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Economic Implications of Higher Transportation Costs

Dairymen, Inc., Louisville, KY 40223

ABSTRACT

Increasing energy costs require closer examination of methods of transportation to determine the most economical and practical means of transferring the product from the point of production to the point of consumption. The perishability and bulkiness of milk restricts the feasibility of some transportation alternatives.

The optimum size and location of milk processing plants will be influenced by the higher cost of energy. The efficient organization of the industry must consider the volume-cost relationship of future plants as well as the location of milk supplies and consumer market. Will economics of scale of future plants permit the offsetting of the higher assembly and distribution costs associated with higher plant output? The answer will be influenced by the amount of capital required to utilize new energy sources at the plant. Under present processing procedures, higher energy costs will reduce the economical distribution area of fluid milk plants.

Higher transfer costs will change the geographical price structure as it becomes more expensive to move milk from surplus areas to deficit areas. Higher energy costs will raise the costs of inefficiencies in assembly and distribution of milk and milk products.