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Influence of Variable Milk Quality Premiums on Observed Milk Quality

C. Nightingale^*,1,2, K. Dhuyvetter, R. Mitchell^* and Y. Schukken^*

^* Quality Milk Production Services, College of Veterinary Medicine, Cornell University, Ithaca, NY 14850
Department of Agricultural Economics, Kansas State University, Manhattan, Kansas 66506

¹ Corresponding author: compgain{at}gmail.com

The objective of this study was to evaluate a premium program for very high quality milk in a US cooperative. Data were available on a monthly basis from a large US milk cooperative from April 1998 through December 2005. The data set consisted of 36,930 observations representing producer-months. The actual amount of the low bulk tank somatic cell count (BTSCC) premium varied from $0.15 per hundred pounds (cwt.) of milk to $1.00/cwt. with steps in between of $0.50 and $0.60 per cwt. of milk during the data collection period. Data analysis was done to evaluate the impact of the premium program on average BTSCC and on the probability of a producer to ship milk with <100,000 cells/mL in a given month. The results showed a strong effect of the premium program on both the average BTSCC and the probability of producing milk with very low BTSCC. On average, the BTSCC of all the milk in the cooperative was reduced by 22,000 cells during the high premium period. The probability of producing milk with BTSCC <100,000 doubled during some months of the high premium period from 4 to 8%, and an associated 10% increase in probability to produce milk below 200,000 cells/mL was observed. The data clearly indicate that premium offerings for very high quality milk affect the overall milk quality in the population affected by the premium. Producers responded to the high premiums and the overall impact on milk quality was substantial. We argue that the combination of a penalty program for high BTSCC milk with a premium program for very high quality milk (low BTSCC) provides a strong incentive for improvement of milk quality.

Key Words: bulk tank somatic cell count • milk quality regulations • premium policy