Fluid Milk Processing Costs: Current State and Comparisons

¹ Department of Resource Economics and Policy University of Maine, Orono 04473-5782

An economic-engineering model is used to derive the theoretically minimum cost of processing and distributing fluid white milk for the state of Maine. This model represents a state-of-the-art milk processing facility and is used to evaluate three questions: 1) the components of total processing costs; 2) whether the cost of milk processing declines with increasing plant size; and 3) the minimum processing volume to financially justify inplant blow-molding technology. The model indicates that significant savings in per-container processing costs can be achieved by increasing plant size. However, distribution costs, related to the geographical distribution of consumer demand and plant location in the state of Maine do not favor large centralized plants.

In addition, this model is compared with results published in 1993 to evaluate cost trends over a 7-yr period. The model indicates import shifts to more technologically advanced processing equipment and a dramatic increase in labor costs. Overall, processing costs have risen 2.9% annually above the rate of inflation. Dairies that are unable to respond to increased labor costs through capital investment and expansion will likely find it more difficult to remain competitive in the milk processing industry.

Key Words: dairy processing • cost • economic-engineering

Submitted on July 30, 2001
Accepted on November 27, 2001