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    Mass. Continues Milk Price Probe

    State investigates convenience stores and supermarkets suspected of below-cost dairy sales.

    BOSTON -- State officials are continuing to investigate retailers they suspect of selling milk below cost, most recently going after 15 Mobil convenience stores that were selling 1 percent milk for $1.79 a gallon.

    Douglas Gillespie, commissioner of the Department of Food and Agriculture, said no official action was taken against Exxon Mobil Corp. because the company independently decided to end its pricing promotion, raising the price to $1.99. ExxonMobil says it did not sell its milk below cost, a practice that would violate state law, according to a report in the Boston Globe.

    ''The department's approach is not to be punitive but merely to enforce the law. So once a company comes into compliance the complaint is moot,'' Gillespie said. ''Retail sales at such price levels -- just above cost -- are legal, and would lead to price wars to drop prices from the high levels that we're experiencing now.''

    At most convenience stores and supermarkets, retail milk prices have remained about $2.99 a gallon over the past year even though prices paid to dairy farmers have plunged to a 25-year low. The large spread between retail and farm prices has led to calls in the Legislature for repealing the law barring retail sales of milk below cost and for legislation that would tie the retail price of milk to the price paid to dairy farmers.

    Secretary of State William F. Galvin, who filed the legislation that would link retail and farm prices, said it makes no sense for the state to spend time investigating alleged below-cost sales of milk at a few small retailers when the price is unusually high at most supermarkets. He said such investigations don't benefit dairy farmers or consumers and don't enhance competition at the retail level.

    Galvin's bill, patterned after a New York law, would make it illegal for a Massachusetts retailer to sell milk at any price in excess of 200 percent of what a farmer receives for his milk. Farm prices in New England are set by the federal government using a formula heavily influenced by the price in Wisconsin of milk and other dairy products. At current prices, Galvin's bill would cut the retail price of milk by more than 60 cents a gallon.

    Gillespie said Galvin's bill would benefit consumers but would do little to improve the lot of dairy farmers. However, Gillespie said that consumers and farmers are both suffering while retailers appear to be making unusually high profits.

    The Mobil case is the second time this year the state has pursued a retailer for allegedly selling milk below cost. In January, after a lengthy investigation and several hearings, Midland Farms Inc. of Easton raised milk prices while continuing to insist its previous prices had not been below cost. Midland had been selling its milk for $1.79 a gallon for all grades except 1 percent, which was priced at $1.49.

    Both the Midland Farms and the Mobil investigations were prompted by complaints from Cumberland Farms, a major convenience store operator.

    Barry Wood, a spokesman for Mobil, said the company submitted documentation to the state indicating its prices were not below cost. He said the state's inquiry ended when Mobil raised its prices for 1 percent milk, as planned, at the end of April.

    While prices of milk at smaller retailers and some big-box retailers like Wal-Mart and Costco have hovered around $2 a gallon or less, the big supermarket chains in Massachusetts have maintained their prices at $2.99 a gallon or above. Industry sources said supermarket prices have remained high because supermarkets are convinced that milk sales would not increase if the price drops. Without a corresponding increase in sales, the supermarkets have no incentive to cut their milk prices, the sources said.

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