Optimum Number and Location of Manufacturing Milk Plants to Minimize Marketing Costs

Historically, the manufacturing milk sector has been treated as the residual segment of the dairy industry. Milk for fluid consumption has always had first claim on Grade A milk production and any excess milk has been available for manufactured products. The pricing system for milk reflects the dependence on manufactured products as the residual outlet for excess milk. On-farm quality standards for production are lower for manufacturing milk and thus the farm price is lower. The proportion of whole milk produced as manufacturing grade milk is declining as producers shift to Grade A production. The decline in supply has been accelerated to some extent also by the upgrading of on-farm quality standards in recent years. Many small producers left the industry rather than make the necessary expenditures to upgrade on-farm facilities. In addition, the movement of Grade A milk into the expanding fluid milk markets in the South has resulted in a declining quantity of excess Grade A milk. Consequently, there is excess processing capacity in the manufacturing milk sector.