Application of an optimisation model for analysing production seasonality in the Irish milk processing sector

Ireland’s dairy sector is characterised by pastoral spring-calving systems and seasonal milk production at national level. This production seasonality initiates various implications at processor level, such as poor plant capacity utilisation off-peak season or a requirement for seasonal labour, which impose extra costs on the processor and limit their options as to which markets can be serviced. An optimisation model was developed to analyse the impact of production seasonality on the Irish dairy processing industry regarding processor gross surplus (Surplus), costs of milk collection and handling, processing, product storage and labour as well as on product mix, plant and labour capacity utilisation and the marginal producer milk price (MPMP). Three scenarios with differing milk intake curves were examined whereby it was found that a flatter intake pattern incurred less variation in the MPMP and capacity utilisation in addition to a higher Surplus and a larger proportion of more profitable products in the product mix vis-à-vis seasonal patterns. As expected, these results suggest that a producer supplying milk in line with a nationally seasonal production pattern receives lower milk payments since the seasonality-related costs are fed back from the processor to the producer via a lower producer milk price.