When asked where her milk comes from, the consumer answered matter-of-factly, “The store.” This often-told expression says more about farmers than it does about consumers. As farmers, what we know best is how to produce the greatest and safest food product. It is our world. By showing consumers all of the technology and skills employed to make milk with pride, consumers will answer back in a collective “Ahh!” and will inevitably buy more of our products; no questions asked. Or so we hope.

To be sure, educating consumers on what it takes to make this great product is important, not so much for markets, but to protect farmers from bad regulatory policy. Without protection, regulatory policy could impair our ability to supply the consumer with this basic commodity.

In the end, dairy farming is a business and as a business it needs to make money. That money comes from the consumer. Consumers spend their money at the store, not the farm. Just as consumers can learn how farmers produce milk at the farm, farmers should learn how consumers spend money at the store. A visit to one will show the farmer a lot.

So take a visit to your local store. Pick one of the large ones, those that sell more of your products than anyone else. To develop a comfort level, start with the best place in the store, where the milk is sold. Now step back from the rows of gallons of milk. Look critically at how milk fits into the store. Estimate its shelf space compared to the rest of the store. Count the choices of fluid milk including the different fat content, flavor, organic and even the brand. As you account for different brands and container sizes, you will see that there are a few dozen choices at most.

A favorite dairy product is cheese. It can be found in at least two places: the deli and the dairy aisle. Dairy products occupy more varieties and space. Also in the dairy case is butter, but it is not so common and there is virtually no variety.

In the same area are the fresh juices. Look at the varieties, the health claims and the space they take. Count the number of choices for a consumer. Nearby are the frozen juices. They occupy smaller cans and take up less space, but notice the varieties available. Add those to your count. Find the juices which contain milk components of any kind. There are probably none.

Move on to the beverage aisle where the colas and other carbonated and non-carbonated drinks abound. In some stores they may take up multiple aisles, not just one. Count all of the varieties and flavors available. How does this shelf space compare with the space allotted to milk? Check out the ingredient lists. How often do you see milk, milk products or dairy ingredients such as whey? Seldom, if at all.

Next on the tour is the canned fruit and vegetable aisle. Here is where the canned and bottled juices are displayed. There are the fruit, vegetable and mixed drinks of every color and flavor. Check the contents of these packages for milk ingredients. You will probably find none.

The coffee aisle is next. Count the varieties of coffees, teas, cocoas, dried water flavorings like Kool-Aid and other instant beverages. Again look at the nutrition labels. Here between the hot chocolates and the cappuccinos you will find some milk products. Those are the exceptions. Look at the items that have the largest containers, the largest space and more products, coffees and teas – not much milk there.

Next, stop at the beer and wine areas. Count the varieties there. There is no need to check the ingredients for milk here. The same goes for the water.

So in total, how many different choices of beverages did you count? The last time I did this exercise, the number was in the hundreds. Those that contain milk ingredients, dozens at best.

Now that we have compared milk with other beverages, do a final survey in the store. Compare bottled milk with other dairy products: ice cream, butter, yogurt, creams, spreads and cheeses. What do you notice? A lot of variety with different flavors, sizes and offerings.

Now check the prices on these products. Roughly compute the milk equivalent 8.6 pounds to a gallon of milk, ten pounds to a pound of cheese. For yogurt and ice cream, assume they are all solids, not fat (the remaining ingredients are far cheaper than your milk solids.) How much per pound of solids, not fat, are these products selling for?

What you should notice is the products that producers provide the highest value (fluid milk), and are often lower priced than the manufactured products, come from lower-priced milk. In summary, the tour should identify at least two things:

1. There are many choices of beverages besides milk by nearly a hundred-fold.

2. The highest-valued dairy product is not fluid milk.

For farmers, the milk pricing system can be simply described: Classified pricing and pooling. The foundation of the Federal Milk Marketing Orders (FMMOs) as well as the state orders is that fluid milk, Class I, is the highest and best use and demands the highest price. Milk used for ice cream or cheese is of lesser value.

When these systems were created, this was truly the case. Class I milk in some markets obtained more than twice the money received for milk used in cheese. In most FMMOs, most milk was used in Class I. There were times when some orders had nearly 100 percent Class I utilization.

The pricing, pooling and marketing of milk are based on the view that fluid milk is where the added value is. In times of too-low milk prices, the call has been to increase fluid milk prices.

When fluid milk utilization was high, these prices and policies worked. A $0.50 premium in fluid milk meant $0.35 in markets with 70 percent utilization. Class I sales were the forces behind producer value. In the stores, bottled milk on milk equivalent bases was higher than butter, cheese and other products.

That is not so today. Nationally, less than 40 percent of the milk goes into the bottle. In some markets such as California, the Upper Midwest and Idaho, the percentage is in the mid-teens or lower. That 50 cents now means only 7.5 cents; not much money there. We manufacture more cheese than bottled milk and, in California, powder competes with fluid milk. When you consider the choices consumers have for beverages, increasing demand for milk through higher sales of traditional milk is not going to work.

Decades of price and other regulations on milk have taken their tolls. Although the population continues to grow, demand for fluid milk is, at best, flat. For some milks such as full fat milks, sales have dropped significantly. The addition of organic brands and fancy packaging in single serves has failed to slow the slide in sales. The truth is that price regulations do not sell milk, they restrict it.

Rather than promotion or price regulation or supply management, we need to look at diversity. Years ago cranberry growers had a limited marketing year of Thanksgiving through Christmas. Their ability to produce exceeded the need for holiday cranberries. The answer was not price protection, tighter regulation, or stricter labels; it was diversity into added value – first into beverages then into mixes. Cranapple juice is a year- long beverage competing with milk.

Ethanol may hurt in the price of feeds, but give corn growers credit for finding and creating a market for another product to raise the value of their commodity. So, too, soybean growers moved their market into inks and fuels and countless other products.

The consumer at the store is telling us that if farmers want to sell more milk, then milk ingredients have to show up in more products. But our regulatory and pricing system is unable to recognize the long-term value of such diversity. While other ingredients from grains, fruits, nuts, vegetables and other sources are unregulated, ours is highly regulated. As the tour shows, the highly regulated fluid milk at the plant has the lower value in the store compared to other products.

Consumers do not purchase just their milk from the store; they also buy hundreds of other beverages. Milk is not just a fantastic food, it is an ingredient for more fantastic beverages and foods. Growth in milk demand will come from being part of the greater choices in beverages. At the same time, to see that producers get the benefit of that value, our system of pricing needs to reevaluate what are truly the highest-value products. We learn these things at the store. Customers do not buy milk at the farm, but at the store. For farmers, that is important to know because that is where the money is. PD

Ben Yale
Attorney at Yale Law Office
ben@yalelawoffice.com