IDFA: Prices to blame for fluid demise

By Bob Yonkers, IDFA Chief Economist

For the month of June, USDA’s Agricultural Marketing Service estimated U.S. sales of fluid milk products fell 5.9% from the same month last year.  This was the second largest year-over-year monthly decline since USDA began reporting this data in January 2000.

So far in 2013, average daily fluid milk product sales are 2.1% lower than the same period last year.  This follows sales declines of 2.0% for calendar year 2012, 1.7% for calendar year 2011 and 1.4% for calendar year 2010.  Beginning in December 2009, fluid dairy product sales on an average daily basis have declined year-over-year in 38 out of the past 43 months through June 2013.

To put this in some perspective, in the first six months of 2009, total fluid dairy product sales averaged 152.1 million pounds per day, or about 17.7 million gallons.  This year, sales have averaged only 141.6 million pounds per day, or about 16.5 million gallons per day; so far this year  the U.S. is selling about 1.2 million fewer gallons of fluid milk products than we did just four years ago.  On an annual basis, that amounts to 438 million fewer gallons sold, nearly four fewer gallons for every household in the United States.

Back in early 2010, when fluid milk sales began to decline more months than not, it was perhaps easy to dismiss as an aberration.  However, the continued downward trend over the past three and one-half years has many in the dairy industry searching for answers.  Theories abound, ranging from increased competition from alternative beverages like bottled waters, fruit juices and others to changes in the types of white and flavored milks offered in school breakfast and  lunch programs.

While these and other factors may contribute, one factor certainly will lead to lower fluid milk product sales – higher prices.  A recent study led by researchers with USDA’s Economic Research Service found that for all types of fluid milk products (they studied 9 types), “a 1-percent change in price will cause an impact greater than 1-percent change in the quantity purchased of fluid milk.  These empirical findings suggest that consumers are more sensitive to changes in fluid milk prices today than they were two or three decades ago.” 

Although the industry has tried for decades to pretend that the retail price of fluid milk has little impact on sales, this study proves we can no longer ignore its impact on consumers.