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The Costs of Increased Localization for a Multiple-Product Food Supply Chain: Dairy in the United States

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  • Nicholson, Charles F.
  • Gomez, Miguel I.
  • Gao, Oliver H.
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    Abstract

    There is increased interest in greater localization of food supply chains but little evidence about the effects of localization on supply chain costs. Assessing these effects is complex in multiple-product, multi-process supply chains such as the dairy industry. In this study, we develop a spatially-disaggregated transshipment model for the US dairy sector that minimizes total supply chain costs, including assembly, processing, interplant transportation and final product distribution. We employ the cost-minimizing solution as benchmark to compare alternative scenarios of increased supply chain localization. Our results indicate: 1) short-run limits to increased localization, 2) modest impacts on overall supply-chain costs, and 3) large cost reallocations across supply chain segments, regions and products. We find that increased localization reduces assembly costs while increase processing and distribution costs. Cost increases are larger in regions with smaller raw milk supplies and during the season when less raw milk is produced. Minimizing distances traveled by all dairy products results in tradeoffs across products in terms of cost and distance traveled. The relationship between increased localization and costs appears to be nonlinear.

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    File URL: http://purl.umn.edu/126967
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    Bibliographic Info

    Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 126967.

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    Date of creation: 2010
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    Handle: RePEc:ags:cudawp:126967

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    Related research

    Keywords: Localization; dairy sector; food miles; transshipment models; food supply chains.; Agricultural and Food Policy; Production Economics;

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    1. Sigrid Stagl, 2002. "Local Organic Food Markets: Potentials and Limitations for Contributing to Sustainable Development," Empirica, Springer, vol. 29(2), pages 145-162, June.
    2. Patricia Allen & Alice Brooke Wilson, 2008. "Agrifood Inequalities: Globalization and localization," Development, Palgrave Macmillan, vol. 51(4), pages 534-540, December.
    3. Jane Ricketts Hein & Brian Ilbery & Moya Kneafsey, 2006. "Distribution of local food activity in England and Wales: An index of food relocalization," Regional Studies, Taylor & Francis Journals, vol. 40(3), pages 289-301.
    4. Onozaka, Yuko & Nurse, Gretchen & Thilmany, Dawn D., 2010. "Local Food Consumers: How Motivations and Perceptions Translate to Buying Behavior," Choices, Agricultural and Applied Economics Association, vol. 25(1).
    5. Pratt, James E. & Bishop, Phillip M. & Erba, Eric M. & Novakovic, Andrew M. & Stephenson, Mark W., 1997. "A Description of the Methods and Data Employed in the U.S. Dairy Sector Simulator, Version 97.3," Research Bulletins 122723, Cornell University, Department of Applied Economics and Management.
    6. Stephen Toler & Brian C. Briggeman & Jayson L. Lusk & Damian C. Adams, 2009. "Fairness, Farmers Markets, and Local Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1272-1278.
    7. Shermain D. Hardesty, 2008. "The Growing Role of Local Food Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(5), pages 1289-1295.
    8. King, Robert P. & Gomez, Miguel I. & DiGiacomo, Gigi, 2010. "Can Local Food Go Mainstream?," Choices, Agricultural and Applied Economics Association, vol. 25(1).
    9. Dawn Thilmany & Craig A. Bond & Jennifer K. Bond, 2008. "Going Local: Exploring Consumer Behavior and Motivations for Direct Food Purchases," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(5), pages 1303-1309.
    10. Kim Darby & Marvin T. Batte & Stan Ernst & Brian Roe, 2008. "Decomposing Local: A Conjoint Analysis of Locally Produced Foods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 476-486.
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