Milk prices sour on consumers

The price of milk went up last week. And that will be reflected in prices for butter, cheese, and ice cream. 

The Canadian Dairy Commission warned consumers last fall a price increase would take effect in February, reflecting a 2.2% increase for dairy farmers to compensate for higher fertilizer and fuel prices. The Dairy Commission said that works out to less than two-cents a litre for consumers, $0.0174 to be exact. 

But in Nova Scotia the price increase for milk sold in several stores appears to be as much as 15-cents a litre higher, or seven times more than the jump at the farm gate. The sticker-shock is noticeable, even in a period of high food inflation.

Let’s do some comparison shopping. Prior to the price hike last week, you could buy four litres of 3.25% (whole milk) for $6.29 at Shoppers Drug on Wyse Road. It’s now $6.88 for four litres, up 59 cents. 

But that’s a bargain compared to paying $7.38 for the same 4L jug of milk at the Sobeys store just down the street. 

At Walmart in Dartmouth Crossing, four litres of whole or 3.25% milk is selling for $6.89, a penny more than at Shoppers. The cheapest four litres of milk I found was available at Costco: $6.39 for whole, 2%, and skim.

Milked?

Milk prices can vary hugely even within the same retail chain. Galen Weston’s Shoppers Drug Mart is one example. Weston’s family also owns the Atlantic Superstores and the Loblaws grocery chain. But back to our Shoppers Drug Mart example. 

It’s interesting that while Shoppers on Wyse Road in Dartmouth advertises a 4L jug of 2% milk as “on sale” for $6.88, a Shoppers in Surrey, BC is selling 4L of 2% milk for $5.69. That’s $1.19 cents less — even when you add in the 20-cent price increase at the Surrey store last week. 

There’s more. The Shoppers Drug in Surrey, BC also offers seniors a 20% discount on 4L of milk each and every Thursday. The store often sells out by noon and limits purchases to two per customer. That promotion is not offered in Dartmouth.

The latest increases in milk prices paid by Nova Scotia consumers cannot be explained by the two-cent a litre increase for dairy farmers. On a 4L jug at a Shoppers in BC, the increase works out to about five-cents a litre. In Nova Scotia, the increase on that 4L jug of milk at Shoppers works out to 15-cents a litre. 

Why the difference?

You can find clues but no satisfying explanation in the news release from the Canadian Dairy Commission last November. It said prices would rise 2.2% for farmers, which would translate into less than two-cents a litre for consumers. However, the Canadian Dairy Commission warned that might not be the price consumers would discover when they went to buy milk at the store.

“The net impact on consumers will also be influenced by factors such as transportation, distribution and packaging costs throughout the supply chain. The price paid to farmers is only part of the price paid by consumers,” said the release from the Dairy Commission.

And: “Price adjustments may have an impact on the retail price of all dairy products, although the size of the impact will depend on decisions of players along the supply chain regarding their own cost increases.”

In other words, a price increase in a regulated commodity such as milk can act as an opportunity for others to pass along price hikes, such as the cost of fuel to deliver the milk or the cost of the plastic container. 

Invoking this “supply chain” message can make it very difficult to judge how much of that 15-cents a litre spike is related to actual cost or to actual profit-taking by the dairies and the retail stores. 

Maybe everybody is taking their cut. Maybe the cows in BC are closer to market than the cows in NS. For sure consumers can’t help but notice and suspect we’re being milked. 

Economist Jim Stanford wrote an interesting article published earlier this month where he shot down many of the arguments used by grocery stores to justify what Stanford calls their “super-sized” profits.

 Wrote Stanford:

The supermarkets complain they are being unfairly singled out for responsibility for food inflation. They claim they are innocent victims, caught in the middle: merely passing along higher prices they are charged by their own suppliers.

They invoke far-fetched mathematical arguments and jargon (including vague references to ‘profit margins’ and other financial ratios) to pretend their profits are not unusual — even though they are at record highs (confirmed by their own financial reports). These arguments have not washed well with the shopping public, every time they shell out $200 for a cart of groceries.

Stanford spent 20 years as policy director for the Canadian Auto Workers union (now Unifor). Today he divides his time between Vancouver, Canada and Sydney, Australia as the director of a policy group called Centre for FutureWork. 

Using Statistics Canada data to graph the profits reported by Canadian grocery retailers, Stanford showed how profits have grown from a total of $2.4 billion in 2019 to $4.9 billion in 2022. Stanford said these higher profits cannot be explained by higher sales of food. 

He continued:

Supermarket sales spiked during the initial lockdowns as a result of panic buying and the closure of restaurants. Sales remained unusually high for the rest of 2020 and early 2021. Then, as inflation took off, the real quantity of grocery sales began to decline — and it is now lower than volumes sold before COVID (despite three years of population growth since then).

Painfully, Canadians are actually buying fewer groceries than before the pandemic — but paying much more for them. This attests to the hardship and even hunger that many Canadians are experiencing as a result of this crisis. And far from collecting a constant profit margin from a growing business, supermarkets’ real business is actually shrinking. Yet their profits are up strongly, anyway.

Stanford concluded his article suggesting grocery and other food retailers have a lot to answer for and that government should intervene: 

 “…supermarkets have taken advantage of the pandemic and its aftereffects to extract more surplus from their workers and consumers. That greed has contributed to inflation, and should be challenged: with excess profit taxes, stronger competition rules, and better labour standards”.

Different prices in different provinces

Each province regulates the price of milk sold in stores. In Nova Scotia, fluid dairy regulations set in 2020 establish a minimum price below which milk cannot be put on sale. In other words, the regulations set a floor but not a ceiling. 

No retailer in this province comes anywhere near the minimum allowable price: for 4L of whole milk, stores can’t charge customers less than $5.19. Even Costco’s price is more than $1 higher than that. Regulations forbid stores from selling 2L of 2% for less than $2.71. At most stores, consumers are paying $1- $2 above that to take home 2L of milk.

Some stores do discount the price of milk in an effort to get more people to come through their doors — a product strategy known as “a loss leader.” However, there seem to be fewer sales on milk these days, maybe because the product is becoming less popular as its price gets increasingly out of reach for singles and families on fixed incomes.