 2.01 2.00 Dec. 1.59 1.71 2.09
1.89 1.89 1.80 2.29 2.28 2.29 2.28 1998

Avg. 1.38 1.50 2.10 1.89 1.88 1.82 1.91 1.91 1.91 1.90 Jan. 1.66 1.78 2.43
2.27 2.03 1.88 2.50 2.50 2.51 2.45 Feb. 1.70 1.82 2.49 2.34 2.20 2.10 2.58
2.57 2.59 2.53 Mar. 1.61 1.73 2.49 2.34 2.20 2.10 2.49 2.46 2.47 2.39 Apr.
1.10 1.22 2.19 1.99 1.90 1.95 2.35 2.33 2.33 2.31 May 1.20 1.33 2.19 1.99
1.90 1.80 2.39 2.38 2.33 2.35 June 1.22 1.34 2.19 1.99 1.90 1.80 2.34 2.34
2.35 2.32 July 1.17 1.30 2.29 2.22 2.17 2.06 2.45 2.43 2.23 2.21 Aug. 1.18
1.31 2.29 2.22 2.17 2.06 2.24 2.25 2.23 2.18 Sept. 1.39 1.51 2.29 2.22 2.17
2.06 2.60 2.59 2.50 2.54 Oct. 1.56 1.69 2.48 2.37 2.29 2.23 2.61 2.52 2.42
2.41 Nov. 1.61 1.73 2.73 2.62 2.53 2.39 2.77 2.71 2.75 2.72 Dec. 1.20 1.32
2.32 2.21 2.12 1.98 2.70 2.67 2.70 2.68 1999

Avg. 1.38 1.51 2.37 2.23 2.13 2.03 2.50 2.48 2.45 2.42 Jan. 1.16 1.27 2.17
2.06 1.97 1.83 2.61 2.58 2.57 2.53 Feb. 1.13 1.25 2.17 2.06 1.97 1.83 2.52
2.49 2.51 2.47 Mar. 1.16 1.28 2.20 2.09 2.00 1.86 2.53 2.50 2.48 2.45 Apr.
1.17 1.29 2.20 2.09 2.00 1.86 2.49 2.45 2.50 2.46 May 1.22 1.34 2.26 2.14
2.03 1.88 2.57 2.49 2.53 2.48 June 1.22 1.34 2.25 2.12 2.01 1.85 2.44 2.42
2.45 2.40 July 1.29 1.41 2.32 2.17 2.03 1.87 2.52 2.53 2.46 2.45 Aug. 1.26
1.38 2.32 2.17 2.03 1.87 2.70 2.66 2.53 2.51 Sept. 1.25 1.37 2.32 2.17 2.03
1.87 2.57 2.55 2.49 2.49 2000

Avg. 1.21 1.32 2.25 2.12 2.01 1.86 2.55 2.52 2.50 2.47 Note: For the
Cincinnati, Ohio, market, the farm level price is the USDA estimated farm
level Class I price for 3.5 percent milkfat content; the cooperative price
is the announced cooperative Class I price for Cincinnati for 3. 5 percent
milkfat content; the wholesale price is the price paid by the commissary at
Wright Patterson Air Force Base; and the retail price is the A. C. Nielsen
price for the Cincinnati market. Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 84 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 13: Dallas, Texas, Market, Per Gallon Milk Prices, March 1998 Through
September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2% 1% Skim
Whole 2% 1% Skim

Mar. $1.34 $1.43 $2.14 $2.14 a $2.15 $1.98 $2.49 $2.44 $2.37 $2.41 Apr. 1.34
1.44 2.14 2.14 a 2.15 1.98 2.45 2.44 2.45 2.44 May 1.30 1.39 2.14 2.14 a
2.15 1.98 2.51 2.50 2.50 2.58 June 1.24 1.33 2.14 2.14 a 2.15 1.98 2.45 2.46
2.46 2.50 July 1.17 1.25 2.14 2.14 a 2.15 1.98 2.48 2.50 2.43 2.50 Aug. 1.33
1.42 2.46 2.46 a 2.46 2.36 2.48 2.46 2.51 2.41 Sept. 1.48 1.56 2.59 2.59 a
2.59 2.49 2.65 2.65 2.65 2.69 Oct. 1.50 1.58 2.59 2.59 a 2.59 2.49 2.65 2.72
2.77 2.71 Nov. 1.50 1.59 2.59 2.59 a 2.59 2.49 2.68 2.69 2.69 2.66 Dec. 1.59
1.67 2.49 2.49 a 2.49 2.43 2.74 2.79 2.81 2.78 1998

Avg. 1.38 1.47 2.34 2.34 2.35 2.22 2.56 2.57 2.56 2.57 Jan. 1.65 1.74 2.49
2.49 a 2.49 2.43 2.86 2.90 2.83 2.82 Feb. 1.69 1.78 2.59 2.59 a 2.59 2.53
2.85 2.85 2.86 2.87 Mar. 1.60 1.69 2.67 2.67 a 2.67 2.67 2.78 2.88 2.89 2.86
Apr. 1.09 1.18 2.67 2.67 a 2.67 2.67 2.57 2.64 2.71 2.68 May 1.20 1.29 2.67
2.67 a 2.67 2.67 1.88 1.69 1.55 1.56 June 1.22 1.31 2.79 2.79 a 2.79 2.79
1.63 1.37 1.27 1.22 July 1.23 1.33 2.79 2.79 a 2.79 2.79 1.70 1.46 1.50 1.38
Aug. 1.23 1.34 2.79 2.79 a 2.79 2.79 1.72 1.56 1.62 1.53 Sept. 1.38 1.49
2.79 2.79 a 2.79 2.79 2.10 1.98 2.06 1.99 Oct. 1.53 1.63 2.99 2.99 a 2.99
2.99 2.28 2.17 2.14 2.13 Nov. 1.57 1.67 2.99 2.99 a 2.99 2.99 2.25 2.13 2.16
2.07 Dec. 1.25 1.35 2.99 2.99 a 2.99 2.99 2.17 2.01 2.00 1.94 1999

Avg. 1.39 1.48 2.77 2.77 2.77 2.76 2.23 2.14 2.13 2.09 Jan. 1.21 1.31 2.89
2.89 a 2.89 2.89 2.07 1.92 2.00 1.89 Feb. 1.19 1.29 2.89 2.89 a 2.89 2.89
2.03 1.87 2.00 1.82 Mar. 1.19 1.30 2.89 2.89 a 2.89 2.89 2.04 1.90 2.00 1.84
Apr. 1.21 1.31 2.89 2.89 a 2.89 2.89 2.02 1.91 1.99 1.86 May 1.23 1.34 2.89
2.89 a 2.89 2.89 1.99 1.87 1.90 1.82 June 1.24 1.33 2.89 2.89 a 2.89 2.89
2.01 1.89 1.88 1.81 July 1.28 1.38 2.89 2.89 a 2.89 2.89 1.96 1.84 1.79 1.77
Aug. 1.25 1.35 2.89 2.89 a 2.89 2.89 1.96 1.84 1.91 1.80 Sept. 1.23 1.34
2.89 2.89 2.89 2.89 1.91 1.75 1.82 1.69 2000

Avg. 1.23 1.33 2.89 2.89 2.89 2.89 2.00 1.86 1.92 1.81

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 85 GAO- 01- 561 Milk Prices and Changing Market Structure

a Because data were not available for all wholesale 2- percent prices except
Sept. 2000, we estimated these prices as equal to the lower of the whole
milk prices or the 1- percent milk prices. Note: For the Dallas, Texas,
market, the farm level price is the USDA estimated farm level Class I price
for 3.5 percent milkfat content; the cooperative price is the announced
cooperative Class I price for Dallas for 3.5 percent milkfat content; the
wholesale price is the price paid by the commissary at Kelly Air Force Base;
and the retail price is the A. C. Nielsen price for the Dallas market.
Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 86 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 14: Denver, Colorado, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.28 $1.39 $1.96 $1.80 $1.69 $1.68 $2.84 $2.51 $2.57 $2.65 Apr. 1.29
1.39 1.88 1.72 1.60 1.60 2.84 2.65 2.53 2.63 May 1.24 1.35 1.88 1.72 1.60
1.60 2.83 2.48 2.51 2.60 June 1.18 1.29 1.88 1.72 1.60 1.60 2.82 2.57 2.49
2.60 July 1.09 1.19 1.77 1.55 1.38 1.32 2.80 2.59 2.40 2.45 Aug. 1.28 1.38
1.96 1.68 1.47 1.38 2.91 2.73 2.55 2.62 Sept. 1.42 1.53 2.11 1.84 1.62 1.53
3.04 2.82 2.65 2.75 Oct. 1.44 1.55 2.14 1.85 1.57 1.50 3.01 2.78 2.62 2.76
Nov. 1.45 1.55 2.14 1.77 1.40 1.30 2.95 2.80 2.54 2.57 Dec. 1.53 1.64 2.24
1.93 1.62 1.55 3.08 2.87 2.66 2.77 1998

Avg. 1.32 1.43 2.00 1.76 1.56 1.51 2.91 2.68 2.55 2.64 Jan. 1.60 1.70 2.35
2.15 1.95 1.93 3.20 3.02 2.85 2.89 Feb. 1.63 1.75 2.43 2.28 2.15 2.15 3.34
3.15 3.03 2.99 Mar. 1.55 1.66 2.35 2.19 2.07 2.07 3.29 3.12 2.98 2.92 Apr.
1.04 1.17 1.88 1.72 1.60 1.60 3.03 2.89 2.75 2.68 May 1.16 1.29 2.08 1.93
1.82 1.82 2.89 2.74 2.61 2.56 June 1.18 1.31 2.13 2.06 2.01 1.97 2.92 2.77
2.64 2.56 July 1.13 1.26 2.09 1.99 1.94 1.89 2.74 2.64 2.53 2.47 Aug. 1.14
1.27 2.11 1.95 1.86 1.77 2.83 2.68 2.59 2.51 Sept. 1.33 1.46 2.32 2.19 2.13
2.07 3.04 2.86 2.74 2.66 Oct. 1.52 1.65 aa a a 3.28 3.07 3.03 2.92 Nov. 1.56
1.69 2.54 2.42 2.37 2.32 3.37 3.17 3.15 3.02 Dec. 1.15 1.28 1.94 1.75 1.66
1.60 3.21 3.05 2.91 2.85 1999

Avg. 1.33 1.46 2.20 2.06 1.96 1.93 3.09 2.93 2.82 2.75 Jan. 1.09 1.22 1.94
1.75 1.66 1.60 3.35 3.14 2.97 2.84 Feb. 1.06 1.19 1.92 1.74 1.66 1.60 3.20
2.92 2.85 2.88 Mar. 1.08 1.21 1.93 1.75 1.66 1.60 3.19 2.92 2.82 2.79 Apr.
1.09 1.21 1.94 1.75 1.66 1.60 2.97 2.75 2.68 2.60 May 1.13 1.26 1.99 1.78
1.68 1.60 2.75 2.64 2.53 2.49 June 1.15 1.28 1.99 1.77 1.66 1.58 2.73 2.67
2.55 2.53 July 1.22 1.35 2.06 1.83 1.70 1.60 2.71 2.66 2.57 2.49 Aug. 1.17
1.30 2.02 1.79 1.66 1.60 2.67 2.60 2.52 2.49 Sept. 1.16 1.29 2.01 1.79 1.69
1.60 2.63 2.58 2.50 2.44 2000

Avg. 1.13 1.26 1.98 1.77 1.67 1.60 2.91 2.77 2.67 2.62 a Data not available.

Note: For the Denver, Colorado, market, the farm level price is the USDA
estimated farm level Class I price for 3.5 percent milkfat content; the
cooperative price is the announced cooperative Class I price for Denver for
3.5 percent milkfat content; the wholesale price is the price paid by the
commissary at Fitzsimons U. S. Army Garrison; and the retail price is the A.
C. Nielsen price for the Denver market. Prices may not average due to
rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 87 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 15: Miami, Florida, Market, Per Gallon Milk Prices, March 1998 Through
September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2% 1% Skim
Whole 2% 1% Skim

Mar. $1.51 $1.71 $2.56 $2.56 a $2.56 $3.00 $3.02 $2.88 $2.89 Apr. 1.51 1.70
2.56 2.56 a 2.56 3.00 3.02 2.88 2.89 May 1.47 1.65 2.56 2.56 a 2.56 2.96
2.98 2.82 2.84 June 1.44 1.63 2.56 2.56 a 2.56 2.90 2.92 2.77 2.80 July 1.36
1.55 2.56 2.56 a 2.56 2.90 2.93 2.78 2.80 Aug. 1.53 1.74 2.56 2.56 a 2.56
2.96 2.97 2.81 2.83 Sept. 1.66 1.87 2.56 2.56 a 2.56 3.04 3.03 2.86 2.86
Oct. 1.68 1.89 2.56 2.56 a 2.56 3.05 3.03 2.86 2.86 Nov. 1.68 1.89 2.56 2.56
a 2.56 2.96 2.97 2.81 2.82 Dec. 1.77 1.96 2.56 2.56 a 2.56 2.95 2.96 2.83
2.83 1998

Avg. 1.56 1.76 2.56 2.56 a 2.56 2.97 2.98 2.83 2.84 Jan. 1.82 2.01 2.56 2.56
a 2.56 3.10 3.13 3.05 3.06 Feb. 1.86 2.05 2.56 2.56 a 2.56 3.21 3.23 3.16
3.16 Mar. 1.76 1.96 2.56 2.56 a 2.56 3.24 3.27 3.19 3.20 Apr. 1.30 1.49 2.56
2.56 a 2.56 2.98 3.04 2.96 2.97 May 1.37 1.56 2.56 2.56 a 2.56 2.93 2.98
2.90 2.91 June 1.39 1.58 2.56 2.56 a 2.56 2.93 2.98 2.90 2.90 July 1.37 1.58
2.56 2.56 a 2.56 2.94 2.95 2.87 2.88 Aug. 1.39 1.62 2.56 2.56 a 2.56 2.96
2.97 2.90 2.91 Sept. 1.53 1.77 2.56 2.56 a 2.56 3.00 3.05 2.96 2.96 Oct.
1.66 1.89 2.56 2.56 a 2.56 3.16 3.17 3.08 3.09 Nov. 1.70 1.93 2.56 2.56 a
2.56 3.22 3.24 3.14 3.16 Dec. 1.40 1.60 2.56 2.56 a 2.56 3.12 3.17 3.08 3.09
1999

Avg. 1.55 1.75 2.56 2.56 a 2.56 3.07 3.10 3.02 3.02 Jan. 1.35 1.58 2.56 2.56
a 2.56 3.06 3.08 2.99 3.01 Feb. 1.33 1.55 2.56 2.56 a 2.56 3.15 3.15 3.07
3.08 Mar. 1.34 1.56 2.56 2.56 a 2.56 3.20 3.25 3.19 3.20 Apr. 1.37 1.58 2.56
2.56 a 2.56 3.13 3.15 3.07 3.08 May 1.40 1.61 2.56 2.56 a 2.56 3.06 3.10
3.01 3.01 June 1.39 1.60 2.56 2.56 a 2.56 3.05 3.08 2.99 3.00 July 1.42 1.65
2.56 2.56 a 2.56 3.02 3.06 2.95 2.98 Aug. 1.37 1.62 2.56 2.56 a 2.56 2.95
3.03 2.92 2.96 Sept. 1.36 1.61 2.56 2.56 a 2.56 3.06 3.09 2.99 3.01 2000

Avg. 1.37 1.60 2.56 2.56 a 2.56 3.07 3.11 3.02 3.04 a Data not available.

Note: For the Miami, Florida, market, the farm level price is the USDA
estimated farm level Class I price for 3.5 percent milkfat content; the
cooperative price is the announced cooperative Class I price for Miami for
3.5 percent milkfat content; the wholesale price is the price paid by the
commissary at the Key West Naval Air Station; and the retail price is the A.
C. Nielsen price for the Miami market. Prices may not average due to
rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 88 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 16: Milwaukee, Wisconsin, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.31 $1.43 $1.85 $1.75 $1.75 $1.75 $2.65 $2.54 $2.43 $2.56 Apr. 1.27
1.39 1.85 1.75 1.75 1.75 2.65 2.50 2.41 2.52 May 1.23 1.35 1.85 1.75 1.75
1.75 2.62 2.45 2.42 2.51 June 1.16 1.28 1.85 1.75 1.75 1.75 2.49 2.37 2.33
2.41 July 1.06 1.18 1.85 1.75 1.75 1.75 2.57 2.35 2.35 2.43 Aug. 1.26 1.38
1.85 1.75 1.75 1.75 2.56 2.33 2.30 2.35 Sept. 1.40 1.52 1.85 1.75 1.75 1.75
2.58 2.34 2.31 2.35 Oct. 1.42 1.54 1.95 1.85 1.85 1.85 2.55 2.45 2.41 2.46
Nov. 1.46 1.58 1.95 1.85 1.85 1.85 2.59 2.42 2.39 2.36 Dec. 1.54 1.66 1.95
1.85 1.85 1.85 2.62 2.41 2.37 2.31 1998

Avg. 1.31 1.43 1.88 1.78 1.78 1.78 2.59 2.42 2.37 2.43 Jan. 1.60 1.73 1.95
1.85 1.85 1.85 2.73 2.64 2.60 2.57 Feb. 1.65 1.77 1.95 1.85 1.85 1.85 2.82
2.75 2.69 2.72 Mar. 1.56 1.68 1.95 1.85 1.85 1.85 2.81 2.71 2.68 2.71 Apr.
1.04 1.16 1.95 1.85 1.85 1.85 2.55 2.43 2.43 2.47 May 1.16 1.28 1.95 1.85
1.85 1.85 2.44 2.33 2.32 2.37 June 1.17 1.29 1.95 1.85 1.85 1.85 2.42 2.37
2.34 2.39 July 1.12 1.24 1.95 1.85 1.85 1.85 2.41 2.28 2.23 2.26 Aug. 1.13
1.24 1.95 1.85 1.85 1.85 2.38 2.17 2.12 2.12 Sept. 1.32 1.43 1.95 1.85 1.85
1.85 2.46 2.27 2.22 2.25 Oct. 1.51 1.63 1.95 1.85 1.85 1.85 2.62 2.40 2.43
2.39 Nov. 1.55 1.67 1.95 1.85 1.85 1.85 2.71 2.57 2.66 2.54 Dec. 1.14 1.26
1.66 1.62 1.63 1.64 2.59 2.34 2.48 2.32 1999

Avg. 1.33 1.45 1.93 1.83 1.83 1.83 2.58 2.44 2.43 2.43 Jan. 1.13 1.26 1.93
1.88 1.48 1.88 2.36 2.20 2.38 2.20 Feb. 1.09 1.22 2.05 2.05 2.07 2.07 2.41
2.25 2.40 2.24 Mar. 1.12 1.24 2.08 2.08 2.08 2.08 2.42 2.23 2.35 2.21 Apr.
1.13 1.26 2.08 2.08 2.08 2.08 2.40 2.27 2.37 2.23 May 1.18 1.30 2.12 2.11
2.09 2.08 2.41 2.23 2.33 2.18 June 1.17 1.30 2.12 2.11 2.09 2.08 2.43 2.31
2.42 2.29 July 1.25 1.38 2.19 2.16 2.12 2.09 2.47 2.29 2.39 2.32 Aug. 1.20
1.33 2.15 2.13 2.11 2.09 2.47 2.28 2.38 2.24 Sept. 1.19 1.32 2.15 2.13 2.11
2.09 2.44 2.29 2.40 2.25 2000

Avg. 1.16 1.29 2.10 2.08 2.03 2.06 2.42 2.26 2.38 2.24 Note: For the
Milwaukee, Wisconsin, market, the farm level price is the USDA estimated
farm level Class I price for 3. 5 percent milkfat content; the cooperative
price is the announced cooperative Class I price for Milwaukee for 3.5
percent milkfat content; the wholesale price is the price paid by the
commissary at the Great Lakes Naval Training Center; and the retail price is
the A. C. Nielsen price for the Milwaukee market. Prices may not average due
to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 89 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 17: Minneapolis, Minnesota, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.25 $1.36 $2.10 $2.06 $2.02 $1.99 $2.95 $2.89 $2.87 $2.84 Apr. 1.20
1.30 2.10 2.06 2.02 1.99 2.96 2.89 2.86 2.83 May 1.15 1.26 2.10 2.04 1.98
1.94 2.91 2.83 2.80 2.77 June 1.08 1.19 2.07 2.02 1.96 1.92 2.84 2.76 2.74
2.71 July 0.99 1.09 2.00 1.94 1.88 1.83 2.80 2.70 2.67 2.61 Aug. 1.19 1.29
1.89 1.80 1.71 1.63 2.87 2.74 2.70 2.62 Sept. 1.33 1.44 2.08 1.94 1.81 1.70
2.95 2.84 2.79 2.72 Oct. 1.36 1.46 2.22 2.07 1.94 1.83 2.93 2.83 2.77 2.69
Nov. 1.36 1.47 2.23 2.06 1.91 1.79 2.95 2.83 2.77 2.70 Dec. 1.45 1.55 2.25
2.01 1.79 1.62 2.95 2.91 2.88 2.84 1998

Avg. 1.24 1.34 2.10 2.00 1.90 1.82 2.91 2.82 2.79 2.73 Jan. 1.51 1.62 2.34
2.16 1.99 1.86 3.01 2.98 2.96 2.95 Feb. 1.56 1.67 2.43 2.36 2.27 2.21 3.01
2.98 2.96 2.95 Mar. 1.47 1.57 2.48 2.46 2.41 2.38 3.01 2.96 2.94 2.94 Apr.
1.01 1.12 2.39 2.36 2.31 2.28 2.87 2.79 2.78 2.76 May 1.06 1.17 1.87 1.83
1.78 1.75 2.82 2.73 2.72 2.70 June 1.09 1.20 2.00 1.96 1.92 1.89 2.87 2.81
2.79 2.77 July 1.06 1.18 2.03 2.02 2.02 2.01 2.88 2.81 2.80 2.73 Aug. 1.08
1.19 1.99 1.96 1.95 1.92 2.87 2.79 2.78 2.67 Sept. 1.26 1.38 1.99 1.92 1.87
1.80 2.93 2.92 2.92 2.83 Oct. 1.45 1.57 2.19 2.15 2.12 2.07 3.06 3.17 3.19
3.02 Nov. 1.49 1.61 2.50 2.46 2.43 2.38 3.17 3.28 3.32 3.11 Dec. 1.09 1.20
1.66 1.62 1.63 1.64 3.08 3.19 3.23 3.01 1999

Avg. 1.26 1.37 2.16 2.11 2.06 2.02 2.96 2.95 2.95 2.87 Jan. 1.08 1.20 2.08
2.03 2.03 2.03 2.97 3.06 3.06 2.89 Feb. 1.05 1.16 2.05 2.05 2.07 2.07 2.94
3.06 3.09 2.90 Mar. 1.07 1.18 2.08 2.08 2.08 2.08 2.92 3.05 3.09 2.89 Apr.
1.09 1.20 2.08 2.11 2.08 2.08 2.97 3.08 3.12 2.92 May 1.13 1.25 2.12 2.11
2.09 2.08 3.00 3.10 3.14 2.94 June 1.13 1.24 2.12 2.11 2.09 2.08 3.00 3.12
3.17 2.95 July 1.21 1.32 2.19 2.16 2.12 2.09 2.99 3.13 3.17 2.97 Aug. 1.17
1.28 2.15 2.13 2.11 2.09 3.02 3.18 3.22 2.99 Sept. 1.13 1.25 2.15 2.13 2.11
2.09 3.04 3.19 3.23 3.00 2000

Avg. 1.12 1.23 2.11 2.10 2.09 2.08 2.98 3.11 3.14 2.94 Note: For the
Minneapolis, Minnesota, market, the farm level price is the USDA estimated
farm level Class I price for 3. 5 percent milkfat content; the cooperative
price is the announced cooperative Class I price for Minneapolis for 3.5
percent milkfat content; the wholesale price is the price paid by the
commissary at Fort McCoy; and the retail price is the A. C. Nielsen price
for the Minneapolis market. Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 90 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 18: New Orleans, Louisiana, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.31 $1.48 $2.59 $2.59 $2.59 $2.59 $2.76 $2.70 $2.68 $2.73 Apr. 1.31
1.49 2.59 2.59 2.59 2.59 2.77 2.71 2.71 2.71 May 1.29 1.45 2.59 2.59 2.59
2.59 2.77 2.71 2.72 2.71 June 1.24 1.40 2.53 2.53 2.53 2.53 2.74 2.68 2.69
2.67 July 1.13 1.30 2.45 2.45 2.45 2.45 2.72 2.66 2.68 2.64 Aug. 1.31 1.49
2.61 2.61 2.61 2.61 2.81 2.75 2.76 2.73 Sept. 1.43 1.61 2.81 2.81 2.81 2.81
2.86 2.79 2.76 2.75 Oct. 1.45 1.63 2.81 2.81 2.81 2.81 2.84 2.77 2.74 2.73
Nov. 1.47 1.65 2.81 2.81 2.81 2.81 2.85 2.78 2.74 2.70 Dec. 1.58 1.73 2.96
2.96 2.96 2.96 2.86 2.80 2.75 2.73 1998

Avg. 1.35 1.52 2.68 2.68 2.68 2.68 2.80 2.74 2.72 2.71 Jan. 1.64 1.80 2.96
2.96 2.96 2.96 2.90 2.85 2.82 2.81 Feb. 1.67 1.84 2.96 2.96 2.96 2.96 2.93
2.89 2.87 2.88 Mar. 1.57 1.75 2.96 2.96 2.96 2.96 2.93 2.88 2.87 2.88 Apr.
1.06 1.24 2.66 2.66 2.66 2.66 2.83 2.78 2.78 2.74 May 1.18 1.35 2.66 2.66
2.66 2.66 2.82 2.75 2.79 2.74 June 1.20 1.37 2.79 2.79 2.79 2.79 2.84 2.78
2.81 2.78 July 1.20 1.38 2.79 2.79 2.79 2.79 2.79 2.72 2.75 2.72 Aug. 1.21
1.39 2.75 2.75 2.75 2.75 2.86 2.79 2.82 2.79 Sept. 1.35 1.54 2.75 2.75 2.75
2.75 2.94 2.88 2.95 2.92 Oct. 1.50 1.69 2.95 2.95 2.95 2.95 3.01 2.97 3.02
2.98 Nov. 1.55 1.73 3.10 3.10 3.10 3.10 3.08 3.06 3.10 3.07 Dec. 1.23 1.40
2.85 2.85 2.85 2.85 3.06 3.03 3.10 3.03 1999

Avg. 1.36 1.54 2.85 2.85 2.85 2.85 2.91 2.87 2.89 2.86 Jan. 1.19 1.37 2.75
2.75 2.75 2.75 2.98 2.87 2.97 2.95 Feb. 1.16 1.35 2.75 2.75 2.75 2.75 2.93
2.76 2.89 2.95 Mar. 1.17 1.36 2.75 2.75 2.75 2.75 2.91 2.85 2.92 2.98 Apr.
1.18 1.38 2.81 2.81 2.81 2.81 2.97 2.91 2.95 2.98 May 1.22 1.40 2.81 2.81
2.81 2.81 2.96 2.90 2.97 3.03 June 1.21 1.40 2.85 2.85 2.85 2.85 2.97 2.91
2.95 2.98 July 1.25 1.44 2.85 2.85 2.85 2.85 3.00 2.95 2.94 2.96 Aug. 1.20
1.42 2.85 2.85 2.85 2.85 2.97 2.93 2.93 2.96 Sept. 1.19 1.41 2.85 2.85 2.85
2.85 3.03 2.98 2.98 3.00 2000

Avg. 1.20 1.39 2.81 2.81 2.81 2.81 2.97 2.90 2.94 2.98 Note: For the New
Orleans, Louisiana, market, the farm level price is the USDA estimated farm
level Class I price for 3. 5 percent milkfat content; the cooperative price
is the announced cooperative Class I price for New Orleans for 3.5 percent
milkfat content; the wholesale price is the price paid by the commissary at
the New Orleans Naval Air Station; and the retail price is the A. C. Nielsen
price for the New Orleans market. Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 91 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 19: Phoenix, Arizona, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.29 $1.36 $1.95 $1.88 $1.90 $1.86 $2.29 $2.01 $2.04 $2.07 Apr. 1.30
1.36 1.96 1.86 1.82 1.79 2.22 2.06 2.09 2.12 May 1.26 1.32 1.92 1.82 1.79
1.76 2.19 2.10 2.14 2.17 June 1.19 1.25 1.85 1.75 1.71 1.68 2.16 2.01 2.03
2.11 July 1.09 1.15 1.75 1.61 1.54 1.49 2.13 1.93 1.96 2.02 Aug. 1.28 1.34
1.93 1.75 1.64 1.56 2.11 1.87 1.88 1.94 Sept. 1.42 1.49 2.07 1.89 1.77 1.63
2.28 2.08 2.10 2.15 Oct. 1.44 1.51 2.07 1.89 1.77 1.63 2.23 1.94 1.97 2.04
Nov. 1.45 1.52 2.07 1.89 1.77 1.63 2.30 2.02 2.06 2.14 Dec. 1.53 1.60 2.16
1.98 1.86 1.72 2.38 2.15 2.17 2.25 1998

Avg. 1.33 1.39 1.97 1.83 1.76 1.68 2.23 2.02 2.05 2.10 Jan. 1.60 1.66 2.25
2.17 2.14 2.07 2.44 2.25 2.36 2.33 Feb. 1.64 1.71 2.30 2.27 2.28 2.25 2.53
2.23 2.34 2.34 Mar. 1.55 1.62 2.21 2.18 2.17 2.15 2.36 2.20 2.24 2.27 Apr.
1.03 1.10 1.73 1.70 1.69 1.67 2.27 2.09 2.20 2.14 May 1.15 1.22 1.84 1.82
1.82 1.80 2.27 2.09 2.01 2.03 June 1.17 1.23 1.86 1.89 1.92 1.93 2.37 2.21
2.22 2.23 July 1.12 1.18 1.81 1.82 1.84 1.84 2.30 2.02 2.01 2.03 Aug. 1.13
1.20 1.82 1.77 1.75 1.71 2.20 1.96 1.95 2.06 Sept. 1.32 1.39 2.01 2.00 2.00
1.98 2.32 2.05 2.13 2.17 Oct. 1.51 1.57 2.20 2.19 2.19 2.17 2.59 2.39 2.40
2.49 Nov. 1.55 1.61 2.24 2.24 2.25 2.24 2.75 2.64 2.65 2.69 Dec. 1.17 1.26
1.83 1.85 1.87 1.81 2.89 2.70 2.66 2.62 1999

Avg. 1.33 1.40 2.01 1.99 1.99 1.97 2.44 2.24 2.26 2.28 Jan. 1.10 1.19 2.33
2.32 2.32 2.23 2.76 2.48 2.49 2.58 Feb. 1.07 1.18 2.17 2.02 1.91 1.81 2.80
2.52 2.51 2.66 Mar. 1.08 1.19 2.17 2.02 1.91 1.81 2.56 2.04 2.08 2.31 Apr.
1.08 1.19 1.99 1.88 1.79 1.72 2.62 2.20 2.25 2.52 May 1.13 1.24 1.99 1.83
1.79 1.72 2.64 2.21 2.26 2.42 June 1.15 1.26 2.04 1.91 1.81 1.72 2.61 2.35
2.41 2.54 July 1.22 1.33 2.04 1.91 1.81 1.72 2.57 2.43 2.48 2.56 Aug. 1.17
1.24 2.08 1.92 1.81 1.69 2.40 2.36 2.28 2.40 Sept. 1.16 1.23 2.04 1.90 1.80
1.69 2.27 1.99 1.98 2.14 2000

Avg. 1.13 1.23 2.09 1.97 1.88 1.79 2.58 2.29 2.31 2.46 Note: For the
Phoenix, Arizona, market, the farm level price is the USDA estimated farm
level Class I price for 3.5 percent milkfat content; the cooperative price
is the announced cooperative Class I price for Phoenix for 3.5 percent
milkfat content; the wholesale price is the price paid by the commissary at
Luke Air Force Base; and the retail price is the A. C. Nielsen price for the
Phoenix market. Prices may not average due to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 92 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 20: Salt Lake City, Utah, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.21 $1.32 $2.00 $1.90 $1.84 $1.79 $2.49 $2.16 $2.20 $2.21 Apr. 1.21
1.32 2.00 1.89 1.82 1.76 2.47 2.09 2.12 2.17 May 1.17 1.28 aa a a 2.48 2.12
2.17 2.16 June 1.10 1.21 aa a a 2.46 2.07 2.05 2.14 July 1.00 1.11 1.90 1.77
1.68 1.61 2.45 2.14 2.08 2.11 Aug. 1.19 1.30 1.80 1.63 1.52 1.42 2.53 2.19
2.14 2.17 Sept. 1.34 1.45 1.99 1.78 1.64 1.51 2.61 2.23 2.14 2.23 Oct. 1.36
1.47 2.15 1.86 1.65 1.47 2.64 2.27 2.09 2.20 Nov. 1.37 1.48 2.15 1.86 1.65
1.47 2.63 2.18 2.07 2.17 Dec. 1.45 1.56 2.26 2.06 1.93 1.81 2.67 2.28 2.28
2.30 1998

Avg. 1.24 1.35 2.03 1.84 1.72 1.61 2.54 2.17 2.13 2.19 Jan. 1.54 1.63 2.26
2.06 1.93 1.81 2.74 2.43 2.35 2.36 Feb. 1.58 1.68 2.34 2.22 2.14 2.07 2.84
2.62 2.53 2.55 Mar. 1.49 1.58 2.39 2.27 2.19 2.11 2.81 2.54 2.54 2.51 Apr.
0.97 1.07 2.31 2.19 2.11 2.03 2.68 2.41 2.37 2.23 May 1.09 1.18 1.88 1.75
1.67 1.59 2.64 2.36 2.32 2.37 June 1.10 1.20 2.00 1.91 1.85 1.79 2.62 2.21
2.18 2.33 July 1.05 1.15 2.02 1.93 1.87 1.81 2.62 2.32 2.24 2.40 Aug. 1.06
1.17 1.97 1.87 1.79 1.72 2.60 2.30 2.20 2.42 Sept. 1.26 1.35 1.98 1.87 1.77
1.69 2.67 2.42 2.32 2.48 Oct. 1.44 1.57 2.18 2.08 1.99 1.92 2.80 2.72 2.67
2.66 Nov. 1.48 1.58 2.42 2.32 2.23 2.16 2.83 2.65 2.52 2.67 Dec. 1.08 1.17
2.43 2.35 2.27 2.23 2.83 2.68 2.50 2.66 1999

Avg. 1.26 1.36 2.18 2.07 1.98 1.91 2.72 2.47 2.39 2.47 Jan. 1.02 1.12 2.03
1.95 1.87 1.83 2.80 2.64 2.39 2.61 Feb. 1.01 1.11 1.98 1.92 1.85 1.83 2.78
2.48 2.41 2.59 Mar. 1.02 1.12 1.96 1.91 1.85 1.83 2.71 2.30 2.34 2.43 Apr.
1.03 1.12 1.97 1.92 1.85 1.83 2.71 2.34 2.37 2.48 May 1.08 1.17 1.99 1.94
1.86 1.84 2.64 2.38 2.35 2.44 June 1.10 1.19 2.04 1.97 1.88 1.84 2.74 2.31
2.33 2.49 July 1.15 1.26 2.09 2.01 1.91 1.87 2.81 2.43 2.32 2.57 Aug. 1.11
1.21 2.15 2.05 1.93 1.87 2.83 2.46 2.38 2.59 Sept. 1.11 1.20 aa a a 2.78
2.40 2.34 2.56 2000

Avg. 1.07 1.17 2.03 1.96 1.88 1.84 2.76 2.41 2.36 2.53 a Data not available.

Note: For the Salt Lake City, Utah, market, the farm level price is the USDA
estimated farm level Class I price for 3. 5 percent milkfat content; the
cooperative price is the announced cooperative Class I price for Salt Lake
City for 3. 5 percent milkfat content; the wholesale price is the price paid
by the commissary at Hill Air Force Base; and the retail price is the A. C.
Nielsen price for the Salt Lake City market. Prices may not average due to
rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 93 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 21: San Diego, California, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.13 $1.33 $2.11 $2.08 $2.08 $1.84 $3.36 $3.16 $3.21 $3.41 Apr. 1.11
1.33 2.11 2.08 2.08 1.84 3.37 3.16 3.18 3.42 May 1.10 1.33 2.11 2.08 2.08
1.84 3.39 3.23 3.19 3.39 June 1.19 1.21 2.00 1.98 2.00 1.77 3.41 3.26 3.24
3.33 July 1.22 1.21 2.00 1.98 2.00 1.77 3.10 2.97 2.89 2.99 Aug. 1.33 1.38
2.20 2.16 2.16 1.90 3.22 3.10 3.00 3.08 Sept. 1.43 1.38 2.20 2.16 2.16 1.90
3.25 3.14 3.02 3.13 Oct. 1.55 1.54 2.36 2.30 2.30 2.00 3.40 3.26 3.10 3.19
Nov. 1.48 1.54 2.36 2.30 2.30 2.00 3.46 3.28 3.15 3.23 Dec. 1.48 1.67 2.49
2.42 2.42 2.09 3.56 3.44 3.24 3.29 1998

Avg. 1.30 1.39 2.19 2.15 2.16 1.90 3.35 3.20 3.12 3.24 Jan. 1.37 1.67 2.49
2.42 2.42 2.09 3.59 3.44 3.26 3.34 Feb. 1.22 1.72 2.53 2.47 2.47 2.13 3.62
3.42 3.26 3.35 Mar. 1.20 1.72 2.53 2.47 2.47 2.13 3.61 3.43 3.27 3.34 Apr.
1.05 1.22 2.09 2.08 2.08 1.85 3.13 3.00 2.96 2.91 May 1.04 1.22 2.09 2.08
2.08 1.85 3.00 2.78 2.67 2.78 June 1.09 1.24 2.09 2.08 2.08 1.85 2.98 2.83
2.71 2.79 July 1.13 1.24 2.09 2.08 2.08 1.85 3.10 2.99 2.89 2.83 Aug. 1.29
1.28 2.13 2.12 2.12 1.89 3.14 3.00 2.92 2.86 Sept. 1.24 1.28 2.13 2.12 2.12
1.89 3.25 3.07 2.87 2.82 Oct. 1.18 1.70 2.55 2.49 2.47 2.16 3.72 3.49 3.25
3.10 Nov. 1.12 1.70 2.55 2.49 2.47 2.16 3.86 3.59 3.31 3.09 Dec. 0.98 1.20
2.12 2.11 2.11 1.89 3.64 3.40 3.12 2.97 1999

Avg. 1.16 1.43 2.28 2.25 2.25 1.98 3.39 3.20 3.04 3.02 Jan. 0.94 1.05 1.97
1.96 1.96 1.75 3.41 3.17 2.89 2.77 Feb. 0.92 1.03 1.95 1.97 1.98 1.79 3.31
3.09 2.85 2.75 Mar. 0.93 1.02 1.88 1.90 1.90 1.74 3.16 2.97 2.80 2.71 Apr.
0.95 1.14 1.94 1.95 1.94 1.77 2.98 2.86 2.83 2.72 May 0.96 1.18 1.97 1.96
1.95 1.77 2.80 2.72 2.82 2.71 June 1.00 1.20 1.97 1.95 1.95 1.77 2.70 2.62
2.75 2.65 July 1.02 1.27 1.97 1.95 1.95 1.77 2.73 2.64 2.76 2.69 Aug. 1.03
1.22 1.97 1.95 1.95 1.77 2.68 2.61 2.73 2.65 Sept. 1.06 1.21 1.97 1.95 1.95
1.77 2.65 2.57 2.67 2.66 2000

Avg. 0.98 1.15 1.95 1.95 1.95 1.77 2.93 2.81 2.79 2.70 Note: For the San
Diego, California, market, the farm level price is the California mailbox
price; the cooperative price is the Southern California Class I price for 3.
5 percent milkfat content; the wholesale price is the price paid by the
commissary at the San Diego Naval Station; and the retail price is the A. C.
Nielsen price for the San Diego market. Prices may not average due to
rounding.

Source: GAO?s analysis of price data provided by the California Department
of Food and Agriculture, the Defense Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 94 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 22: Seattle, Washington, Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.25 $1.34 $1.83 $1.65 $1.52 $1.37 $2.98 $1.68 $1.68 $1.70 Apr. 1.26
1.35 1.84 1.66 1.53 1.38 2.78 1.95 2.11 2.15 May 1.23 1.32 1.80 1.62 1.49
1.34 2.97 1.92 2.08 2.09 June 1.23 1.32 1.73 1.55 1.42 1.27 2.97 2.04 2.19
2.21 July 1.23 1.32 1.63 1.45 1.32 1.17 2.83 2.03 2.17 2.15 Aug. 1.23 1.32
1.82 1.64 1.51 1.36 2.83 1.96 2.03 2.04 Sept. 1.38 1.47 1.96 1.78 1.65 1.50
3.06 2.15 2.26 2.30 Oct. 1.40 1.48 1.98 1.80 1.67 1.51 3.18 2.12 2.47 2.29
Nov. 1.40 1.49 1.99 1.81 1.68 1.53 3.18 2.29 2.45 2.53 Dec. 1.49 1.58 2.07
1.89 1.76 1.61 3.25 2.47 2.65 2.78 1998

Avg. 1.31 1.40 1.87 1.69 1.56 1.40 3.00 2.06 2.21 2.22 Jan. 1.55 1.64 2.14
1.96 1.83 1.68 3.24 2.60 2.70 2.64 Feb. 1.60 1.69 2.18 2.00 1.87 1.72 3.44
2.60 2.76 2.77 Mar. 1.50 1.60 2.09 1.91 1.78 1.63 3.22 2.70 2.81 2.91 Apr.
1.14 1.23 1.57 1.39 1.26 1.11 3.29 2.55 2.67 2.83 May 1.23 1.32 1.69 1.51
1.38 1.23 3.27 2.59 2.70 2.99 June 1.23 1.32 1.71 1.53 1.40 1.25 2.96 2.51
2.58 2.64 July 1.22 1.31 1.66 1.48 1.35 1.20 3.18 2.65 2.74 2.81 Aug. 1.23
1.32 1.67 1.49 1.36 1.21 3.12 2.37 2.67 2.43 Sept. 1.27 1.36 1.86 1.68 1.55
1.40 3.34 2.66 2.90 2.71 Oct. 1.46 1.55 2.01 1.83 1.70 1.55 3.09 2.32 2.45
2.36 Nov. 1.50 1.59 2.05 1.87 1.74 1.57 3.37 2.64 2.88 2.69 Dec. 1.23 1.32
1.71 1.58 1.49 1.42 3.31 2.76 2.82 2.86 1999

Avg. 1.35 1.44 1.86 1.69 1.56 1.41 3.23 2.58 2.72 2.72 Jan. 1.19 1.28 1.56
1.43 1.34 1.27 3.21 2.58 2.63 2.58 Feb. 1.18 1.27 1.54 1.41 1.32 1.25 3.32
2.59 2.63 2.70 Mar. 1.19 1.28 1.55 1.42 1.33 1.26 3.30 2.56 2.65 2.58 Apr.
1.20 1.29 1.56 1.43 1.34 1.27 3.19 2.60 2.61 2.57 May 1.09 1.18 1.61 1.48
1.39 1.32 3.17 2.61 2.61 2.65 June 1.12 1.21 1.63 1.50 1.41 1.34 3.34 2.72
2.73 2.82 July 1.18 1.28 1.70 1.57 1.48 1.41 3.29 2.82 2.89 2.82 Aug. 1.14
1.23 1.66 1.53 1.44 1.37 3.40 2.98 2.95 2.87 Sept. 1.13 1.22 aa a a 3.26
2.79 2.81 2.86 2000

Avg. 1.16 1.25 1.60 1.47 1.38 1.31 3.27 2.70 2.72 2.72 a Data not available.

Note: For the Seattle, Washington, market, the farm level price is the USDA
estimated farm level Class I price for 3. 5 percent milkfat content; the
cooperative price is the announced cooperative Class I price for Seattle for
3.5 percent milkfat content; the wholesale price is the price paid by the
commissary at the Everett Naval Station; and the retail price is the A. C.
Nielsen price for the Seattle market. Prices may not average due to
rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix V: Monthly Retail, Wholesale-, Cooperative-, and Farm- Level Prices
for Four Kinds of Fluid Milk in Selected Markets

Page 95 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 23: Washington, D. C., Market, Per Gallon Milk Prices, March 1998
Through September 2000 Farm Cooperative Wholesale Retail Year Month Whole 2%
1% Skim Whole 2% 1% Skim

Mar. $1.40 $1.52 $1.96 $1.83 $1.75 $1.67 $2.49 $2.48 $2.47 $2.43 Apr. 1.41
1.53 1.97 1.80 1.70 1.60 2.53 2.48 2.47 2.42 May 1.36 1.49 1.92 1.77 1.67
1.57 2.52 2.51 2.45 2.46 June 1.26 1.38 1.85 1.69 1.58 1.48 2.50 2.49 2.46
2.43 July 1.16 1.29 1.75 1.55 1.42 1.29 2.49 2.48 2.41 2.43 Aug. 1.36 1.48
1.93 1.68 1.52 1.36 2.54 2.53 2.45 2.46 Sept. 1.50 1.62 2.07 1.82 1.65 1.48
2.65 2.56 2.51 2.49 Oct. 1.52 1.64 2.09 1.81 1.62 1.44 2.63 2.56 2.44 2.37
Nov. 1.50 1.62 2.08 1.72 1.46 1.21 2.63 2.52 2.39 2.27 Dec. 1.58 1.70 2.17
1.86 1.65 1.44 2.56 2.58 2.41 2.23 1998

Avg. 1.41 1.53 1.98 1.75 1.60 1.45 2.55 2.52 2.45 2.40 Jan. 1.65 1.77 2.26
2.06 1.92 1.79 2.75 2.72 2.58 2.40 Feb. 1.70 1.82 2.31 2.16 2.06 1.96 2.84
2.61 2.52 2.35 Mar. 1.60 1.72 2.22 2.06 1.96 1.85 2.89 2.63 2.56 2.36 Apr.
1.09 1.21 1.70 1.54 1.44 1.33 2.63 2.45 2.34 2.15 May 1.29 1.41 1.82 1.67
1.57 1.47 2.52 2.46 2.32 2.22 June 1.28 1.41 1.91 1.80 1.73 1.66 2.52 2.47
2.34 2.26 July 1.24 1.36 1.91 1.78 1.70 1.61 2.51 2.48 2.38 2.32 Aug. 1.25
1.37 1.91 1.72 1.60 1.48 2.45 2.42 2.33 2.26 Sept. 1.37 1.49 2.15 1.99 1.90
1.79 2.53 2.50 2.40 2.34 Oct. 1.56 1.68 2.34 2.18 2.08 1.97 2.73 2.66 2.57
2.51 Nov. 1.60 1.72 1.93 1.80 1.72 1.68 2.80 2.74 2.67 2.61 Dec. 1.19 1.31
1.52 1.39 1.31 1.27 2.73 2.66 2.58 2.55 1999

Avg. 1.40 1.52 2.00 1.85 1.75 1.66 2.66 2.57 2.47 2.36 Jan. 1.20 1.32 1.37
1.24 1.16 1.12 2.69 2.62 2.53 2.52 Feb. 1.18 1.30 1.63 1.53 1.37 1.31 2.66
2.59 2.50 2.49 Mar. 1.19 1.31 1.64 1.54 1.38 1.32 2.61 2.54 2.45 2.45 Apr.
1.21 1.33 1.64 1.54 1.38 1.32 2.60 2.53 2.45 2.46 May 1.26 1.38 1.69 1.53
1.43 1.37 2.60 2.54 2.46 2.46 June 1.28 1.40 1.71 1.55 1.45 1.39 2.61 2.54
2.47 2.46 July 1.32 1.45 1.78 1.62 1.52 1.46 2.61 2.56 2.47 2.47 Aug. 1.28
1.40 1.74 1.58 1.48 1.42 2.62 2.57 2.49 2.49 Sept. 1.27 1.39 1.73 1.57 1.47
1.41 2.57 2.54 2.46 2.46 2000

Avg. 1.24 1.36 1.66 1.52 1.40 1.35 2.62 2.56 2.47 2.47 Note: For the
Washington, D. C., market, the farm level price is the USDA estimated farm
level Class I price for 3.5 percent milkfat content; the cooperative price
is the announced cooperative Class I price for Washington, D. C. for 3. 5
percent milkfat content; the wholesale price is the price paid by the
commissary at Bolling Air Force Base; and the retail price is the A. C.
Nielsen price for the Washington, D. C., market. Prices may not average due
to rounding.

Source: GAO?s analysis of price data provided by USDA, the Defense
Commissary Agency, and A. C. Nielsen.

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 96 GAO- 01- 561 Milk Prices and Changing Market Structure

During the last decade, the dairy industry, like much of the agricultural
sector, has experienced increasing consolidation. At each level of the
marketing chain, including dairy farms, cooperatives, wholesale milk
processors, and retail grocery stores, there are fewer, but larger, players
in the industry. Increased consolidation has in turn led to a greater degree
of concentration in the industry (measured by the market share of the top
four players in a given market). This appendix provides information on the
trends in consolidation at each level of the milk marketing chain and the
level of concentration that exists at the cooperative, wholesale, and retail
levels for the markets included in our review. It also describes some of the
key factors that federal agencies consider along with the degree of
concentration in an industry when making antitrust determinations.

The number of dairy farms in the United States has steadily decreased since
the mid- 1960s, according to the 1997 Census of Agriculture. While dairy
farms are not unique in this regard, the decrease in number of dairy farms
has been significant. For example, between 1987 and 1997, the number of
dairy farms declined from 202,068 to 116, 874, or about 42 percent. The
American Farm Bureau Federation recently reported that the number of dairy
farms had further declined to 83,025 in 2000, a one- year decrease of 4,502
farms. In addition, the number of dairy cows in the United States has also
declined. According to the National Agricultural Statistics Service, the
number of dairy cows decreased from 9.68 million to 9.16 million, or about 5
percent, from 1992 to 1999. Furthermore, small dairy farms are being
replaced by larger operations. Although the average dairy farm size for the
nation is about 82 dairy cows, it can vary greatly by region. For example,
in California, more than 40 percent of the dairy farms have 500 or more
dairy cows.

While the total number of dairy farms and cows in the United States has
declined during the 1990s, average milk production per cow has increased
significantly due to technological and genetic advancements. The result has
been an overall increase in the nation?s milk production. From 1992 through
1999, average milk production per cow increased by about 14 percent, from
15,570 pounds in 1992 to 17,771 pounds in 1999. Total U. S. milk production
increased from 150.8 billion pounds to 162.7 billion pounds, or about 8
percent, between 1992 and 1999; and for 2000, it is estimated to reach about
167.7 billion pounds.

According to an industry analysis, these trends in numbers and size of dairy
farms are expected to continue because larger farms are associated with
lower costs of production and greater economies of scale. Given Appendix VI:
Consolidation Trends and the

Degree of Concentration in the Dairy Industry

Consolidation of Dairy Farms

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 97 GAO- 01- 561 Milk Prices and Changing Market Structure

similar management practices, larger farms tend to be more cost- effective
because fixed costs like machinery and land are spread over more units of
production. In addition, larger farms may receive volume premiums and
hauling discounts because they can market greater volumes of milk more
efficiently.

Dairy cooperative unification activities 1 in the 1960s and 1970s led to the
emergence of regional cooperatives, however, in recent years, unification
among dairy cooperatives has resulted in the creation of multi- regional
cooperatives. These multi- regional cooperatives in many cases market a
significant percentage of the total milk produced in the United States. For
example, in January 1998, four major dairy cooperatives- Mid- America
Dairymen, Inc., the Southern Region of Associated Milk Producers, Inc., Milk
Marketing, Inc., and Western Dairymen Cooperative- combined to form Dairy
Farmers of America, the largest dairy cooperative in the country. In 1999,
this newly created cooperative had over 24,000 farmer members in 43 states
and marketed almost 35 billion pounds of milk or about 21 percent of all the
milk produced in the country.

As dairy cooperatives continue to unify, the level of concentration at the
cooperative- level- as measured by the market share of the top dairy
cooperatives- has also increased. In 1999, the nation?s top four dairy
cooperatives marketed about 40 percent of all the milk produced in the
United States, or about 23 percent more than in 1990. 2 The level of
concentration is significantly higher at the local level. We analyzed data
collected by USDA to determine the market share of dairy cooperatives in 11
of the 14 federally regulated markets selected for our review. We did not
include three federally regulated markets- Denver, Miami, and Phoenix- in
our analysis because of confidentiality reasons. Our analysis indicated that
the percentage of milk marketed by the four largest cooperatives in each of
the 11 markets was significantly higher than the national average, and
ranged from 59 to 97 percent in December 1997 and from 64 to 97 percent in
December 1999. In all of the 11 markets, the market share of the four
largest cooperatives increased or remained the

1 Unification activities include mergers, acquisitions, or consolidations. 2
Hoard?s Dairyman, Oct. 10, 2000. The top four dairy cooperatives in 1999
were Dairy Farmers of America; California Dairies, Inc.; Land O?Lakes, Inc.;
and Northwest Dairy Association and in 1990 were Associated Milk Producers,
Inc.; Mid- America Dairymen, Inc.; Farmers Union Milk Marketing Cooperative;
and California Milk Producers Association. Unification of Dairy

Cooperatives

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 98 GAO- 01- 561 Milk Prices and Changing Market Structure

same between 1997 and 1999. Table 24 shows the market share of the top four
cooperatives in each of the 11 federally regulated markets included in our
review for the month of December 1997 through 1999. (Please see appendix I
for a detailed description of our analysis and the geographic area covered
by each of these markets.)

According to industry experts, the increased unification activities of dairy
cooperatives has occurred for a variety of reasons and is expected to
continue. Specifically, general consolidation trends in the rest of the
dairy industry are causing cooperatives to turn to unification as a means of
maintaining or acquiring market prominence and enhancing the bargaining
position of their members. Unification allows cooperatives to integrate
their operations both horizontally and vertically, as well as reap economies
of size and scale, and more efficiently use available manufacturing
capacity. Unification also often leads to more streamlined operations and
reduced costs. For example, reductions in administrative overhead and
hauling costs, and gains in bargaining strength in the marketplace were some
of the primary reasons cited for combining four major dairy cooperatives
into one cooperative- the Dairy Farmers of America. In addition, dairy
cooperatives are participating in a variety of joint ventures with other
entities in the dairy industry to ensure an outlet for the milk they market
for their members. For example, Dairy Farmers of America is involved in
joint ventures with other dairy cooperatives as well as large proprietary
firms such as Suiza Foods Corporation.

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 99 GAO- 01- 561 Milk Prices and Changing Market Structure

Table 24: Share of Milk Delivered By the Four Largest Dairy Cooperatives in
Selected Markets for the Month of December, 1997- 1999

Market share of top four cooperatives a (percent) Selected market area
Federal Milk Marketing Order December 1997 December 1998 December 1999

Atlanta, GA Southeast 61.5 69.9 71.5 Boston, MA New England 68.5 70.4 69.6
Charlotte, NC Carolina 77.6 79.5 85.2 Cincinnati, OH Ohio Valley 61.6 63.9
63.8 Dallas, TX Texas 96.5 98.2 97.1 Denver, CO Eastern Colorado b bb Miami,
FL Southeastern Florida b bb Milwaukee, WI Chicago Regional 63.1 62.7 64.7
Minneapolis, MN Upper Midwest 59.3 57.0 63.5 New Orleans, LA Southeast 61.5
69.9 71.5 Phoenix, AZ Central Arizona b bb Salt Lake City, UT Great Basin
85.4 89.0 93.2 Seattle, WA Pacific Northwest 84.8 84.2 85.0 Washington, DC
Middle Atlantic 77.1 77.0 76.8 Average for the 11 markets 72.4 74.7 76.5

Note: To determine the level of concentration in 11 of the 14 federally
regulated marketing areas included in this report, we obtained proprietary
data from USDA for the month of December for 1997 through 1999. Appendix I
provides additional details on our analysis of these data and the geographic
area covered by the 14 markets. a In some of the markets the number of
cooperatives marketing milk was less than four. Consequently, the market
share data for some of the markets included in this table represent fewer
than four cooperatives. We have not disclosed which markets had fewer than
four cooperatives for confidentiality reasons. b Data not available for the
market because of confidentiality reasons.

Through aggressive acquisitions of independent dairy processing plants, a
handful of fluid milk processing firms in recent years have become dominant
players in the dairy industry at the wholesale level. These companies have
generally pursued the business strategy of acquiring strong regional dairy
processing plants so that they can strengthen their presence in existing
markets, while expanding their geographic coverage to a national level.
According to industry sources, Suiza Foods Corporation and Dean Foods
Company- currently the two leading wholesale fluid milk processors in the
nation- have attained their status primarily through acquisitions of other
dairy processing firms. Together Suiza and Dean Foods have acquired about 50
dairy processors during the period from 1997 to 2000. Table 25 shows some of
the major acquisitions made by these companies between 1997 and 2000. On
April 5, 2001, Suiza announced that it was acquiring Dean Foods. If this
merger is approved by Concentration at the

Wholesale Level

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 100 GAO- 01- 561 Milk Prices and Changing Market Structure

federal regulators, the combined company will process about one- third of
the U. S. fluid milk market. Industry sources are concerned about the impact
that this merger may have on the competitiveness of the fluid milk sector.

Table 25: Recent Major Acquisitions of Dairy Processors in the United States
by Suiza Foods Corporation and Dean Foods Company

Acquisitions by Suiza Foods Corporation

Year Company Acquired Value of Annual Sales at Time of Acquisition

Valley of Virginia Cooperative Milk Producers Association $209 million 2000
Southern Foods Group $1.3 billion Adohr Farms $148 million 1999 Broughton
Foods Company $202 million Land- O- Sun Dairies $464 million 1998 Tuscan
Farms/ Lehigh Valley Dairies $523 million Garelick Farms and Franklin
Plastics $370 million 1997 Dairy Fresh $125 million

Acquisitions by Dean Foods Company

Year Company Acquired Value of Annual Sales at Time of Acquisition

Land O? Lakes (upper Midwest fluid milk operations) $310 million 2000 Dairy
Express, Inc. $13 million Alta- Dena Certified Dairy $200 million Berkeley
Farms, Inc. $160 million U. C. Milk Company $35 million Barber Dairies $200
million 1999

Hillside Dairy $30 million Purity Dairies $100 million Coburg Dairy $70
million Wengert?s Dairy $40 million American Stores Co. (dairy operations)
$250 million Sani- Dairy Division of The Penn Traffic Company $65 million
Maplehurst Dairy $70 million 1998

H. Meyer Dairy $70 million 1997 Tri- State Dairy, Inc. NA

Source: GAO?s analysis of various industry publications.

The acquisition and consolidation trend at the wholesale level has led to
higher concentration ratios for fluid milk processors in some markets.
According to the 1997 Census of Manufacturers, the market share for the

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 101 GAO- 01- 561 Milk Prices and Changing Market Structure

top four fluid milk processors in the nation was about 21 percent. However,
the market share for fluid milk processors at the local level was
significantly higher. We analyzed milk marketing data collected by USDA for
December 1997, 1998, and 1999 to determine changes in wholesale- level
concentration for 14 of the federally regulated markets that are included in
our review. Our analysis found that, in all but 4 of the 14 markets, the
level of concentration had increased between December 1997 and December
1999. For example, in Boston, Massachusetts, the market share of the top
four fluid milk processors increased from 66 percent in December 1997 to 88
percent in December 1999. Moreover, in December 1997, in 6 of the 14 markets
the top four fluid milk processors had a market share of greater than 70
percent, yet by December 1999, the top four fluid milk processors in 9 of
the 14 markets had more than 70 percent of the market share. Table 26 shows
the market share of the top four fluid milk processors in each of the 14
federally regulated markets included in our review for December 1997,
December 1998, and December 1999. (Please see appendix I for a detailed
description of our analysis and the geographic area covered by each of these
markets.)

Table 26: Percentage of Fluid Milk Marketed by the Top Four Fluid Milk
Processors in 14 Selected Markets, for the Month of December, 1997- 1999

Market share of top four fluid milk processors (percent) Selected market
area Federal Milk Marketing Order December 1997 December 1998 December 1999

Atlanta, GA Southeast 38.5 47.8 52.4 Boston, MA New England 66.2 85.4 88.1
Charlotte, NC Carolina 64.4 74.7 73.9 Cincinnati, OH Ohio Valley 66.8 79.3
81.9 Dallas, TX Texas 85.0 84.3 79.4 Denver, CO Eastern Colorado 69.3 68.1
66.9 Miami, FL Southeastern Florida 89.4 96.5 96.3 Milwaukee, WI Chicago
Regional 81.6 80.3 75.9 Minneapolis, MN Upper Midwest 84.0 89.3 83.4 New
Orleans, LA Southeast 38.5 47.8 52.4 Phoenix, AZ Central Arizona 90.3 87.6
97.4 Salt Lake City, UT Great Basin 87.7 90.4 92.5 Seattle, WA Pacific
Northwest 59.0 63.4 63.3 Washington, DC Middle Atlantic 45.7 43.7 54.5
Average for the 14 markets 69.0 74.2 75.6

Note: To determine the level of concentration in the 14 federally regulated
marketing areas covered in this report, we obtained proprietary data from
USDA for the month of December in successive years 1997 through 1999.

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 102 GAO- 01- 561 Milk Prices and Changing Market Structure

According to industry sources, consolidation at the wholesale level in the
dairy industry has increased in response to on- going consolidation at the
retail level. The wave of supermarket mergers in the 1990?s has provided
fluid milk processors incentives to acquire other processors to supply
private label (store brand) milk to the growing supermarket chains. Both
Suiza and Dean Foods have been active in this regard. Wholesalers contend
that they can meet the increasing demands and requirements of large retail
accounts only through consolidation. Moreover, industry officials cite
decreasing demand for fluid milk and fragmentation of the dairy industry as
additional reasons that are driving the need for wholesale- level
consolidation. By following a strategy of integrating regional dairies and
consolidating their operations (often by closing some dairy plants in an
area), these companies hope to raise the efficiency and profitability of the
sector that historically has had low profit margins.

U. S. supermarkets, which account for approximately 76 percent of national
fluid milk retail sales, have undergone unprecedented consolidation and
structural change in recent years. According to a recent Economic Research
Service analysis, large retailers have acquired almost 3,500 supermarkets
nationwide since 1996, representing annual sales of more than $67 billion.
Two of the largest food retailing combinations in history were announced in
1998: the acquisition of Fred Meyer- the nation?s sixth largest food
retailer- by top- ranked Kroger Company; and the merger of Albertson?s- the
fourth largest U. S. food retailer- with second- ranked American Stores. The
magnitude of these mergers and acquisitions has resulted in the emergence of
multiregional food retailing operations that are approaching an almost
nationwide scope. For example, after the Kroger Company acquired Fred Meyer,
the combined firm operated 2,288 supermarkets in 31 states and had sales of
about $45 billion in 1999 which made up 10.4 percent of total grocery store
sales nationwide.

The increase in mergers and acquisitions among large food retailers has led
to an increase in retail- level concentration at the national level and in
many local markets. In 1992, the top four grocery retailers in the country
accounted for almost 16 percent of total grocery sales nationwide. In 1998,
the top four grocery retailers accounted for almost 29 percent of total
Concentration at the

Retail Level

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 103 GAO- 01- 561 Milk Prices and Changing Market Structure

sales. 3 The impact of consolidation on retail concentration at the local
level is even more pronounced. For the 100 largest U. S. cities (defined by
the U. S. Census Bureau as Metropolitan Statistical Areas), the
concentration levels for the top four firms had increased from 68.6 percent
in 1992 to 72.3 percent in 1998. 4 We found comparable increases in the
level of concentration at the retail level for the 15 markets included in
our review. The average percentage of sales controlled by the top four
grocery retailers in these 15 markets increased from 71.5 percent in 1992 to
74 percent in 1998. Moreover, in 1998 the level of concentration varied
significantly from 57.2 percent in Milwaukee, Wisconsin, to 89.5 percent in
Denver, Colorado, with 10 of the 15 markets experiencing concentration
levels of greater than 70 percent.

Table 27: Market Share of the Top Four Supermarkets in Selected Markets in
1992 and 1998

Selected market area Market share of the top four supermarkets (percent)

1992 1998

Atlanta, GA 66.9 69.1 Boston, MA 55.0 70.3 Charlotte, NC 84.7 83.0
Cincinnati, OH 72.9 79.4 Dallas, TX 74.1 67.9 Denver, CO 88.8 89.5 Miami, FL
73.3 83.0 Milwaukee, WI 69.1 57.2 Minneapolis, MN 55.9 66.7 New Orleans, LA
72.2 76.1 Phoenix, AZ 63.5 71.2 Salt Lake City, UT 73.9 67.3 San Diego, CA
79.9 77.6 Seattle, WA 60.8 72.4 Washington, DC 81.3 79.6 Average for the 15
selected markets 71.5 74.0

Source: Economic Research Service, USDA

3 Ronald W. Cotterill, Continuing Concentration in Food Industries Globally:
Strategic Challenges to an Unstable Status Quo, Food Marketing Policy
Center, Research Report No. 49, Oct. 1999.

4 ?Consolidation in Food Retailing: Prospects for Consumers & Grocery
Suppliers,?

Agricultural Outlook, ERS, Aug. 2000.

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 104 GAO- 01- 561 Milk Prices and Changing Market Structure

According to industry experts, consolidation is expected to continue at the
food retail level for a number of reasons. In particular, retail food stores
are responding to the slowing growth in grocery store sales and increased
competition from nontraditional retailers, such as mass- merchandisers and
warehouse club operators, by becoming larger and offering a greater variety
of goods and services to their customers. In addition, food retailers
involved in recent mergers and acquisitions have cited lower costs and
efficiency gains as the primary benefits of consolidation. These retailers
believe they can lower procurement, marketing, and distribution costs
through consolidation and increased size. Efficiency gains can also help
offset the cost of providing more variety and services to customers. Another
contributing factor to growth through mergers and acquisitions is the
greater capital expenditure required to build new stores compared with the
cost of purchasing existing stores. Considering the time necessary to
achieve positive store profitability, the financial risk of building a new
store is often greater than purchasing an existing store.

In 2000, concerned about the increasing level of market concentration in the
dairy industry, several congressional leaders from both the House and Senate
requested the Department of Justice and the Federal Trade Commission (FTC)
to investigate possible market abuses by dairy processors and food
retailers. Market concentration is a useful indicator of the likely
potential competitive effect of a merger or consolidation and is a factor
the Department of Justice and the FTC consider in reviewing mergers and
consolidations for potential violations of antitrust laws.

While concentration levels play an important role in federal reviews of a
proposed consolidation, other factors are also important to regulators in
making antitrust determinations. High concentration levels may be indicative
of noncompetitive circumstances where buyers or sellers can exercise some
degree of market power. 5 In addition, federal regulators are more likely to
challenge a consolidation that results in a substantial increase in
concentration levels for a market that is already highly concentrated.
However, federal regulators also consider the following as part of their
review of proposed consolidations:

5 Market power is the ability of buyers or sellers to influence prices above
or below the prices that would have been set in a competitive market.
Federal Response to

Increased Concentration Levels

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 105 GAO- 01- 561 Milk Prices and Changing Market Structure

 whether anti- competitive effects, such as unilateral price increases or
elimination of competition, are likely to occur because of the merger;

 the ease of entry into a given market after the merger; and

 whether the efficiencies being claimed from the merger can be verified and
attributed to the merger and not to reductions in competition.

If the results of a federal review indicate that a proposed consolidation
may substantially lessen competition in a market- amounting to a violation
of the antitrust laws- regulators may require the divestiture of one or more
of the merging firms? holdings to an independent third party. This will help
preserve competition in the affected market. Examples of recent federal
interventions relating to dairy or retail food industry mergers that
required divestiture to preserve competition in a market include the
following:

 In 1997, the Department of Justice sued to block the acquisition of
Borden/ Meadows Gold Dairies Holdings, Inc. by Mid- America Dairymen, Inc.-
the largest dairy cooperative in the nation at the time. The Department was
concerned that the acquisition would substantially lessen competition for
milk sales to public schools throughout eastern Texas and Louisiana. The
final decree allowed the acquisition, but required the divestiture of nine
plants- five in Texas, three in Louisiana, and one in New Mexico. A newly
created firm was allowed to purchase the divested plants.

 In 1998, the Department of Justice approved Dean Foods Company?s
acquisition of Barber Dairies, Inc. only after the parties agreed to sell a
Barber Dairies plant in Huntsville, Alabama. The Department was concerned
that the original proposed acquisition would have lessened competition in
bidding for milk supplied to school districts in at least 18 counties in
Alabama.

 In 1999, the Department of Justice sued to block Suiza Foods Corporation?s
acquisition of the Broughton Foods Company, because it was believed that the
merger would result in higher prices for milk sold to school districts in
Kentucky. The final judgment (which approved an agreement by the parties)
allowed the acquisition, but required the divestiture of Southern Belle
Dairy- a holding of Broughton Foods Company- before the acquisition could
proceed.

 In 1999, FTC opposed Albertson?s Inc. ?s proposed acquisition of American
Stores Company because it would lessen supermarket competition in
California, Nevada, and New Mexico. It was believed that the proposed
acquisition could result in higher prices, or reduced quality and selection
for consumers. The FTC ultimately allowed the acquisition, but only after

Appendix VI: Consolidation Trends and the Degree of Concentration in the
Dairy Industry

Page 106 GAO- 01- 561 Milk Prices and Changing Market Structure

the companies agreed to divest 144 supermarkets and five supermarket sites
in 57 local markets to respond to these concerns.

 In 2000, FTC opposed Delhaize America, Inc. ?s proposed merger with
Hannaford Bros. Co. because it was alleged that the proposed merger would
have resulted in reduced competition in the relevant markets through the
elimination of direct competition and increased likelihood of Delhaize
exercising unilateral market power and increasing prices for consumers. The
FTC ultimately allowed the merger, but only after the companies agreed to
divest 37 Hannaford stores and one supermarket site in a number of markets
in Virginia and North Carolina.

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 107 GAO- 01- 561 Milk Prices and Changing Market Structure

As a result of increased consolidation in many agricultural markets,
economists have recently attempted to estimate the degree of market power in
these industries. In general, market power refers to the ability of buyers
or sellers to influence prices above or below the prices that would have
been set in a competitive market. According to economic theory, there is a
strong link between the structure of an industry, in particular the degree
of concentration, and the power firms exert over prices in the market.
Notable recent examples of studies measuring the degree of market power have
been primarily from the beef and meatpacking industries [Schroeter, (1988) 1
; Schroeter and Azzam (1990) 2 ; Azzam and Pagoulatos, (1990) 3 ; Muth and
Wohlgenant (1999) 4 ; Morrison Paul, (2000); 5 and others]. As we described
in appendix VI, the fluid milk market and the dairy industry have also
experienced an increase in both consolidation and concentration. However,
fewer empirical studies have been conducted to measure the effects of
concentration and market power in this sector because certain
characteristics make economic modeling more difficult for this industry. In
this appendix, we examine the various difficulties that researchers face
when they try to measure market power in the dairy industry, and we
summarize those economic studies that we identified that have tried to
measure the impact of concentration and market power on the dairy industry
and/ or fluid milk market.

1 J. R. Schroeter, ?Estimating the Degree of Market Power in the Beef
Packing Industry,?

The Review of Economics and Statistics 70 (February 1988): 158- 62. 2 J. R.
Schroeter, and A. Azzam, ?Measuring Market Power in Multi- Product
Oligopolies: The U. S. Meat Industry,? Applied Economics 22 (October 1990):
1365- 76. 3 A. M. Azzam and E. Pagoulatos, ?Testing Oligopolistic and
Oligopsonistic Behavior: An Application to the U. S. Meat- Packing
Industry,? Journal of Agricultural Economics 41 (September 1990): 362- 69.

4 Mary K. Muth and Michael K. Wolhgenant, ?A Test for Market Power Using
Marginal Input and Output Prices with Application to the U. S. Beef
Processing Industry,? American Journal of Agricultural Economics 81 (August
1999): 638- 43.

5 Catherine J. Morrison Paul, Cost Economies and Market Power in U. S.
Meatpacking,

Giannini Foundation # 44, University of California Giannini Foundation for
Agricultural Economics, May 2000. Appendix VII: Research Measuring the

Impact of Concentration and Market Power on the Dairy Industry and Fluid
Milk Sector

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 108 GAO- 01- 561 Milk Prices and Changing Market Structure

Economists use economic models to help explain how a market behaves based on
certain market parameters and assumptions. One standard model assumption has
typically been that of perfect competition in a market- that is, many small
buyers and sellers, a standardized product, free entry and exit, and perfect
knowledge. However, when there is a departure from perfect competition, for
example in a highly concentrated market, certain modeling complications
arise. In more concentrated markets, firms make strategic decisions that can
lead to different price and production outcomes than would occur in a
perfectly competitive model. This could happen because large and dominant
firms in the market may exert some power over the selling and/ or buying
price. While measuring these outcomes is complex in any market, the nature
of the U. S. dairy industry leads to further analytical complications. Some
of these complications include (1) the diversity of the dairy market
structure from one region of the country to another, (2) the presence of
market power at successive stages of the dairy industry, (3) layers of
federal price intervention, (4) a variety of vertical and horizontal
arrangements such as joint ventures between the various levels of the
market, and (5) a lack of actual price data at the wholesale level. These
difficulties are described in greater detail below.

First, because there is no single prototype that describes all of the fluid
milk markets that exist across the country, it would be difficult, if not
impossible, for one type of economic model to capture market power effects
nationally or in all regions of the country. Although the trend in the fluid
milk industry is toward increasing concentration at all levels, there is
nevertheless significant diversity in market structure from one region of
the country to another. For example, in one region of the country the market
structure consists of a few cooperatives bargaining with one large
processor. In another region, a few cooperatives bargain with a few
processors that are, in turn, bargaining with a few large retailers, while
in another part of the country, there is only one large cooperative
bargaining with one large processor- which is known as a ?bilateral
monopoly? situation. Therefore, any generalizations made about market power
from a particular economic model may not be entirely applicable or
representative of the entire country or all regional markets.

Second, because market power may exist at each successive level of the fluid
milk marketing chain, capturing these effects with any one economic model
becomes problematic. For example, in this sector, there may be situations in
which retailers exercise an oligopoly power over consumers; processors
exercise an oligopsony power over farmers; and at the same time, there is
imperfect competition between processors and retailers. Difficulties in

Measuring Market Power in the Dairy Industry

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 109 GAO- 01- 561 Milk Prices and Changing Market Structure

While theoretical models exist that capture these successive market power
effects, they have rarely been applied to actual agricultural markets, such
as fluid milk. In general, while a variety of approaches measure market
power, most empirical models deal with only one side of the market, either
the seller side (oligopoly power) or the buyer side (oligopsony power). In
these models, there is an assumption that on one side of the market, price
is taken as a given, while on the other side, buyers and/ or sellers may or
may not exercise some market power. Some analysts have applied the theory of
?bilateral oligopoly? (high levels of market power on both the buyer and
seller sides of the market) to the U. S. wholesale market for beef
(Schroeter et al., 2000). 6 This type of analysis has not yet been conducted
for the fluid milk market. More recently however, Dhar (2001) 7 has applied
a two- stage oligopoly model (two- stage seller market power) to the
processing and retailing sectors of the fluid milk market for the Boston
milk market (See below).

Third, market power models are not well suited to those agricultural sectors
that contain layers of government intervention in the price formation
process, such as the dairy markets. Because government programs, such as the
federal milk marketing order program and the dairy price support program,
set a floor under farm prices, it is difficult to incorporate the effects of
market power from dominant buyers and/ or sellers. For example, in such
markets, estimating the effect of buyer market power would be limited to the
extent that a buyer could reduce over- order premiums, because prices could
not fall below the floor set by the government programs.

Fourth, developing realistic models of market power in the dairy and fluid
milk industry is difficult because many of the dairy processors and
cooperatives are involved in other horizontal and vertical arrangements,
which do not fit well into the typical conceptual framework. For example,
both Dairy Farmers of America, Inc. (DFA) and Suiza Foods make extensive use
of joint ventures with other entities. DFA, for example, is involved in
joint ventures with other dairy cooperatives as well as large proprietary
firms such as Suiza Foods. At the same time, Suiza Foods has

6 John R. Schroeter, Azzedine M. Azzam, and Mingxia Zhang, ?Measuring Market
Power in Bilateral Oligopoly: The Wholesale Market for Beef.? Southern
Economic Journal 66 (3) (2000): 526- 47.

7 Tirtha P. Dhar, ?Two- Stage Oligopoly Pricing with Differentiated
Products: The Boston Fluid Milk Market,? Ph. D dissertation, University of
Connecticut, 2001.

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 110 GAO- 01- 561 Milk Prices and Changing Market Structure

vertical supply arrangements with Ahold USA, which has as its subsidiaries
the retail grocery outlets of Stop & Shop, Giant Foods, Bi- Lo, and Tops
Markets.

Last, developing a model of market power for fluid milk is difficult because
of a lack of data at the wholesale level in most dairy markets. Actual
wholesale price data from dairy processors are proprietary and are not
obtainable in the public domain. Without a good series of data at this
level, it is difficult for researchers to accurately measure the extent of
power that buyers and sellers can exert on the market.

Economic studies that model issues of market power in agricultural and other
industries have evolved in recent years. First, there were the structure-
conduct- performance (SCP) studies, 8 which assumed that market power was a
function of several structural variables such as market concentration,
product differentiation, or entry barriers. In these studies, markets were
assumed to display a certain behavior or ?conduct?

(collusion or strategic behavior) from their structure, leading to a certain
performance variable, such as profitability or efficiency. One weakness of
these types of models, however, is that concentration ratios (a structural
variable that is often used to explain conduct) are actually endogenous
variables. Over the last two decades, the New Empirical Industrial
Organization (NEIO) approach to measuring market power became popular. The
NEIO studies base their inferences of market power on econometric models
that measure firm conduct. One of the main strengths of this approach is
that it is grounded in microeconomic theory. More recently, researchers have
developed models estimating market power based on cointegration techniques,
9 as well as experimental economic designs.

We identified several academic studies that measure market power in the
dairy industry or fluid milk market, representing a wide variety of
different types of economic models. These studies differ according to
geographic

8 In its simplest, linear version, the structure, conduct, performance
paradigm consists of the following linear framework: market structure
determines the behavior of firms in a market and the behavior of firms in a
market determines various aspects of market performance. However, this
paradigm has been found to also have many interactive as well as feedback
effects.

9 Studies of cointegration are concerned with methods of econometric
estimation that preserve the information about forms of covariation between
series. Review of Recent

Studies Measuring the Effect of Market Power in the Fluid Milk Market

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 111 GAO- 01- 561 Milk Prices and Changing Market Structure

scope, stage of the marketing chain, and different time period. Moreover,
except for the Dhar dissertation, most of these studies did not take into
account the effects of market concentration at successive levels of the milk
marketing chain. When taken together, we found that these studies had mixed
results when estimating the effects of market power on seller and/ or buyer
price in the dairy industry and/ or fluid milk market.

Suzuki et al., (1994) 10 developed an imperfect competition model of the U.
S. dairy market for the purposes of analyzing dairy policy deregulation. In
order to do this, they use the theory that Bresnahan 11 developed to solve
for a parameter that they consider an aggregate indicator of the degree of
competition in this market. While the authors do not explicitly break out
the oligopsonistic power of processors, they assume that their indicator
reflects the combined effects of both cooperatives? as well as processors?
market power. In their model, the market power parameter equals one under
monopoly or collusion, and zero under perfect competition or price- taking
behavior. To empirically estimate the model, the authors specify equations
for raw milk production and demand for fluid milk and manufactured dairy
products. They then solve for the market power parameter using estimated
prices, quantities, and demand elasticities for fluid milk and manufactured
dairy products. The authors also test the validity of their imperfectly
competitive model for the analysis of milk market deregulation by using a
dynamic simulation approach for the period 1980 to 1990.

The authors found that their derived annual average estimates of the degree-
of- competition parameter implied neither perfect competition nor pure
monopoly, but implied a certain degree of market imperfection that had been
steadily declining from 1977 to 1990. They explained this degree of
imperfect competition as the consequences of a shift in the balance of power
caused by the unification of dairy cooperatives, consolidation of
manufacturing firms, and the consolidation of the federal milk marketing
orders. Moreover, the authors did not find significant differences between
the results of their imperfectly competitive model and the conventional

10 Nobuhiro Suzuki, Harry M. Kaiser, John E. Lenz, and Olan K. Forker, ?An
Analysis of U. S. Dairy Policy Deregulation using an Imperfect Competition
Model,? Agricultural and Resource Economics Review, 23 (1994): 84- 93.

11 T. B. Bresnahan, ?The Oligopoly Solution Concept is Identified,? Economic
Letters 10 (1982): 87- 92. Suzuki et al., (1994)-

Imperfect Competition Model of the U. S. Milk Market

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 112 GAO- 01- 561 Milk Prices and Changing Market Structure

model assuming perfect competition, assuming the fluid price differential
was exogenous, in estimating the effects of milk market deregulation.

The Madhavan study (1994) 12 examined empirically the price- setting
behavior of the Associated Milk Producers, Inc. (AMPI), a large cooperative
with more than 30, 000 members in the 1970s. The cooperative consolidated
power in the 1960s through numerous mergers and was involved in a Department
of Justice antitrust suit in which it was charged with ?predatory and
exclusionary? practices. The mergers, which were protected under the Capper-
Volstead Act, 13 were not challenged. However, AMPI did lose that part of
the antitrust suit charging it with conspiracy to monopolize. The authors
developed a model of spatial limit pricing to test for market power in 14
AMPI markets during the period from 1972 to 1980 (the AMPI Southern regional
markets). They tested the model using the method of Seemingly Unrelated
Regressions, 14 adjusting for serial correlation.

The authors of the study found that AMPI successfully obtained and used
seller market power, and that its market power was proportional to its
market share. During this period, price- cost margins averaged about 33
cents. However, after the antitrust decree, margins fell significantly to
about 4 cents and were no longer related to market share. These results were
robust to several specifications of the model as well as under different
industry trends.

12 Ananth Madhavan, Robert T. Masson, and William H. Lesser, ?Cooperation
for Monopolization? An Empirical Analysis of Cartelization,? The Review of
Economics and Statistics 76 (1994): 161- 75.

13 The Capper- Volstead Act grants agricultural cooperatives an antitrust
exemption. 14 The method of seemingly unrelated regression technique
provides a gain in efficiency by using information on the explanatory
variables that are included in the system of equations but are excluded from
the i th equation. Madhavan et al., (1994)- A

Study of Market Power by a Cooperative

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 113 GAO- 01- 561 Milk Prices and Changing Market Structure

The Liu et al., study (1995) 15 uses the NEIO approach to estimate the
degree of seller market power exercised by U. S. fluid and manufactured
dairy processors. This approach, based on the seminal article by Applebaum
(1982), 16 estimates (rather than assumes) econometrically a conduct
parameter called a ?conjectural variation?-- an index of the degree of
market power. This conduct parameter can range between zero and one, with
zero representing perfect competition and a value of one implying the
monopoly, or perfect cartel, solution. The Liu study also incorporates
government price supports on manufactured milk products. Under this type of
model, it is assumed that milk processing at the wholesale level follows a
fixed proportions technology between farm milk and other inputs. The model
uses quarterly data from 1976 to 1992 on USDA?s Dairy Situation and Outlook
series for wholesale supply and demand quantities; Class I and II federal
marketing order minimum prices and price differentials; and input wage and
energy price indices from the Department of Labor. Liu proceeds by using a
two- stage, nonlinear least squares estimation method with instrumental
variables. 17

The average industry conduct parameters of this study show that the
processing markets for fluid milk and manufactured dairy products were
somewhat noncompetitive. Over this time period, Liu?s analysis showed that
the conduct parameters were statistically significant and averaged 0.176 for
fluid milk processors and 0.100 for manufactured product processors, both
estimates closer to the perfectly competitive result (zero) than the
monopolistic result (one). The authors explained these results by saying
that fluid milk processors behave in a less competitive manner than
manufactured product processors because markets for fluid milk are less
national in scope than markets for manufactured dairy products. The authors
also noted that both parameters did not seem to increase over time and that
this was reassuring because the industry had become more concentrated over
the sample period from 1976 to 1992.

15 Donald J. Liu, Shin- Hwa Sun, and Harry Kaiser, ?Market Conduct under
Government Price Intervention in the U. S. Dairy Industry,? Journal of
Agricultural and Resource Economics 20 (2) (1995): 301- 15.

16 E. Appelbaum, ?The Estimation of the Degree of Oligopoly Power,? Journal
of Econometrics 19 (1982): 287- 99. 17 The instrumental variable technique
is a general estimation procedure applicable to situations in which the
independent variable is not independent of the disturbance term. The two-
stage least square technique is a special case of the instrumental variable
technique in which the ?best? instrumental variables are used in the
regression. Liu et al., (1995)- A Study

of Seller Market Power in Fluid and Manufactured Milk Markets

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 114 GAO- 01- 561 Milk Prices and Changing Market Structure

A study by Lopez, Azzam, and Liron- Espana (2000) 18 addresses the
unresolved issue of the tradeoff between market power and cost efficiency in
U. S. food industries, including the fluid milk processing industry. The
importance of this study stems from one of the main questions in antitrust
cases- whether the increased cost efficiency from greater concentration
outweighs the effects of increased prices due to greater market power. To
address this question, the study provides estimates of oligopoly power and
economies of size for 32 food processing industries using the 4- digit
Standard Industrial Classification (SIC) of the U. S. Department of
Commerce. The authors develop a NEIO empirical model that separates the
impacts of concentration on oligopoly power and cost- efficiency, and,
hence, on output prices as well as input use. In addition to measuring
conjectural variation elasticities (a measure of collusive market conduct
which implies market power), this paper also measures the amount that price
is above the marginal cost (the oligopoly Lerner index)- a somewhat more
direct measure of market power. In the specification of the theoretical
model, the authors identify an expression that separates the change in
output price of an industry with respect to a change in the level of
concentration as measured by the Herfindahl- Hirschman index. 19 This
expression is divided into (1) a term that measures the oligopoly- power
effect (consisting of one plus a weighted industry conjectural elasticity
term divided by the industry demand elasticity) and (2) a cost- efficiency
term that includes input prices and output quantity.

The econometric model adapts the oligopsony model of Azzam (1997) to the
oligopoly power case. Specifically, the model consists of five equations:
the pricing equation, three input demand equations, and an output demand
equation. The model was estimated with a system of five equations with non-
linear 3- stage least squares regression analysis. 20 Principal data sources
for the study included the National Bureau of

18 Rigoberto A. Lopez, Azzedine M. Azzam, and Carmen Liron- Espana,
?Oligopoly Power and Cost Effects of Industrial Concentration in U. S. Food
Processing,? Working Paper, Storrs Agricultural Experiment Station,
University of Connecticut, Storrs, Connecticut, October, 2000.

19 The Herfindahl- Hirschman index is a measure of firm concentration that
describes the size- distribution, or the relative importance of both large
and small firms in an industry. It is defined as the sum of the squares of
the market shares of the firms in an industry.

20 The three- stage least squares regression estimation technique is the
systems counterpart to two- stage least squares (as defined in footnote 17
above). This estimator is statistically consistent and asymptotically more
efficient than the two- stage least squares estimator. Lopez et al., (2000)-
A

Study of the Trade Off Between Oligopoly Power and Cost Effects of
Industrial Concentration in Food Processing

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 115 GAO- 01- 561 Milk Prices and Changing Market Structure

Economic Research (NBER) of Bartelsman, Becker, and Gray (2000) 21 database
for index prices of inputs and panel data. As mentioned above, data are used
at the 4- digit SIC level.

An overall result of this study contradicts the results of other analyses,
which showed that increases in technical efficiencies offset any losses to
consumers from increased concentration. In particular, in the fluid milk
industry (SIC 2026), these results show that a very strong tradeoff exists
between cost efficiency and increased oligopoly power. In other words, while
the results show significant gains in cost efficiency, there are also
significant and positive effects on output price in the fluid milk industry
due to market power. Moreover, at the wholesale level for fluid milk, while
there are cost efficiencies, they may not be passed on because of the
oligopoly- power effects.

The USDA study (2000) 22 examines market power at the national level for
seven food categories: beef, pork, poultry, eggs, dairy, fresh fruit, and
fresh vegetables. The authors use a cointegrated 23 model of quasi- reduced
form retail and farm price equations, a general market- clearing condition
for final industry output, and a general market- clearing condition for farm
inputs. The critical feature of the model is that within the same industry,
one firm?s production function may be different from other firms? production
functions. 24 Therefore, the authors argue that, unlike the NEIO market
power models, this model does not depend upon the restriction of identical
firms or fixed production technologies across firms. The model suggests that
one can test for oligopsony and oligopoly power based on the acceptance or
rejection of the testable restriction of symmetry, as implied by the theory
of profit functions under perfect competition. All retail prices in the
model were constructed from annual average Consumer Price Index data, U. S.
city averages from 1958 to 1997. Farm

21 E. J. Bartelsmen, R. A. Becher, and W. B. Gray. The NBER- CES
Manufacturing Industry Database, (http:// www. nber. org/ productivity.
html), June 2000. 22 A. J. Reed and J. S. Clark, U. S. Department of
Agriculture. Structural Change and Competition in Seven U. S. Food Markets.
Food and Rural Economics Division, Economic Research Service, Technical
Bulletin Number 1881, February 2000.

23 A cointegrated model links trends across variables, and in this case,
provides a marketclearing representation. 24 A production function describes
the technical relationship that transforms inputs (resources) into ouputs
(commodities). For each level of input used, the function assigns a unique
level of output. U. S. Department of

Agriculture, Economic Research Service (2000)- Study of Structural Change
and Competition in Seven U. S. Food Markets

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 116 GAO- 01- 561 Milk Prices and Changing Market Structure

level prices were constructed from non- seasonally adjusted annual Producer
Price Index data for farm products.

Using this model, the authors find competitive markets on the buyer side as
well as the seller side for all seven food markets, including the dairy
market. They explain this result by suggesting that trends in concentration
in agricultural markets may be efficient solutions to unpredictable trends
in consumer demand for food.

The Doyon Model (2001) 25 uses a totally different approach than the usual
econometric methods for analyzing the effects of market power; in this case
oligopsony or buyer market power, in the fluid milk industry. Laboratory
market experiments are used to find evidence of deviations from the
competitive equilibrium in the U. S. market for raw milk. A laboratory
experiment allows for the collection of data in a controlled environment,
such that the use of exogenous and subjective data in models is avoided. The
experimental task was a 2 x 2- matrix laboratory game, 26 with the
treatments being oligopsony and regulation. The experiment allows for
variation in the number of buyers (oligopsony) and the presence or absence
of regulation.

The results of the study indicated that when oligopsony is introduced, in
the absence of regulation, buyers gain market power. The increase in market
power is measured by a reduction in market price and quantity purchased
relative to the competitive equilibrium. However, when price regulation is
present, a reduction in the number of buyers has no statistically
significant effect. From this evidence, the author draws the conclusion that
regulation successfully neutralizes the oligopsony effects relative to the
competitive equilibrium.

25 Maurice A. Doyon, ?The Effect of the Elimination of Federal Milk
Marketing Orders on Farm Level Markets: A Laboratory Experiment,? Department
of Agri- Food and Consumer Science, Universite Laval, Quebec, Canada (2001).

26 In game theory, a 2 x 2 game represents two players with two possible
actions in their action sets. Doyon Model (2001)-

Experimental Simulation Model of Buyer Market Power of Fluid Milk

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 117 GAO- 01- 561 Milk Prices and Changing Market Structure

A doctoral dissertation by Dhar (2001) 27 is one of the first attempts to
apply to the U. S. fluid milk market a model of market power that considers
successive rather than single stage oligopoly. Specifically, this analysis
looks at the Boston fluid milk processor and retailer market channels in
order to capture the horizontal and vertical channel relationships. Also,
the author addresses the issue of modeling product differentiation at the
fluid milk brand level within this oligopolistic framework. Throughout the
analysis, the author uses this framework to examine the impact of the
Northeast Dairy Compact (NEDC) on the Boston fluid milk market.

The dissertation consists of three separate, but related types of analysis.
First, using the Panel Vector Auto Regression technique, 28 the author
analyzes the dynamic nature of retail competition on fluid milk in the
Boston and the New York markets. The author found that the retail price
response is short in these markets- in most cases not more than two time
periods. In addition, it was found that, during this time period, there was
a much stronger ?reacting? oligopolistic market structure in the Boston
market.

Second, the author develops a comparative static, cost pass- through model
under different market structure and conduct scenarios. This model consists
of a two- stage vertical market system where there are two processors at the
first stage and two retailers at the second stage. Within this vertical
structure, the author assumes three different conduct or game- theoretic
assumptions: (1) a complete vertical coordination game, (2) a vertical Nash
model, 29 where retailers and processors both maximize profit by setting
prices simultaneously, and (3) a vertical Stackelberg game, 30 where the
retailer moves first and decides on price and the

27 Tirtha P. Dhar, ?Two- Stage Oligopoly Pricing with Differentiated
Products: The Boston Fluid Milk Market,? Ph. D dissertation, University of
Connecticut, 2001. 28 Vector Autoregression models are systems of linear
regressions that have the advantage to better consider the interactions
between variables as well as model a more complete dynamic scenario. Panel
vector autoregression models are VAR models which use panel data.

29 A Nash equilibrium is a situation in which economic actors interacting
with one another each choose their best strategy given the strategies that
all the other actors have chosen. A Bertrand equilibrium, which this model
is implying, is simply a Nash equilibrium in prices rather than quantities.

30 A Stackelberg game implies a move sequence, in which players select
strategies in a given order. Each player?s strategy is a best response to
the fixed strategies of the players preceding him. Dhar Dissertation

(2001)- Differentiated Products Oligopoly Model of the Boston Fluid Milk
Market

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 118 GAO- 01- 561 Milk Prices and Changing Market Structure

processor maximizes profit by taking into account the reaction of the
retailer. Having defined these assumptions, the author then lays out the
basic equations underlying the theoretical model and the cost pass- through
derivations. To estimate this model, the author then specifies a simple
linear demand system, a cost function, and first order conditions based on
the profit functions for the processing and retailing sectors. A private
data collection company?s scanner data for monthly average fluid milk
prices, the Boston Class I fluid milk price, price reduction activities, and
package sizes for four retail chains are used in the estimation for the
period 1996 through 1998. In addition, a binary variable was incorporated to
account for the implementation of the Northeast Dairy Compact. The results
of this part of the dissertation suggest that the total pass- through of a
1- percent raw milk price increase is almost 100 percent, while rates of
pass- through at the wholesale and retail level are approximately 50
percent. For the total channel, the rate is near 25 percent, which is the
retail monopoly level.

The third part of the dissertation is the most comprehensive part of the
study. It incorporated recent developments in characteristics- based Nested
Logit 31 demand systems as well as a flexible Generalized Leontief cost
function. 32 In addition, this part of the study uses modeling techniques to
account for product differentiation at the brand level. Data for this part
of the study are also more comprehensive, providing marketing and retail
price related information for the aggregate and top four supermarket chains
in the Boston market from February 1996 to July 2000. The results from this
portion of the dissertation suggest that retailers do have market power and
that brand differentiation is the result of interaction between retailers
and processors. Both the second and third part of the dissertation found a
significant price enhancing effect of the Northeast Dairy Compact.

31 A logit regression model is a type of qualitative dependent variable
model in which the dependent variable is from a finite set of discrete
alternatives, such as a (0, 1) dummy variable. The logit model is one type
of qualitative dependent variable model that follows the logistic
probability function.

32 A generalized Leontief cost function is one type of a flexible functional
form of a dual cost function. These types of cost functions are ?flexible?
because they place little restrictions on the value of the function or its
first or second derivatives. In general, less restrictive and more flexible
forms are desirable, but require more information to specify such forms.

Appendix VII: Research Measuring the Impact of Concentration and Market
Power on the Dairy Industry and Fluid Milk Sector

Page 119 GAO- 01- 561 Milk Prices and Changing Market Structure

According to the author, due to focal point pricing, 33 competition between
channel players was lessened due to the Compact.

33 Focal point pricing or focal point signaling involves the use of publicly
disclosed price and cost information (here such as a federal milk marketing
order price or a Compact price) as a mechanism for tacit collusion in an
oligopolistic market.

Appendix VIII: GAO Contacts and Staff Acknowledgments

Page 120 GAO- 01- 561 Milk Prices and Changing Market Structure

Lawrence J. Dyckman, (202) 512- 3841 Anu Mittal, (202) 512- 9846

In addition to those named above, Jay Cherlow, James Dishmon, Barbara El
Osta, Rebecca Johnson, and Jay Scott made key contributions to this report.
Appendix VIII: GAO Contacts and Staff

Acknowledgments GAO Contacts Staff Acknowledgments

(150191)

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