COST OF MILK EXPECTED TO RISE AS NEW PRICE FORMULA BEGINS.

Byline: Jason Z. Cohen Staff Writer

California milk processors will pay 12 cents a gallon more for milk starting April 1 and it's likely their added cost will be passed along to consumers.

The California Department of Food and Agriculture will raise the price processors pay farmers April 1 from $1 per gallon to $1.12 because of a change in the way it determines that price. Stores likely will follow suit based on their past actions, said department spokesman Kelly Krug.

``We've seen the stores for at least the last year, they pretty much are passing along the increases and decreases that are taking place,'' said Krug, the department's director of marketing services. ``It's a pretty good indication that it will get passed along.''

California is following the lead of the U.S. Department of Agriculture, which changed its formula at the beginning of the year, he said.

Previously, the formula for setting minimum farm prices - the price paid by processors to farmers - was determined by an equation that took into account market forces as well as the commodity price for cheese.

The new formula also factors in the prices of powdered milk and butter, Krug said.

The end result is stability. By broadening the formula to include more commodities, prices paid to dairy farmers fluctuate less, Krug said.

California is one of eight states in the nation that set their own farm prices for milk.

``We've had a similar system to the federal system since the mid- 1930s,'' Krug said. ``California producers have always preferred a state program to a federal program. Milk is still one of the most highly regulated agricultural products there is.''

Krug said that before implementing the new formula, the department applied it retroactively to prices back through October 1998 to see what the effect would have been.

On average, the price change amounted to 4.5 cents more per gallon at the producer level, Krug said.

The increase in April over March's farm price will be steeper, he said. That's because the March price represents a 21-year low.

Dave Heylen, spokesman for the California Grocers Association, said it is unclear whether grocers will pass along to consumers a 12-cent increase from a historic low.

``It's tough to say whether there will be a price change or not,'' he said.

Dairy farmers certainly will benefit from the increased price stability and the end of such low prices, said Bob Feenstra, executive director of the Chino-based Milk Producers Council, which represents Southern California dairy farmers.

``I was pleased with the department's decision. It will bring California back into line with the prices in surrounding states,'' Feenstra said. ``The dairymen in the last four months have lost over 30 percent of their income.''

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Chart: MILK PRICES

The price of milk at the producer level is at a 21-year low. A new formula to calculate the minimum price paid to dairies will raise that price by 12 cents in April. But changes in the farm price and the market price don't always match.

SOURCE: California Department of Food and Agriculture, AC Nielsen