A new dairy study says value-added processors are critical to better farm gate prices.
By: Pennsylvania Center for Dairy Excellence
Source: American Agriculturist
Pennsylvania’s dairy industry needs more value-added dairy processing plants plus investment incentives to make them happen. That’s the bottom line of a study commissioned by the Pennsylvania Department of Agriculture and the Center for Dairy Excellence.
Proposals from Analysis of economic incentives for additional dairy processing in Pennsylvania could generate $34.7 million annually in combined revenue generation and cost savings.
The authors are Chuck Nicholson, now an adjunct associate professor at Cornell University; Mark Stephenson, director of dairy policy analysis at the University of Wisconsin Madison; and Andrew Novakovic, E.V. Baker professor of agricultural economics at Cornell.
Substantial incentives appear to exist for additional processing capacity to locate in Pennsylvania, according to the study. An investment in two cheese plants — one in the State College area and one in the Reading area — may result in the largest reduction in supply chain costs, offering the strongest incentives for the new processing capacity.
Based on dairy product demands and 2016 milk production capacity, the three found that investing in two plants processing volumes of 4 million pounds of milk per day and producing non-American types of cheese (Italian and specialty cheeses) would result in the largest reduction in supply chain costs. These plants would reduce hauling costs for Pennsylvania dairy producers by an estimated $5.9 million per year.
An investment in dairy processing would also reduce hauling costs for Pennsylvania dairy producers, with the Reading and State College plant scenarios proposed in the study reducing hauling costs by an estimated $5.9 million per year. The combined estimated returns generated by the increased marginal milk value and reduced hauling costs would support a plant investment of about $433 million per year.
Stuck on cheap milk processing
“Pennsylvania is one of the few major dairy states that are net exporters of raw milk,” Stephenson says. Having additional dairy processing would markedly increase the marginal value of milk now being shipped out-of-state. That would generate economic benefits for the state, while enhancing the marginal value of milk for Pennsylvania dairy producers by about $28.8 million annually, according to our findings.”