To control or not to control? Maine milk-price war hinges on answer

The grocer wants to sell it for $1.69, and the buyer agrees. Willing seller, willing buyer: That's how prices are set, right? Not if the product is a gallon of whole milk and the State is Maine.

As America drifts rightward and trims regulations on everything from banking to land use, the milk price war in this sprawling, rural state is growing into a classic battle between the proponents of government control and the supporters of free-market economics.

Maine fixes the retail price of milk -- and has done so since 1935, when relatively slow transportation, poor refrigeration, and the depression conspired to make milk one of the most vulnerable commodities. By 1941, more than half of the states in the nation had similar controls.

Now, the Maine Milk Commission is one of only a handful left in the country that sets grocery-store prices. Hence the question that has galvanized the local press: Should milk price controls be abandoned?

Yes, says Cumberland Farms, the 1,200-shop, Massachusetts-based convenience store chain, which typically uses low milk prices to woo customers into its shops. It wants to sell milk at its 25 Maine stores at well below the current minimum of $2.08 a gallon because, says company spokesman Francis Alger, its vertically integrated, cow- to-cooler structure allows it to produce milk more cheaply than the "antiquated and inefficient" methods of its Down East competitors.

But the Maine Milk Commission disagrees. It argues that the price floor must be maintained to save Maine dairies from being engulfed by large, out-of-state producers. Without retail controls, says commission executive director Robert Plummer, price wars would destroy smaller dairies and dealers, after which the remaining large firms would jack the price toward the current decontrolled $2.35 per gallon average in Denver or the $2.45 per gallon average in Rochester, N.Y.

Standing in the wings are the state's 1.1 million consumers. Estimating that each of them consumes an average of 0.8 pints of milk a day, Mr. Alger says they have been paying about $15 million a year more for milk than they need to. Only who sell milk to Maine markets, however, according to a recent study by the Maine Department of Agriculture.The rest, say critics of the commission, goes to middle men.

The issue came to full boil this spring when a legal battle between Cumberland Farms and the commission led to a court ruling in the food-chain's favor. Subsequently, Cumberland Farms dropped its prices. Other stores leapt to follow, with prices dipping to $1.65 a gallon in some places.

In mid-June, however, the legislature stepped in with an emergency measure setting a $2.08 per gallon retail price floor -- which, according to the International Association of Milk Control Agencies, is very close to the price prevailing nationwide. But Gov. Joseph Brennan, a Democrat with a taste for free enterprise and a long-standing party commitment to get rid of the price controls, vetoed the bill. On June 19, however, his veto was overridden by a cliff-hanging vote on the last day of the legislative session. By Monday, June 22, the price of milk had shot up by at least 30 cents a gallon.

"It was sort of like the Prague spring," recalled David Flanagan, legal counsel to Governor Brennan. "We had about three weeks of free enterprise." The period proved, Mr. Flanagan noted, that "the Maine farmers can make a profit at lower than the Maine Commission price."

Roger Gifford, president of the Maine Milk Dealers' Association, disagrees. "Maine is at the end of the supply line," he says, and dealers must work harder to supply scattered markets. During the recent price war, when some producers were losing 10 cents a gallon rather than dump their milk, he says he heard of five or six dealers who were "ready to close their doors."

Homer Metzger, professor of Agricultural and Resource Economics at the University of Maine and a consultant to the Maine Milk Commission, shares his concern. "I can foresee 25 percent of our producers going out of business if we lose retail price controls," he says. Maine, he says, does not have the tradition of farmers' cooperatives, so common in the West, through which small producers can join forces to compete with larg e ones.