Last spring, some farmers in the Midwest and Northeast were in a desperate situation when they suddenly found themselves without a plant to process their milk. As their fate hung in the balance, it was a reality check for the dairy industry as a whole.

Would extra milk processing capabilities in certain parts of the country be an economically viable way to use the nation’s growing milk production?

Three dairy economic experts — Chuck Nicholson and Andrew Novakovic from Cornell University, and Mark Stephenson from the University of Wisconsin-Madison — took a closer look at what additional processing would mean for Pennsylvania, one of the nation’s top dairy states.

The study evaluated the economic impact of adding processing capacity at 21 possible locations in Pennsylvania (an all-locations scenario), as well as a second situation with two new plants at locations that provided the greatest potential benefits (two-plant scenario).

The bottom line? They believe there would be considerable payback for expanding milk processing capacity in Pennsylvania.

For starters, additional processing would retain more milk within the state’s borders. New capacity could keep more than 20 percent of the state’s milk supply in Pennsylvania.

Maintaining more milk closer to home would reduce hauling costs and improve milk premiums for farmers. The researchers figure the net benefit could amount to $35 million per year under the two-plant scenario and $48 million per year under the all-locations scenario.

In the two-plant scenario, hauling costs would be reduced by 5 cents per hundredweight. The value of milk premiums to farmers on a statewide average would rise between 26 cents and 29 cents per hundredweight.

The authors believe these benefits would justify investments between $430 million and $600 million to expand Pennsylvania’s processing capacity. This investment would elevate the value of dairy products produced from $599 million to $921 million. It could also add between $1.5 billion and $2.3 billion in economic activity and create 1,100 to 1,700 new jobs.

More about this study can be found in the recently released paper, “Analysis of Economic Incentives for Additional Dairy Processing Capacity in Pennsylvania.”

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(c) Hoard's Dairyman Intel 2018
January 15, 2018
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