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Economic Incentives for Cheese Processors Using a Protein-Fat Milk Pricing Model

Dairy Monitoring of America, North Logan, Utah 84321

ABSTRACT

A case study projecting the monetary inlpact on a hypothetical cheese plant changing from fat-hundredweight producer payment to a protein-fat pricing plan was investigated. The hypothetical cheese plant is situated in an area which produces 2,185,000 pounds of milk daily. This plant received 437,000 pounds of milk daily beforé adopting the novel protein-fat payment plan.

Milk supplies originating from 746 herds in Utah, 333 herds in North Dakota, 103 herds in Wisconsin, and 239 individual cow milk samples were statistically analyzed by simple and weighted linear regression models. Monetary projections, given specific assumptions, were used for the Utah milk to evaluate the relative position of the Inilk plant introducing the protein-fat pricing system as compared to competitive plants pricing milk by orthodox fathundredweight payments.

The annual economic incentive generated by the protein-fat pricing plan was $2,077,581 per year. The annual economic incentive differential between the hypothetical plant and the competing milk plants was $4,155,162.