SIZE AND LOCATION - Dairy Markets · 2011-04-22 · Milk supply and production areas 7 Milk demand and consumption areas 7 Number and location of milk plants 10 PLANT COSTS II Fluid

ANDREW M. NOVAKOVIC

OPTIMUM NUMBER,

SIZE AND LOCATION OF

DAIRY PlANTS

IN THE

INTERMOUNTAIN AREA

Research Bulletin 511

June 1987

Utah Agricultural Experiment Station

Utah State University

OPTIMUM NUMBER, SIZE AND LOCATION OF DAIRY PLANTS

IN THE INTERMOUNTAIN AREA

by

Rondo A. Christensen

Research Bulletin SII

Utah Agricultural Experiment Station Utah State University

Logan, Utah

June 1987

LIST OF FIGURES LIST OF TABLES

INTRODUCTION

OBJECTIVES

TABLE OF CONTENTS

111

V

PROCEDURE 3

SUPPL Y AND DEMAND FOR MILK AND MILK PRODUCTS 7

Milk supply and production areas 7 Milk demand and consumption areas 7 Number and location of milk plants 10

PLANT COSTS II

Fluid milk plants II Cottage cheese plants 14 Ice cream plants 16 Cheese plants 18 Milk assembly and distribution 20

ANALYSIS OF DATA 21

Optimum number, size, and location of plants 21

Fluid milk plants 21 Cottage cheese plants 24 Ice cream plants 27 Manufacturing plants 30

Total assembly, processing, and distribution costs 33

SUMMARY AND CONCLUSIONS 37

REFERENCES 39

APPENDIX 41

LIST OF FIGURES

Page

I. Network of the transshipment model 6

2. A verage cost curve for fluid milk processing plants 13

3. A verage cost curve for cottage cheese processing plants 15

4. A verage cost curve for ice cream processing plants 17

5. A verage cost curve for cheese manufacturing plants 19

6. Number and location of fluid milk plants (1983) 23

7. Optimum number and location, and marketing area of fluid milk plants 23

8. Number and location of cottage cheese plants (1983) 26

9. Optimum number, location, and marketing area of cottage cheese plants 26

10. Number and location of ice cream plants (1983) 28

II. Optimum number, location, and marketing area of ice cream plants 28

12. Optimal milk supply areas for fluid milk, cottage cheese, and ice cream plants 29

13. Location of manufacturing plants that bought milk from pool plants (December 1983) 32

14: Optimum location and milk supply areas 32

15. Milk marketing costs with alternative market structures 35

iiI

LIST OF TABLES

Page

1. Total supply of producer milk by state (December 1983) 8

2. Total consumption of fluid milk and cream, cottage cheese and ice cream by state (December 1983) 9

3. Number, location and type of dairy plants by state (December 1983) 10

4. Estimated fluid milk and cream processing costs by plant volume and level of energy costs 12

5. Estimated cottage cheese processing costs by plant volume and level of energy costs 14

6. Estimated ice cream processing costs by plant volume and level of energy costs 16

7. Estimated cheese manufacturing costs by plant volume and level of energy costs (1985) 18

8. Truck operating costs per loaded mile by type of haul (1985) 20

9. Number, size and location of fluid milk plants under current and optimum marketing structures 22

10. Number, size and location of ice cream plants under current and optimum marketing structures 25

11. Number, size and location of manufacturing plants under current and optimum marketing structures 27

12. Number, size and location of manufacturing plants under current and optimum marketing structures 31

13. Total assembly, processing and distribution costs for milk and milk products under current and optimum marketing structures 34

v

INTRODUCTION

At one time most milk markets were local. Milk was assembled, processed and distributed, and the supplies were balanced with demand in relatively small geographic areas. Subsequent advances in technology, economies of size, and competitive forces have led to fewer but larger, more centrally located processing plants, and to the balancing of milk supplies with demand on a wider scale. As a result, most milk markets are now statewide or regional.

For example, in the early 1950s, there were about 60 fluid milk processing plants and 30 manufacturing milk plants in Utah. Little milk moved in or out of the state. Now fewer than 10 fluid milk or manufacturing plants operate in the state. Milk moves between Utah and Zdaho, Wyoming, Colo! ado, and Nevada as market needs require.

Greater distances separate major milk supply areas and population centers in the Intermountain area than in some parts of the country. Milk is often moved 500 miles or more to balance supplies with demand, making transportation a costly and important function of milk marketing.

Many fluid and manufacturing milk plants in the Intermountain study area are old and relatively inefficient, and must be replaced during the next decade. Since milk plants last 20 to 30 years, they must be located carefully to maximize potential efficiency throughout their lifetime.

OBJECTIVES

This study determined whether the Grade A dairy industry in the Intermountain area, an area encompassing five federal orders, should continue to centralize the location of its milk processing and manufacturing facilities to take advantage of plant economies of size, or begin to decentralize to minimize assembly and distribution transportation costs. A second objective was to determine how potential increases in energy costs during the next decade or two might affect the economic incentive to centralize, or decentralize dairy processing and manufacturing plants, based on existing plant economies of size, transportation costs, and the dispersion of the population and milk supplies in the study area.

1

PROCEDURE

The Grade A dairy industry in the area was conceptualized as raw product or production centers, processing and manufacturing plants at various locations, and finished product or consumption centers.

The study area included the five federal milk marketing areas of Black Hills, Eastern Colorado, Great Basin, Lake Mead, and Southwest Idaho-Eastern Oregon. This area was chosen because, when this study was conducted, a Utah-based region- . al dairy cooperative and its six member cooperatives, supplied and marketed most of the Grade A milk used by pool plants in the area, and operated many of the pool plants. The combined study area, hereafter, is referred to as the Intermountain area.

Counties were the production and consumption centers. A county was included if it was the source of producer milk for one or more pool plants in the five federal orders, or if finished products were distributed by pool plants in the area. Production and consumption data in federal orders were available by state and county for December 1983. Any increases in milk production since that time may have been offset by producers who terminated production in 1986 and 1987 under the Milk Production Termination Program.

The study included all of the fluid milk and cream, ice cream, and cottage cheese plants in the area that used producer milk pooled in one of the five federal orders in December 1983, and the manufacturing plants that used milk pooled in one or more of the five federal orders or purchased milk from one of the six producer cooperatives. Milk supply included all of the Grade A milk pooled in the five federal orders, plus all of the Grade B milk and Grade A milk from other sources used by manufacturing plants. Grade A plants received Grade A milk and processed it into fluid milk and cream products. Some also made cottage cheese and ice cream. Manufacturing plants used Grade B milk as well as excess supplies of Grade A milk. Most of the milk they received was manufactured into cheese.

All plant and truck costs were based on 1985 costs. Economies of size reflected the fact that average cost per unit typically decreases as size of plant increases. Average total transportation costs per hundredweight decreased as distance increased. Truck costs reflected economies of volume to the extent that large trucks were used in the study area. Bulk milk and packaged dairy products are usually transported in over-the-road operations, as simulated in this study, in trucks as large as practical, and/or as large as state and federal highway laws and regulations permit. Most of the milk plants required multiple loads of milk per day, rather than portions of a truck load, and shipped out multiple loads of finished products.

3

Dista!1ces from production areas to plants, from plant to plant, and from plants tv consumption centers were first calculated in terms of one-way air miles based on longitude and latitude coordinates; mileage was then increased to compensate for actual mileage. East-west mileage was increased 20 percent, and north-south mileage was increased 10 percent. These percentages were based on a comparison of direct and road mileage of several representative locations in the study area.

Trucks that transport bulk milk from farms to plants and that distribute finished products follow established routes ,hat vary little from week to week. They travel loaded one way, and empty the other since there is little opportunity for back hauls. The costs of assembling bulk milk and distributing finished dairy products included the cost of the truck and driver round-trip, plus the labor cost of loading and unloading trucks at the plant, which is typically done by someone other than the driver. Hauling costs per mile were total round-trip costs for the driver and truck divided by the number of miles traveled with a load (loaded miles).

Assembly of milk included the cost of moving all of the Grade A producer milk pooled in one of the five federal orders from a central point in each county to plants. Although assembly of milk from individual farms into truck loads is an important cost and function of milk marketing, it has no bearing on where milk is shipped and was not included in the study. The simulation of local assembly of milk would have greatly increased the complexity and size of the computer model but would have contributed little to the results.

To avoid including the cost of assembling Grade B and other source Grade A milk used by manufacturing plants, it was assumed that this milk was available F.O.B. at the plants.

Processing and manufacturing costs included the cost of processing and manufacturing all products, including fluid milk and cream, cottage cheese, ice cream, and cheese.

Distribution costs included costs of distributing fluid milk and cream, cottage cheese, and ice cream from plants to consumption centers. Distribution costs did not include the wholesale cost of transporting finished products from consumption centers to individual retail stores, or retail home delivery costs. These costs do not affect the optimum source of the products. Distribution costs for cheese made from excess milk were not included because the market was less defined; much was sold to buyers outside of the Intermountain area or to the government. Also, the primary focus of this study was fluid milk and cream, cottage cheese, and ice cream made from Grade A milk.

The following constraints were used. All producer milk had to be used and all demand for dairy products had to be met. The Grade B milk and Grade A milk

4

from other sources had to be used by the manufacturing plants normally receiving it.

First priority for use of Grade A milk was meeting demand requirements for fluid milk and cream, followed by cottage cheese, and ice cream. Any remaining milk was available for manufacturing cheese. Excess fat in milk used by fluid milk and cottage cheese plants could be transferred to ice cream and manufacturing plants. There was a 2 percent shrink when milk moved from supply areas to plants. The movement of producer milk, excess fat, and finished dairy products was limited to a maximum of 1,000 miles, which limited the size of the model but did not affect results since none of the optimal solutions involved transportation of bulk milk, cream Or finished dairy products that far.

Linear programming transshipment and plant location models, based on current and alternative plant structures and cost functions, were run iteratively using the MINOS algorithm (see Figure I and Novakovic and Pratt). MINOS is designed to minimize a linear or nonlinear function subject to linear constraints (see Murtagh and Saunders). Minimizing the total cost of assembly, processing and distribution of milk pooled in the Intermountain area was the objective of the analyses. No effort was made to maximize the profit of individual milk handlers or processors.

In Figure I, supply areas are represented by S, processing and manufacturing plants by P, and distribution or demand centers by D. Fluid milk is represented by F, cottage cheese by C, ice cream by I, and manufacturing (cheese) by M. R denotes processing cost, and Cap. equals capacity.

To estimate current assembly, processing, and distribution costs the model was first run with minimum and maximum volume constraints for each product based on each plant's current (1983) operating volume. The results indicated total costs had all plants operated at their 1983 volume, assembled milk from the closest available supply area, and distributed finished products in the nearest available consumption center. This obviously understated current costs since plant supply and distribution routes overlap somewhat.

After setting the maximum volume constraints for each plant to the maximum sizes used in the study, the model was run repeatedly to determine least-cost number, size, and location of plants based on current (1985) as well as increased energy costs. If size of plant changed in the model, costs were adjusted accordingly and the model was run again. Alternative locations for some plants determined which locations resulted in the least total cost. The maximum monthly volume constraints used were as follows: fluid milk and cream, 20.0 million pounds; cottage cheese, 1.35 million pounds; ice cream, 4.0 million pounds; and cheese, 5.5 million pounds. The only minimum volume constraint was that the manufacturing plants that received Grade B and other SOurce milk had to continue to use this milk.

5

sut:Ply areas (120)

Assembly cost: =

(9480)

1 1 1 1 1 Prc:cess1rq 1

.1 plants 1 1 (79) 1

Interplant 1 1 fat 1 1

transfer 1 Processing 1

cost: arcs 1 plants 1 (6241) 1 (79) 1

1 Process1rq 1 costs arx1 1 capacities 1

(79) 1

RF1

cap ... 1F

RF36

cap. .. J6F

RCl

Cap ... 1C

RC.,

Cap ... 9C

RI1

cap ... II

RI17

cap ... 17I

RM1

cap ... f1 RM17

cap ... 17

Figure I. Network of the transshipment model.

6

1 1 1 1

Prc:cess1rq 1 Distr i.b.ItiCX1I61strlb.:tiCX1 plants 1 c:x::st arcs 1 centen

(79) 1 (12403) 1 (~7)

~

~7

SUPPLY AND DEMAND FOR MILK AND MILK PRODUCTS

MILK SUPPLY AND PRODUCTION AREAS

A total of 331.63 million pounds of milk was used including 227.17 million pounds of Grade A milk received by pool plants and 104:46 million pounds of Grade B and other source Grade A milk used by associated manufacturing dairy plants (Table I).

The supply area included 120 counties, and covered all or parts of nine states, including Colorado, Idaho, Kansas, Nebraska, Nevada, Oregon, South Dakota, Utah, and Wyoming (Appendix Table I).

MILK DEMAND AND CONSUMPTION AREAS

Consumption of fluid milk and cream during the month of the study amounted to 134.02 million pounds (Table 2). The average butterfat test was 3.24 percent and the estimated solids-not-fat test was 8.47 percent.

Cottage cheese consumption totaled 2.55 million pounds. Cottage cheese was estimated to include 0.80 percent fat and 20.29 percent solids-not-fat. Ice cream consumption was 6.95 million pounds. The average estimated content of ice cream included 8.73 percent fat and 11.21 percent solids-not-fat.

The total volume of each product was based on the milk used in each individual product during December 1983 as reported by administrators of the five federal orders. Pounds of final product were based on USDA conversion factors and weights and measures (see U.S. Department of Agriculture 1979).

The consumption area of the study included 157 counties, and covered all or parts of 10 states, including Arizona, Colorado, Idaho, Kansas, Nebraska, Nevada, Oregon, South Dakota, Utah, and Wyoming (Appendix Table 2).

7

Table 1. Total supply of producer milk by state (December 1983).

Grade A milk pooled in five Intermountain federal orders

Grade B and other source milk used by manufacturing plants

State

Colorado Idaho Kansas Nebraska Nevada Oregon S. Dakota Utah Wyoming

Total

Milk, million pounds

75.10 68.33

4.45 2.99 7.35 2.16 5.48

59.62 1.69

227.17

Avg BF

$

test

3.73 3.80 3.73 3.73 3.67 3.83 3.78 3.69 3.72

3.74

Avg SNF test*

8.65 8.68 8.65 8.65 8.63 8.69 8.67 8.64 ~

8.66

Milk, million pounds

45.69

18.50

4.35 31.32 tiQ

104.46

Avg BF test·

3.82

3.70

3.71 3.69 3.75

3.75

"Butterfat tests were not available by county. For this reason milk received by pool plans in each order was assigned the market average butterfat test, order by order. Butterfat tests of Grade B and other source milk were based on estimates by industry personnel.

#Solids-not-fat content was estimated by the following formula: SNF per hundredweight of milk = 7.3325 + 0.3541(BF).

Source:

Grade A milk pooled in 5 federal orders:

Other milk:

Reports by the market administrators of the following five federal orders: Black Hills, Eastern Colorado, Great Basin, Lake Mead, and Southwest Idaho-Eastern Oregon.

Reports and estimates by milk handlers operating in the study area.

8

Avg SNF test#

8.37

8.60

8.58 8.37 8.66

8.43

Table 2. Total consumption of fluid milk and cream, cottage cheese and ice cream by state (December 1983).1

Fluid milk & cream2 Cottage cheese 2 Ice cream2

Mil Avg Avg Mil Avg Avg Mil Avg Avg State Ibs BF SNF Ibs BF SNF Ibs BF SNF

Arizona 1.35 3.35 8.50 0.02 0.80 20.29 0.07 8.73 ]1.21 Colorado 60.82 3.43 8.51 1.12 0.80 20.29 3.08 8.73 I 1.21 Idaho 14.71 3.18 8.46 0.33 0.80 20.29 0.90 8.73 II .21 Kansas 0.44 3.41 8.50 0.01 0.80 20.29 0.02 8.73 11.21 Nebraska 0.43 3.41 8.50 0.01 0.80 20.29 0.02 8.73 II .21 Nevada 11.93 3.33 8.49 0.22 0.80 20.29 0.59 8.73 11.21 Oregon 1.54 3.37 8.50 0.04 0.80 20.29 0.11 8.73 I 1.21 So. Dakota 2.92 2.93 8.40 0.09 0.80 20.29 0.21 8.73 I I .21 Utah 36.24 2.94 8.40 0.64 0.80 20.29 1.76 8.73 11.21 Wyoming ~ ~ W M1. M..Q. ~ Q.J.2 W l1.2l

Total 134.0 3.24 8.47 2.55 0.80 20.29 6.95 8.73 11.21

1Source: Reports by the market administrators of the following five federal orders: Black Hills, Eastern Colorado, Great Basin, Lake Mead, and Southwest Idaho-Eastern Oregon; and Conversion Factors and Weights and Measures, Statistical Bulletin No. 616, ESCS, USDA.

2Total volume for each type of product as reported by administrators of the five federal orders, converted to pounds of final product using weighted average fluid, fat, and solids-not-fat product content. Total demand for each product was allocated by county population for each federal order, then summed for all five federal orders. The average butterfat test of fluid milk and cream was based on milk utilization reports for each federal order. The solids-not-fat test for fluid milk and cream was based on butterfat content. Butterfat and solids-not-fat tests for cottage cheese and ice cream were a weighted average mix of cottage cheese and ice cream products and their associated fat and solids-not-fat components. Similar tests for cottage cheese and ice cream were used for all five federal orders.

9

NUMBER AND LOCATION OF MILK PLANTS

Processing and manufacturing plant sites were initially based on the actual location of plants. All pool plants in the study area, and all manufacturing plants that used some Grade A milk pooled in the five federal orders or milk from one or more of the six major dairy cooperatives supplying milk to pool plants in the study area were included (see Appendix Table 3). A few manufacturing plants, primarily in Idaho, that obtained milk entirely from independent suppliers of milk or milk other sources were not included.

The study thus involved 36 plants that processed fluid milk and cream products, nine plants that made cottage cheese, 17 that made ice cream, and 17 that manufactured dairy products, primarily cheese (Table 3). Plants were scattered throughout much of the study area, but about half of the fluid milk and cream plants were in Colorado, and most of the manufacturing plants were in Utah and Idaho.

Table 3. Number, location and type of dairy plants by state (December 1983).

Fluid milk Cottage Ice Manufacturing State and cream cheese cream

Colorado 17 4 6 Idaho 7 2 5 7 Nebraska Nevada 2 I South Dakota I I 2 Utah 9 4 5 Wyoming I

Total 36 9 17 17

10

PLANT COSTS

Costs of fluid milk processing and cheese manufacturing were based on published studies of three fluid milk plants and four cheese plants. Costs for cottage cheese and ice cream plants were based on data from three cottage cheese and three ice cream plants. The plants varied in size and operated in different parts of the country. The cost functions represent current plant costs, processing technology, and economies of size available to plant operators in the Intermountain area.

Plant costs included total fixed costs per month and variable costs per hundredweight of product. Plant size was expressed in millions of pounds of product produced. An examination of cost d~ta for each size category of plants demonstrated that costs were nonl~near. For this reason power curves based on regression analyses, where Y ,.. ax , were used to estimate the economies of size for fluid milk, cottage cheese, and ice cream plants, and to transform costs into a standard format. Costs for cheese plants were derived from secondary cost data.

FLUID MILK PLANTS

Fluid milk processing costs were based on analyses by the University of Minnesota (see Fischer 1979). The study used an economic-engineering approach, a typical product mix, and involved small, medium and large model plants.

Fixed and variable costs for each of the three model plants in the Minnesota study were updated from 1977 to 1985 using selected Bureau of Labor Statistics price indexes (U.S. Department of Labor). Fixed and variable cost functions developed from these data are reported iq Appendix Table 4.

Fixed and variable costs for 1985 were calculated at the midpoint of four size categories of fluid milk plants: 5.0 million pounds or less, 5.1 - 10.0 million pounds, 10.1 - 15.0 million pounds, and 15.1 - 20.0 million pounds per month. Alternative variable costs simulated a 100 percent increase in energy costs over their 1985 costs.

Total fixed costs ranged from $26,840 per month in the smallest plants to $82,417 in the largest plants (Table 4). Variable costs per hundredweight ranged from $3.95 in small plants to $3.48 in the largest plants, with energy cost at current (1985) levels. In the largest plants, for example, variable costs per hundredweight increased from $3.48 at current energy costs to $3.78 when energy costs increased 100 percent. These combined fixed and variable costs results in the average cost curve shown in Figure 2.

11

Table 4. Es timated fluid milk and cream processing costs by plant volume and level of energy costs. l

Plant size Variable costs per cwt. with energy costs:

Range, Mid point million of range, Total

Size pounds million fixed At 1985 Increased Category per month pounds costs levels2 100 percent

Small 5.0 or less 2.5 $26,840 $3.95 $4.29

Medium 5.1 - 10.0 7.5 50,566 3.68 4.00

Large 10.1 -. 15.0 12.5 67,884 3.56 3.87

XLarge 15.1 - 20.0 17.5 82,417 3.48 3.78

lSource: Cost functions based on plant data in Appendix Table 4.

2Energy costs in 1985 equal to 8.6 percent of total variable costs

12

10.-________________________________________________________ ~

9

.... ..c .~ 8 <1)

3: "0 Q) ....

"0 c: ::I

..c 7

.... Q)

a.

'" .... 6 '"

0 0

5

4 ~ ____ ~ ____ _L ____ _L ____ ~ ______ L_ ____ ~ ____ _L ____ ~ ____ ~~ __ __

o 2 4 6 8 10 12 14 16 18 20

Million pounds of fluid milk processed per month

Figu,re 2. Average cost curve for fluid milk processing plants.

13

COTTAGE CHEESE PLANTS

Cottage cheese processing costs were based on cost data from three different sized U.S. cottage cheese plants. Data from two of the plants were for 1985 while data for the third plant were updated to 1985 cost levels using selected Bureau of Labor Statistics price indexes. Cost functions developed from these data are included in Appendix Table 5.

The cost functions in Appendix Table 5 were used to estimate fixed and variable costs for cottage cheese plants in 1985. Costs were calculated at the mid-point of the following categories: 0 . 16 - 0.45 million, 0.46 - 0.75 million 0.76 - 1.05 million, and 1.06 - 1.35 million pounds per month. Alternative variable costs were calculated to simulate a 100 percent increase in energy costs.

Total fixed costs ranged from $15,701 per month in the smallest plants to $46,123 in the largest plants (Table 5). Variable costs per hundredweight ranged from $26.53 in small plants to $16.91 for the largest plants, with energy costs at current levels.

Table 5. Estimated cottage cheese processing costs by plant volume and level of energy costs. 1



Size pounds million fixed At 1985 Increased group per month pounds costs levels2 100 percent

Small 0.16 - 0.45 0.3 $15,701 $26.53 $28.39

Medium 0.46 - 0.75 0.6 26,910 21.18 22.66

Large 0.76 - 1.05 0.9 36,881 18 .57 19.87

XLarge 1.06 - 1.35 1.2 46,123 16.91 18.09

ISource: Based on cost functions developed from plant data in Appendix Table 5.

2Energy costs in 1985 equal 7.0 percent of total variable costs.

Variable costs per hundredweight for the largest plants, as an example, increased from $16.91 at current energy costs to $18.09 when energy costs increased 100 percent. These combined fixed and variable costs resulted in the average cost curve shown in Figure 3.

14

7

6 ..c 00 <1)

~ -0 <1) .... -0 c:: :J

..c 5 .... <1)

Cl.

(/) .... ~ 0 a

4

3

0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3

Million pounds of cottage cheese processed per month

Figure 3. Average cost curve for cottage cheese processing plants.

15

ICE CREAM PLANTS

Ice cream processing costs were based on data from three U.S. ice cream plants of various sizes. Data from two plants were for 1985, and data for the third plant were updated to 1985 using selected Bureau of Labor Statistics price indexes. Gallons of ice cream were converted to pounds (5 pounds per gallon). Cost functions are included in Appendix Table 6.

These cost functions were used to project fixed and variable costs in 1985 for four ice cream plants at the mid-point of each of the following categories: 1.0 million or less, 1.1 - 2.0 million, 2.1 - 3.0 million, and 3.1 - 4.0 million pounds per month. Alternative variable costs were calculated to simulate a 100 percent increase in energy costs.

Total fixed costs increased ranged from $39,942 per month in the smallest plants to $62,994 per month in the largest plants (Table 6). Variable costs per

Table 6. Estimated ice cream processing costs, by plant volume and level of energy costS.l



Size pounds million fixed At 1985 Increased group group per month pounds costs levels2 100 percent

Small 1.0 or less 0.5 $39,942 $23.96 $25.56 Medium 1.1 - 2.0 1.5 51,658 17.50 18.67 Large 2.1 - 3.0 2.5 58,222 15.13 16.14 XLarge 3.1 - 4.0 3.5 62,994 13.74 14.66

lSource: Cost functions developed from plant data in Appendix Table 6.


16

hundredweight ranged from $23.96 in small plants to $13.74 in the largest plants, with energy costs at current levels. In the largest plants, for example, variable costs per hundredweight increased from $13.74 with energy costs at current levels to $14.66 when energy costs increased 100 percent. Combined fixed and variable costs resulted in the average cost curve in Figure 4.

..c:

.~ ~

~ "0 ~ ...

"0 c:: :::I

..c:

... ~ 0-

V'l ... ~ "0 0

35

30

25

20

15

10 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Million pounds of ice cream processed per month

Figure 4. Average cost curve for ice cream processing plants.

17

3.5 4.0

CHEESE PLANTS

Most of the excess Grade A milk in the study area is made into cheese. Cheese manufacturing costs were based on a study of four cheese plants conducted by the Agricultural Cooperative Service of the US Department of Agriculture in 1981 and 1982 (see Ling). The Farmer Cooperative Service used this data to develop a long run average cost curve for cheese plants. Data were updated to 1985 using selected Bureau of Labor Sta tistics price indexes.

Fixed and variable costs in 1985 were calculated for cheese plants at the mid-point of each size category. Variable costs in the USDA study arnounted to 82.2 percent of total costs and fixed costs amounted to 17.8 percent (See Appendix Table 7). These percentages were used to apportion fixed and variable costs for each size group category of cheese plants. The five-size categories of cheese plants were included: 1.5 million or less, 1.6 - 2.5 million, 2.6 - 3.5 million, 3.6 - 4.5 million, and 4.6 to 5.5 million pounds per month. Alternative variable costs were calculated to simulate a 100 percent increase in ene rgy costs.

Total fixed costs per month ranged from $28,930 in the smallest plants to $80,200 in the largest plants (Table 7).

Table 7. Estimated cheese manufacturing costs by plant volume and level of energy costs (1985).1

Plant size

Range, Mid point million of range,

Size pounds million group per month pounds

XSmall 1.5 or less 1.0 Small 1.6 - 2.5 2.0 Medium 2.6 - 3.5 3.0 Large 3.6 - 4.5 4.0 XLarge 4.6 - 5.5 5.0

Total fixed costs

$28,930 43,060 54,600 65,960 80,200

Variable costs per cwt. with energy costs:

At 1985 Increased levels 2 100 percent

$13.36 $15.15 9.94 11.27 8.46 9.59 7.62 8.64 7.40 8.39

1Source: Based on cost functions developed from plant data in Appendix Tables 7 and 8.


18

Variable costs per hundredweight ranged from $13.36 in the smallest plants to $7.40 in the largest plants, with energy costs at current levels. In the largest plants, for example, variable costs per hundredweight were from $7.40 with energy costs at current levels and $8.39 when energy costs increased 100 percent. The average cost curve is shown in Figure 5.

20

18

16 .... ..c 00 Q)

~ 14 "Cl Q) .....

"Cl c

12 :::l ..c

..... Q)

D. 10

en ..... ~ 0 0 8

6

4

0.5 1.5 2.5 3.5 4.5

Million pounds of cheese manufactured per month

Figure 5. Average cost curve for cheese manufacturing plants.

19

5.5

MILK ASSEMBLY AND DISTRIBUTION

Separate cost schedules were used to calculate the transportation costs for bulk milk and cream and finished dairy products (Table 8). These costs were based on 1985 data from milk handlers in the study area. The alternative cost schedules in Table 8 include 1985 costs and when energy costs increased 100 percent.

Table 8. Truck operating costs per loaded mile by type of haul (1985).1

Type of haul

Bulk milk from supply areas to plants, and cream from plant to plant2

Finished dairy products from plants to consumption centers3

A verage cost per mile per cwt.

With 1985 costs

$.00355

.00515

With energy costs increased 100 percent

$.00433

.00640

ISource: Truck cost data from milk handlers in the study area.

2Average fleet costs were $1.72 per loaded mile for over-the road bulk milk trucks. Costs included a driver and a truck. A typical truck configuration inCluded a tractor plus a trailer with a 50,000 pound capacity and an average payload between 48,000 and 49,000 pounds. Fuel in 1985 cost $1.00 per gallon. Fuel consumption was based on 5.3 miles per gallon. Energy costs in 1985 were 22.1 percent of total variable costs. To these costs were added 2.5 cent per hundredweight for unloading bulk milk trucks and 5.0 cents per hundredweight for loading and unloading trucks hauling cream.

3Based on an average cost of $2.06 per loaded mile for over-the-road wholesale delivery trucks. Costs included a driver and a truck. A typical truck configuration included a tractor plus a 40 foot reefer with a 40,000 pound payload. Fuel in 1985 was priced at $1.00 per gallon. Fuel consumption was 4 miles per gallon. Energy costs in 1985 amounted to 24.3 percent of total variable costs. Ten cents per hundredweight was added for loading and unloading.

20

ANALYSIS OF DATA

The cost functions described above were used in three different models to estimate the cost of assembling, processing, and distributing milk and dairy products in the study area. The models were based on the following market and cost structures: (l) the current number, size, and location of plants and current costs, (2) the optimum number, size, and location of plants with current costs, and (3) the optimum number, size, and location of plants when energy costs increased 100 percent. In all three scenarios, the supply of producer milk and its source were held constant, as was the demand for fluid milk and cream, cottage cheese, and ice cream.

The optiMum solutions were those that minimized total assembly, processing and distribution costs. Over 100 different combinations of plant numbers, sizes, and locations were tested.

OPTIMUM NUMBER. SIZE, AND LOCATION OF PLANTS

Fluid Milk Plants

There were 36 fluid milk processing plants in the study area in December 1983 (Table 9). The plants were widely dispersed in such locations as Rapid City, South Dakota; Denver, Colorado; Boise, Idaho; Salt Lake City, Utah; and Las Vegas, Nevada. Most plants were small when classified according to the size groups used in the study. Only two were large and eight were medium.

Under the optimal solution with current costs, there would be fewer but larger plants. The number of plants would decrease from 36 to 10 (Figures 6 and 7). Remaining plants would be located primarily in the middle of the larger consumption centers. Whenever consumption warranted, plants were as large as the model permitted. For example, in the Greeley-Denver-Colorado Springs area, there would be one extra-large plant in each city, and two would operate at maximum capacity. In the Ogden-Salt Lake City area there would be one large plant, and one extra-large plant operating at maximum capacity.

Other smaller consumption centers would each be served by one plant. For example, Las Vegas would require one large plant; Delta, Colorado, Pocatello, Idaho; and Boise, Idaho, would each require one medium plant; and Rapid City, South Dakota, would need a small plant.

21

Table 9. Number, size, and location of fluid milk plants under current and optimum marketing structures.

Optimum plant size with:

Plant location Current Energy costs plant Current increased

Plant State City size l costs 100 percent

Million pounds per month

SD Rapid City Small 3.02 3.02 ~ CO Ft. Collins Small "3 CO Greeley Small 20.00 2 20 .00 2

'~"4 CO Boulder Small -5 CO Longmont Small 6 CO Denver Medium 7 CO Denver Small 8 CO Denver Small 9 CO Denver Large 20.002 20 .002

10 CO Denver Small 11 CO Denver Medium 12 CO Colo. Springs Small 13 CO Colo. Springs Medium 19.36 19.46 14 CO Pueblo Small 15 CO Delta (CO) Medium 6.91 6.91 - 16 CO Grand Junction Small 17 CO Grand Junction Small

' \ 18 CO Montrose Small 19 UT Ogden Medium 14.83 14 .73 20 UT Salt Lake City Large 20.002 20 .002

21 UT Salt Lake City Medium 22 UT Salt Lake City Small 23 UT Salt Lake City Small 24 UT Murray Small 25 UT Murray Medium 26 UT Draper Small 27 UT Cedar City Small 28 NV Logandale Small 29 NV Las Vegas Medium 13.28 13.28 30 ID Idaho Falls Small 31 ID Idaho Falls Small 32 ID Pocatello Small 6.94 6.94 33 ID Buhl Small 34 ID Twin Falls Small 35 ID Boise Small 9.69 9.69 36 ID Boise Small

• Wy

• 2 ·2 • 2 •

7 • • •• •• 7

NV • 2 • • • 2

• • UT CO

Figure 6. Number and location of fluid milk plants (1983).

Figure 7. Optimum number. location, and marketing area of fluid milk plants.

23

The least-cost optimal solution would involve little, if any, overlapping of distribution areas. Each plant would handle the adjacent market. Optimal marketing areas for each fluid milk plant are illustrated by the circles in Figure 7.

A 100 percent increase in energy costs (transportation and plant operations) did not affect the optimum number, size, and location of plants. Higher energy costs would increase total marketing costs, but centralization of plants, especially in the larger consumption centers, would still minimize total cost.

Results indicate that the dairy industry in the study area has not yet achieved maximum economies of size in fluid milk processing. Competitive forces will probably continue to encourage centralization of plant facilities, even if energy costs increase.

Under optimal solutions, there would be no fluid milk processing plants in smaller regional population centers such as Ft. Collins, Boulder, Longmont, Pueblo, Grand Junction, Murray, Draper, Cedar City, Logandale, Idaho Falls, Buhl, and Twin Falls. In most areas economies of plant size more than offset increased assembly and distribution costs associated with larger market areas. Greater distances can change optimal solutions, however, as with Boise and Pocatello, Idaho. In these areas, total assembly, processing, and distribution costs are minimized by a medium plant in each city rather than by one large plant serving both market areas.

COTT AGE CHEESE PLANTS

There were nine cottage cheese plants operating in the study area in December 1983 - six small, two medium and one large (Table 10). The optimal solution with current energy costs would include two extra-large plants, one in Greeley, Colorado, and one in Ogden, Utah, both plants operating near maximum capacity (Figures 8 and 9).

A 100 percent increase in energy costs did not affect the optimum number, size, and location of cottage cheese plants.

The optimum solutions would involve fewer cottage cheese plants than fluid milk plants. This reflects the lower demand for cottage cheese and the fact that it is less expensive to transport than fluid milk.

The dairy industry in the Intermountain area has not yet achieved maximum economies of size in cottage cheese processing. Competitive forces will continue to encourage larger, more efficient, cottage cheese processing plants.

24

Table 10. Number, size and location of cottage cheese plants under current and optimum marketing systems and with higher energy costs .


Plant Location Current Energy costs plant Current increased

Plant State City size* costs 100 percent


1 SD Rapid City Small 2 CO Greeley Large 1.30 1.30 3 CO Boulder Small 4 CO Denver Small 5 CO Denver Medium 6 UT Ogden Medium 1.25 1.25 7 NV Las Vegas Small 8 ID Twin Falls Small 9 ID Boise Small

*Based on December 1983. Plant volume is not listed to protect confidentiality. Refer to Table 5 for categories of plant size.

25

• •

NV

UT

•

Wy

•

co

• •• 2

•

Figure 8. Number and location of cottage cheese plants (1983).

•

co

NE

Figure 9. Optimum number, location, and marketing area of cottage cheese plants.

26

KS

ICE CREAM PLANTS

Fourteen ice cream plants were operating the study area in December 1983 (Table II). Of these, II were small plants and three were medium. The optimum solution involved only two plants near the larger population centers, including one extra-large plant operating at maximum capacity in Greeley, Colorado, and one large plant in Salt Lake City (Figures 10 and II).

Table II. Number, size and location of ice cream plants, under current and optimum marketing structures.


Plan t location Current Energy costs plant Current increased

Plant State City size 1 costs 100 percent


I SO Rapid City Small 2 CO Greeley 4.00 2 3.45 3 CO Denver Small "Ii 4 CO Denver Small 5 CO Denver Medium 6 CO Colo. Springs Medium 7 UT Ogden Medium 8 UT Salt Lake City Small 2.95 3.50 9 UT Salt Lake City Small 10 UT Murray Small II NV Las Vegas Small 12 10 Pocatello Small 13 10 Buhl Small 14 10 Twin Falls Small 15 10 Boise Small

lBased on December 1983. Plant volume is not listed to protect confidentiality. Refer to Table 6 for categories of plant size.

2Maximum plant capacity permitted in the model.

27

ID

OR

Figure 10. Number and location of ice cream plants (1983).

.l...-+t-.,.---------L.---, •

NY CO

UT

Fjgure 11 . Optimum number, location and marketing area of ice cream plants.

28

KS

SD

NE

Increased energy costs meant that some of the ice cream manufactured by the Greeley plant could be more efficiently manufactured in Salt Lake City. No plants included now process ice cream in Greeley, Colorado, but results indicate that total costs would be less for an ice cream plant located there rather than in Denver.

The optimum number, size, and location of plants in the Intermountain area would involve little if any-overlapping of milk assembly routes. Each plant would tend to receive milk from nearby producers. Optimal supply areas for combined fluid milk, cottage cheese, and ice cream plants are shown in Figure 12.

OR

ID

SD

* NE

NY

Figure 12. Optimal milk supply areas for fluid milk, cottage cheese, and ice cream plants.

29

MANUF ACTURING PLANTS

During December 1983, 17 manufacturing plants in the study area used some excess Grade A milk from plants in the five federal order pools or purchased milk from the six major dairy cooperatives supplying pool plants (Ta ble 12). Most of the plants were located in Utah and Idaho, in the western portion of the supply area (Figure 13).

Manufacturing plants were small except for two extra-large plants and one medium plant in northern Utah, one extra-large plant in western Idaho, and one large plant in Nebraska.

The optimal movement and manufacture of excess supplies of Grade A milk in the study area, at current and increased energy costs, involved four primary manufacturing balance plants, all operating at capacity (see Table 12 and Figure 14). Three would be located on the western side of the supply area (one in northern Utah, one in southcentral Idaho, and one in southwestern Idaho) and one in Nebraska. A more precisely defined location for the plant in Nebraska was not determined since it serves primarily as a balance plant to the east of the Intermountain area.

In addition, 6 of the 17 existing manufacturing plants might continue to operate, using mainly Grade B milk and Grade A milk from other sources during periods of short supply, and some excess Grade A milk pooled in the five federal orders during months of high production.

Figure 14 shows sources of excess Grade A milk that would be diverted to the four primary manufacturing "balance" plants identified by the optimal solution.

Results show that considerable economies of size are still possible in the manufacture of excess Grade A milk in the study area, and that fewer but larger manufacturing plants would reduce overall costs in the industry. Total assembly and manufacturing costs would be reduced if a greater proportion of the Grade A milk from southcentral Idaho was processed in the area where prod uced.

30

Table 12. Number, size and location of manufacturing plants, under current and optimum marketing structures.


Plan t location Current. Energy costs plant Current increased

Plant State City ~izel costs 100 percent

Million pounds per month I NB Superior Large 5.502 5.502

2 SD Sturgess Small 0.403 0.403

3 SD Rapid City Small 0.284 0.284

4 CO Denver Small 5 WY Thane Small 0.463 0.463

6 UT Richmond XLarge 7 UT Amalga XLarge 5.502 5.502

8 UT Ogden Medium 9 UT Delta Small 10 UT Beaver Small 0.353 0.35 3

I I ID Idaho Falls Small 0.41 4 0.41 4

12 1D Buhl Small 13 1D Twin Falls Small 0.502 0.502

14 1D Twin Falls Small 15 1D Richfield Small 0.904 0.904

16 1D Caldwell XLarge 0.502 0.502

17 1D Nampa Small

1 Based on December 1983. Plant volume is not listed to protect confidentiality. Refer to Table 7 for size categories of plants.

2Maximum plant capacity permitted in the model.

3Lower limit permitted in the model (equal to receipts of Grade B and other source milk not pooled in the five federal orders).

4Plant with its own supply of Grade B and other source milk. Plant volume listed includes some excess Grade A milk from the five federal orders.

31

• Wy • .2 • • •

·3

2 •

NY • • • UT CO

Figure 13. Location of manufacturing plants that bought milk from pool plants (December 1983).

OR Wy

NY

UT CO

KS

KS

Figure 14. Optimum location and milk supply areas for manufacturing balance plants.

32

TOTAL ASSEMBLY, PROCESSING, AND DISTRIBUTION COSTS

Current assembly, processing and distribution costs for one month totaled $13,229,000 (Table 13). This included $482,000 in assembly costs; $9,022,000 to process fluid milk and cream, cottage cheese, and ice cream; $3,166,000 to manufacture cheese; and $559,000 to distribute fluid milk and cream, cottage cheese and ice cream.

The analyses included milk supplies and uses in December 1983, and assumed that plants operated at December 1983 volumes, and plant and transportation costs at 1985 levels.

The model understates current costs to some degree, because in reality individual plants do not necessarily received milk from the least-cost source nor distribute finished products to least-cost markets, as though all plants were coordinated and operated by one firm. Instead, there is considerable duplication and overlapping in assembly and distribution routes. Nevertheless, the total assembly, processing, and distribution costs of $13,229,000 is useful in measuring the impact of alternative models to minimize costs.

The number, size, and location of plants that minimized total assembly, processing, and distribution costs saved $2,740,000 (Table 13 and Figure 15). This amounts to $1.21 per hundredweight of Grade A milk, or about 10 cents per gallon.

Costs were reduced in assembly, processing, manufacturing, and distribution. The greatest reduction--$1,990,000--was in processing fluid milk and cream, cottage cheese, and ice cream; economies of size were achieved by reducing the number of plants, increasing volume per plant, and reducing average cost per unit. The second largest savings--$669,000-occurred by reducing the number of plants manufacturing cheese.

Fewer, more widely dispersed plants also resulted in modest savings in the assembly of milk and the distribution of finished products, $27,000 and $54,000, respectively, as plants were more strategically located.

A 100 percent increase in energy costs would increase total costs under an optimal solution from $10,489,000 to $11,393,000, an 8.6 percent increase. Assembly costs would increase 19.6 percen t; costs of processing fluid milk and cream, cottage cheese, and ice cream would increase by 6.7 percent; manufacturing cheese costs would increase by 10.7 percent; and costs of distributing fluid milk and cream, cottage cheese, and ice cream would increase by 15.6 percent.

33

Table 13. Total assembly, processing and distribution costs for milk and milk products under current and optimum marketing structure.

Cost item

Assemble producer milk from production center to processing plants

Process fluid milk and cream, cottage cheese and ice cream

Manufacture excess Grade A, Grade B, and other source milk into cheese

Distribute fluid milk and cream, ice cream and cottage cheese to consumer centers

Total

Current costs & number, size &

Optimum number, size and location of plants with:

location Current of plants costs

Energy costs increased 100 percent

--- Thousands of dollars ---

482 455 544

9,022 9,032 7,500

3,166 2,497 2,765

559 505 584

13,229 10,489 11 ,393

34

~ CI)

o u

CI)

Q) ... ;:J .... u ;:J ... .... CI)

.... c: ~ 0.

Q)

>

o

Current plants, current costs I 13.2 I

Optimum plants, current costs I 10.5 I

Optimum plants, energy costs I 11.4 I Increased 100%

I I I I I I I

2 4 6 8 10 12 14

Millions of dollars per month

Figure 15. Milk marketing costs with alternative market structures.

35

I

16

SUMMARY AND CONCLUSIONS

For many years, technological advances, economies of size, and competitive forces have led to fewer but larger more centrally located processing plants; Grade A milk supplies are now also balanced with demand over a wider area. Many milk plants in the Intermountain area are becoming old, inefficient, and obsolete, and must be replaced. Careful market analyses and planning is essential to maximize the economic potential of new plants.

This study of the Grade A milk market in the Intermountain area determined whether fewer but larger more centrally located processing plants were more economical than decentralized processing facilities. This study focused on the Grade A milk market and Grade A milk plants, but also included manufacturing plants that used excess Grade A milk in the study area, thus serving as "balance plants" for the Grade A milk market.

The MINOS Linear programming algorithm was used to analyze current and alternative plant structures and cost functions to determine which combination of plants would be the most efficient. The number, size, and location of processing and manufacturing plants that would minimize total assembly, processing, and distribution costs were determined.

The study was based on the milk market for one month. The milk supply included 227 million pounds of Grade A milk received by pool plants in five Intermountain federal milk marketing orders, and 104 million pounds of Grade Band nonpool Grade A milk. The supply area included 120 counties covering all or parts of nine states. Milk products included 134 million pounds of fluid milk and cream, 3 million pounds of cottage cheese, and 7 million pounds of ice cream. The consumption area included 157 counties, and covered all or parts of 10 states. Excess Grade A milk not required for fluid milk and cream, cottage cheese, and ice cream was available to manufacturing plants for cheese production.

With current technology, costs, and plant economies of size, assembly, processing, manufacturing, and distribution costs could be reduced by operating fewer, but larger, more centralized processing and manufacturing plants. Even when energy costs increased 100 percent, the economies possible with centralization and consolidation more than offset additional assembly and distribution costs.

The optimal locations for fluid milk, cottage cheese, and ice cream plants were in or near the major consumption centers; the best locations for cheese plants were near the major milk supply areas.

Under optimal conditions, the number of fluid milk plants in the study area would decrease from 36 to 10, cottage cheese plants would decrease from nine to

37

two, and ice cream plants from 14 to two. The number of manufacturing plants would decrease from 17 to four primary balance plants the year round. More plants would be required to handle ex.cess Grade A milk supplies during months of high milk production.

Total monthly assembly, processing, manufacturing, and distribution costs would decrease from $13.2 million with the current market structure and costs to $10.5 million with the optimum number, size, and location of plants. This decrease of about $2.7 million per month amounts to $1.21 per hundredweight of Grade A milk, or $0.10 per gallon.

While the operation of many independently owned and operated milk marketing firms in the study area will inhibit the achievement of all of these economies of size in plant operations, competitive market forces will continue to encourage fewer but larger more centrally located plants. A number of plant closures and consolidations have already taken place since this study was initiated.

To remain competitive and to achieve the greatest efficiencies possible firms building new plants should carefully consider the size and location of plants, and whether joint ownership or contractual arrangements with other milk-marketing firms is feasible to fully capitalize on economies of size. In the long run, proc.essors, producers, and consumers will all share in these cost savings.

38

REFERENCES

Fischer, Martin, Hammond, J., and Hardie, W. 1979. Fluid Milk Processing and Distribution Costs. Station Bulletin 530. Agricultural Experiment Station. University of Minnesota.

Ling, K. Charles, 1983. Dairy Product Manufacturing Costs at Cooperative Plants. ACS Research Report No. 34. Agricultural Cooperative Service. Washington, D.C.

Murtagh, Bruce A., and Saunders, Michael A.1977. MINOS User's Guide. Technical Report 77-9. Systems Optimization Laboratory. Department of Operations Research. Stanford University. February.

Novakovic, A. M., and Pratt, J. E. 1986. Modeling The Spatial Organization Of The Northeast Dairy Industry. Cornell Agricultural Economics Staff Paper, No. 86.5. Department of Agricultural Economics, Agricultural Experiment Station, Cornell University. March.

U.S. Department of Agriculture. 1979. Conversion Factors and Weights and Measures. Statistical Bulletin No. 616. Economics, Statistics, and Cooperative Service. Washington, D. c., March.

U.S. Department of Labor. Various Years and Months. Monthly Labor Review. Bureau of Labor Statistics. Washington, D. C.

39

APPENDIX

41

Appendix Table 1. Quantity and location of producer milk supply in the study area by state, county and grade (December 1983).1

1000 BF SNF Long~- Lati 4 State County Grade 1 bs. test test2 tude tude

CO Adam A 3187 3.73 8.65 104.80 39.75 CO Alamosa A 756 3.73 8.65 105.90 37.45 CO Arapahoe A 145 3.73 8 .65 104.90 39.60 CO Bent A 145 3.73 8 .65 103.20 38.05 CO Boulder A 2344 3.73 8.65 105.25 40 .00 CO Chaffee A 145 3. 69 8.64 105.95 38 . 55 CO Conejos A 278 3.73 8.65 106.00 37.70 CO Crowley A 494 3.73 8.65 103 . 75 38.20 CO Custer. A 145 3.73 8.65 105.45 38 . 10 CO Delta A 2635 3.69 8.64 108.05 38.75 CO Douglas A 145 3. 73 8.65 104.80 39.35 CO El Paso A 2625 3.73 8.65 104 .80 38.85 CO Elbert A 1327 3.73 8. 65 103.75 40.22 CO Fremont A 1067 3.73 8. 65 105.20 38.45 CO Garfield A 1063 3.69 8.64 107.30 39.55 CO Huerfano A 869 3.73 8.65 104.80 37.60 CO Jefferson A 145 3.73 8.65 105.15 39.70 CO Kit Carson A 1188 3.73 8.65 102 . 25 39 . 28 CO Larimer A 7945 3.73 8.65 105.05 40.55 CO Las Animas A 363 3.73 8.65 104.50 37.15 CO Logan A 536 3.73 8.65 103.20 40.60 CO Mesa A 2238 3.69 8.64 108.50 39.10 CO Montrose A 1025 3.69 8.64 107.90 38.45 CO Morgan A 3917 3.73 8.65 103.75 40.22 CO Otero A 562 3.73 8 . 65 103.50 37.90 CO Phillips A 975 3.73 8 . 65 102 .30 40.60 CO Pi tki n A 918 3.69 8.64 106.75 39.15 CO Prowers A 145 3.73 8.65 102.60 38.05 CO Pueblo A 2357 3 . 73 8.65 104.60 38.25 CO Rio Grande A 145 3.73 8.65 106.30 37 . 70 CO Saguache A 145 3. 73 8.65 106.10 37 . 75 CO Washington A 269 3.73 8 .65 103 . 20 40.15 CO Weld A 32548 3. 73 8 .65 104.65 40 .45 CO Yuma A 2302 3.73 8.65 102.70 40.10 10 Ada A 10937 3.83 8 . 69 116.20 43 . 65 10 Adams A 58 3.83 8.69 116.40 44.75 ID Bannock A 512 3.69 8 .64 112 . 45 42 .85 ID Bear Lake A 805 3.69 8.64 111. 30 42.30 ID Bingham A 2208 3.69 8 . 64 112.30 43.15 ID Bonneville A 691 3.69 8.64 112.00 43.50 ID Bonnevi 11 e B 1643 3.69 8.37 112 . 00 43.50 10 Canyon A 9075 3.83 8.69 116.65 43.65 ID Canyon B 21489 3.83 8.37 116.65 43.65 ID Caribou A 1445 3.69 8.64 Ill. 60 42.70 ID Cassia A 4576 3.83 8.69 113.80 42.55 ID Franklin A 4520 3.69 8.64 Ill. 85 42.10

43

Appendix Table 1. Continued.

1000 BF SNF Long~- Lati 4 State County Grade 1 bs . test test 2 tude tude

10 Fremont A 526 3.69 8.64 111.60 43.95 10 Gem A 2137 3.83 8.69 116.50 43.85 ID Gooding A 4550 3.83 8.69 114.70 42.95 ID Jefferson A 675 3.69 8.64 111.90 43.65 ID Jerome A 13625 3.83 8.69 114.50 42.70 10 Lincoln A 1920 3.83 8.69 114.10 43.00 ID Lincoln B 7519 3.83 · 8.37 114.10 43.00 ID Madison A 1119 3.69 8.64 111.80 43.85 ID Minidoka A 2688 3.83 8.69 113.65 42.60 ID Owyhee A 2298 3.83 8.69 116.55 43.20 ID Payette A 2030 3.83 8.69 116.90 44.05 ID Twin Falls A 1651 3.83 8.69 114 . 45 42.55 ID Twin Fall s B 15037 3 .a3 8.37 114.45 42.55 ID Washington A 282 3.83 8.69 116.95 44.20 KS Barton A 56 3.73 8.65 98.75 38.35 KS Cheyenne A 56 3.73 8.65 101. 75 39.80 KS Ell is A 403 3.73 8.65 99.35 38.85 KS Gove A 389 3.73 8.65 100.45 38.95 KS Graham A 403 3.73 8.65 99.90 39.35 KS Logan A 56 3.73 8.65 100.85 39.10 KS Ness A 56 3.73 8.65 99 . 90 38.45 KS Norton A 56 3.73 8.65 99.90 39.80 KS Rawlins A 670 3.73 8.65 101. 00 39.80 KS Rooks A 325 3 . 73 8.65 99.25 39.45 KS Rush A 56 3.73 8 . 65 99 .30 38.55 KS Sheridan A 1255 3.73 8.65 100.40 39.35 KS Sherman A 359 3.73 8.65 101. 70 39.35 KS Thomas A 56 3.73 8.65 101. 00 39.40 KS Trego A 192 3.73 8.65 99.90 39.00 KS Wallace A 56 3.73 8.65 101.75 38.80 NE Chase A 135 3.73 8.65 101.60 40.50 NE Cheyenne A 83 3.73 8.65 102.95 41.15 NE Custer A 721 3.73 8.65 99.60 41. 40 NE Grant A 135 3.73 8.65 101.75 42.00 NE Keith A 218 3.73 8.65 101.70 41.10 NE Lincoln A 1066 3.73 8.65 100.70 41.10 NE Merrick A 135 3.73 8.65 98.00 41.10 NE Nuckolls B 18500 3.70 8.60 98.00 40.00 NE Perkins A 364 3.73 8.65 101.70 40.85 NE Scotts Bluff A 135 3.73 8.65 103 . 60 41.80 NV Clark A 7084 3.67 8.63 115 . 15 36.15 NV White Pine A 261 3.69 8.64 114 . 90 39 . 20 OR Malheur A 2164 3.83 8.69 117.20 44.00 SO Butte A 1998 3.78 8.67 103.80 44 . 70 SO Custer A 747 3.78 8.67 103.50 43.75 SO Haakon A 18 3.78 8.67 101.65 44.05 SO Jackson A 35 3.78 8.67 101. 50 43.85

44


1000 BF SNF Long1- Lati 4 State County Grade 1 bs. test test 2 tude tude

SO Lawrence A 796 3.78 8.67 103.65 44.35 SO Meade A 549 3.78 8.67 103.50 44.50 SO Meade B 4000 3.70 8.60 103.20 44.70 SO Pennington A 1340 3.78 8.67 103.20 44.10 SO Pennington B 350 3.78 8.37 103.20 44.10 UT Beaver A 3153 3.67 8.63 112.65 38.25 UT Beaver B 3463 3.67 8.37 112.65 38.25 UT Box Elder A 7086 3.69 8.64 112.00 41. 50 UT Cache A 13001 3.69 8.64 111. 75 41.80 UT Cache B 27860 3.69 8.37 111.75 41.80 UT Davis A 778 3.69 8.64 111.80 40.90 UT Duchesne A 1859 3.69 8.64 110.00 40.40 UT Emery A 474 3.69 8.64 110.90 39.40 UT Iron A 618 3.67 8.63 113.10 37.75 UT Juab A 229 3.69 8.64 111. 90 39.70 UT Morgan A 745 3.69 8.64 111 .65 41. 05 UT Piute A 229 3.69 8.64 112.25 38.15 UT Sa It Lake A 1541 3.69 8.64 111. 80 40.80 UT Sanpete A 6005 3.69 8.64 111 .65 39.25 UT Sevier A 1816 3.69 8.64 112.10 38.75 UT Summit A 2118 3.69 8.64 111.30 40.90 UT Uintah A 468 3.69 8.64 109.50 40.45 UT Utah A 7919 3.69 8.64 111 .65 40.25 UT Wasatch A 4050 3.67 8.63 111. 35 40.55 UT Weber A 7532 3.69 8.64 111 .90 41. 20 WY Big Horn A 104 3.69 8.64 108.40 44.85 WY Converse A 140 3.78 8.67 105.40 42.75 WY Crook A 31 3.78 8.67 104.40 44.45 WY Fremont A 64 3.69 8.64 108.70 42.85 WY Goshen A 140 3.73 8.65 104.20 42.10 WY Laramie A 300 3.73 8.65 104.80 41.10 WY Lincoln A 261 3.69 8.64 11 0.85 43.15 WY Lincoln B 4598 3.75 8.66 110.85 43.15 WY Park A 72 3.69 8.64 109.05 44.55 WY Pl atte A 318 3.73 8.65 104.90 42.05 WY Uinta A 261 3.69 8.64 110.95 41.25

1Source: Grade A: Reports by the market administrators of the following five federal orders: Black Hills, Eastern Colorado, Great Basin, Lake Mead, Southwest Idaho-Eastern Oregon; and U.S. Geological Survey maps.

Grade B: Reports and estimates by milk handlers in the Inter-mountain area; and U.S. Geological Survey maps.

2Solids not fat in milk were estimated using the following formula: SNF per cwt. of milk = 7.3325 + 0.3541 (BF)

3At approximately the geographic center of the county

4S

Appendix Table 2. Consumption of fluid milk and cream, cottage c~eese, and ice cream by state and county (December 1983).

Cottag2 Ice Location 4 Fluid milk & cream cheese cream3

1000 BF SNF 1000 1000 Longi - Lat i -State County -I bs. test test 5 lbs. lbs. tude tude

AZ Mohave 1352 3.35 8.50 123 67 114.05 35.20 CO Adams 6355 3.41 8.50 540 297 104.80 39.75 CO Alamosa 305 3.41 8.50 26 14 105.90 37.45 CO Arapahoe 7587 3.41 8.50 645 354 104.90 39.60 CO Archuleta 36 3.61 8.60 6 3 107.00 37.25 CO Baca 140 3.41 8.50 12 6 102.60 37.40 CO Bent 1535 3.41 8.50 130 72 103.20 38.05 CO Boulder 4900 3.41 8.50 417 229 105.25 40.00 CO ChaFfee 173 3.61 8.60 29 16 105.95 38.55 CO Cheyenne 56 3.41 8.50 5 3 102.30 38.82 CO Clear Creek 189 3.41 8.50 16 9 105.45 39.70 CO Conejos 201 3.41 8.50 17 9 106.00 37.70 CO Costilla 79 3.41 8.50 7 4 105.40 37.15 CO Crowley 77 3.41 8.50 6 4 103.75 38.18 CO Custer 40 3.41 8.50 3 2 105.45 38.10 CO Delta 277 3.61 8.60 46 26 108.05 38.75 CO Dolores 22 3.60 8.60 4 2 108.80 37.75 CO Douglas 650 3.41 8.50 55 30 104.80 39.35 CO Eagle 174 3.61 8.60 29 16 106.80 39.65 CO El Paso 7996 3.41 8.50 680 373 104.80 38.85 CO Elbert 177 3.41 8.50 15 8 103.75 39.25 CO Fremont 741 3.41 8.50 63 35 105.20 38.45 CO Garfield 294 3.61 8.60 49 27 107.30 39.55 CO Gilpin 63 3.41 8.50 5 3 105.50 39.80 CO Grand 98 3.61 8.60 16 9 106.35 40.05 CO Gunnison 140 3.61 8.60 24 13 106.90 38.55 CO Hinsdale 3 3.56 8.60 0 0 107.30 38.05 CO Huerfano 166 3.41 8.50 14 8 104.80 37.60 CO Jefferson 9606 3.41 8.50 817 448 105.15 39.70 CO Kiowa 50 3.41 8.50 4 2 102.75 38.48 CO Kit Carson 196 3.41 8.50 17 9 102.25 39.28 CO La Plata 250 3.61 8.60 42 23 107.80 37.20 CO Lake 115 3.61 8.60 19 11 106.30 39.20 CO Larimer 3855 3.41 8.50 328 180 105.05 40.55 CO Las Animas 385 3.41 8.50 33 18 104.50 37.15 CO Lincoln 120 3.41 8.50 10 6 103.45 39.10 CO Logan 512 3.41 8.50 43 24 103.20 40.60 CO Mesa 1064 3.61 8.60 179 98 108.50 39.10 CO Mineral 10 3.60 8.60 2 1 106.90 37.80 CO Moffat 171 3.61 8.60 29 16 107.90 40.50 CO Montezuma 169 3.61 8.60 28 16 108.55 37.35 CO Montrose 318 3.61 8.60 53 29 107.90 38.45

46


Fluid milk & cream Cottag~ cheese

Ice cream3 Location 4

1000 BF SNF 1000 1000 Longi- Lati-State County 'I bs. test test5 'I bs. 1 bs. tude tude

CO Morgan 582 3.41 8.50 49 27 103.75 40.22 CO Otero 583 3.41 8.50 50 27 103.50 37.95 CO Ouray 25 3.60 8.60 4 2 107.65 38.05 CO Park 138 3.41 8.50 12 6 106.00 37.20 CO Phillips 117 3.41 8.50 10 6 102.30 40.57 CO Pitkin 135 3.61 8.60 23 12 106.75 39.15 CO Prowers 338 3.41 8.50 29 16 102.60 38.05 CO Pueblo 3255 3.41 8.50 277 152 104.60 38.25 CO Rio Blanco 81 3.61 8.60 14 8 107.90 40.05 CO Rio Grande 272 3.41 8.50 23 13 106.30 37.70 CO Routt 1749 3.61 8.60 294 162 106.80 40.50 CO Saguache 102 3.41 8.50 9 5 106.12 37.75 CO San Juan 11 3.60 8.60 2 1 107 .65 37.80 CO San Miguel 42 3.61 8.60 7 4 107.80 37.95 CO Segewick 84 3. 41 8.50 7 4 102.25 41.00 CO Summit 229 3.41 8.50 19 11 106 .05 39.50 CO Te 11 er 208 3.41 8.50 18 10 105.05 39.00 CO Washington 137 3.41 8.50 12 6 103.20 40.15 CO Weld 3190 3.41 8.50 271 149 104.65 40.42 CO Yuma ·250 3.41 8.50 21 12 102.70 40.07 ID Ada 2938 3.37 8.50 380 209 116.20 43.65 ID Adams 57 3.37 8.50 7 4 116.40 44.75 ID Bannock 1624 2.93 8 .40 144 79 112.45 42.85 10 Bear Lake 172 2.93 8.40 15 8 111.30 42.30 ID Bingham 906 2.93 8.40 80 44 112.30 43.15 10 Bl aine 4 167 3.37 8.50 22 12 114.35 43.65 10 Boise 51 3.37 8.50 6 4 115.80 43.85 10 Bonneville 1638 2.93 8.40 145 80 112.00 43.50 ID Butte 74 2.93 8.40 6 4 113.30 43.60 10 Camas 14 3.36 81.50 2 1 118.80 43.30 10 Canyon 1422 3.37 8.50 184 101 116.65 43.65 10 Caribou 216 2.93 8.40 19 10 Ill. 60 42.70 10 Cassia 330 3.37 8.50 43 23 113 .80 42.55 ID Clark 20 2.92 8.40 2 1 112 . 20 44.15 10 Custer 58 3.37 8.50 7 4 114.20 44.50 10 Elmore 366 3.37 8.50 47 26 115.70 43.10 10 Franklin 221 2.93 8.40 20 11 Ill. 85 42.10 10 Fremont 268 2.93 8.40 24 13 111. 60 43.95 10 Gem 203 3.37 8.50 26 14 116.50 43.85 10 Gooding 202 3.37 8 . 50 26 14 114.70 42.95 ID Idaho 251 3.37 8.50 32 18 116.10 45 .90 10 Jefferson 380 2.93 8.40 34 18 Ill. 90 43.65 ID Jerome 252 3.37 8.50 33 18 114 . 50 42 . 70 10 Lemhi 127 3.37 8.50 16 9 113.90 45,15

47


Cottag2 Ice Location4 Fluid milk & cream cheese cream3

1000 BF SNF 1000 1000 Long i - Lat;-State County 1 bs. test test 5 '1 bs. 1 bs. tude tude

10 Lincoln 58 3.37 8.50 8 4 114.40 42.95 10 Madison 484 2.93 8.40 43 24 111.80 43.85 10 Minidoka 335 3.37 8 . 50 43 24 113.65 42.60 10 Oneida 81 2.93 8.40 7 4 112.25 42.20 10 Owyhee 140 3.37 8.50 18 10 116.55 43.20 10 Payette 267 3.37 8.50 34 19 116.90 44.05 10 Power 170 2.93 8 .40 15 8 112.85 42.80 ID Teton 72 2.93 8.40 6 4 111.10 43.70 ID Twin Falls 899 3.37 8.50 116 64 114.45 42.55 10 Valley 95 3.37 8.50 12 7 116.05 44.85 10 Washington 150 3.37 8.50 19 11 116.95 44.20 KS Cheyenne 95 3.41 8.50 8 4 101. 75 39.78 KS Logan 90 3.41 8.50 8 4 100.85 39.10 KS Sherman 200 3.41 8.50 17 9 101. 70 39.35 KS Wallace 53 3.41 8.50 4 2 101.75 38.80 NE Cheyenne 278 3.41 8.50 24 13 103.65 41. 15 NE Kimball 155 3.41 8.50 13 7 102.95 41. 25 NV Clark 11204 3.35 8.50 1017 558 115.15 36.15 NV Elko 429 2.93 8.40 38 21 115.75 40.80 NV Lincoln 90 3.35 8.50 8 4 114.40 37.80 NV Wh ite Pi ne 203 2.93 8.40 18 10 114.90 39.20 OR Baker 274 3.37 8.50 35 19 117.80 44.80 OR Grant 139 3.37 8.50 18 10 118.90 44.45 OR Harney 141 3.37 8.50 18 10 11 g. 05 43.60 OR Malheur 457 3.37 8.50 59 32 117.20 44.00 OR Union 406 3.37 8.50 52 29 118.10 45.30 OR Wallawa 124 3.37 8.50 16 9 117.30 45.45 SO Custer 119 2.92 8.40 18 9 103.50 43.75 SO Fall River 191 2.92 8.40 29 14 103.50 43.45 SO Jac kson 24 3.60 8.60 4 2 106.25 40.70 SO Lawrence 443 2.92 8.40 67 32 103.65 44.35 SO Meade 432 2.92 8.40 66 31 103.50 44.50 SO Pennington 1507 2.92 8.40 229 109 103.20 44.10 SO Shannon 208 2.92 8.40 32 15 102.75 43.15 UT Beaver 106 3.35 8.50 10 5 112.65 38.25 UT Box Elder 825 2.93 8.40 73 40 112.00 41.50 UT Cache 1419 2.93 8 . 40 126 69 111.75 41. 75 UT Carbon 550 2.93 8.40 49 27 11 0.80 39.60 UT Daggett 19 2.92 8.40 2 1 109.70 41. 00 UT Davis 3637 2.93 8.40 322 177 111.80 40.87 UT Duchesne 312 2.93 8.40 28 15 110.00 40.40 UT Emery 284 2.93 8.40 25 14 110.90 39.40 UT Garfield 91 2.93 8.40 8 4 112.40 37.85 UT Grand 205 2.93 8.40 18 10 109.50 38.60

48


Cottag2 Ice Location4 Fluid milk & cream cheese cream3

1000 BF SNF 1000 1000 Longi- Lati-State County 1 bs. test test 5 1 bs. 1 bs. tude tude

UT Iron 420 3.35 8.50 38 21 113.10 37.75 UT Juab 137 2.93 8.40 12 7 Ill. 90 39.70 UT Kane 100 2.93 8.40 9 5 112.50 37.05 UT Millard 223 2.93 8.40 20 11 112.30 38.95 UT Morgan 122 2.93 8.40 11 6 111.65 41. 05 UT Piute 33 2.93 8.40 3 2 112.25 38.15 UT Rich 52 2.93 8.40 4 2 111.15 41. 70 UT Salt Lake 15366 2.93 8.40 1360 746 111.80 40.80 UT San Juan 304 2.93 8.40 27 15 109.45 37.60 UT Sanpete 363 2.93 8.40 32 18 111.65 39.25 UT Sevier 366 2.9::; 8.40 32 18 112.10 38.80 UT Summit 253 2.93 8.40 22 12 111. 30 40.90 UT Tooele 646 2.93 8.40 57 31 112.25 40.55 UT Uintah 509 2.93 8.40 45 25 109 . 50 40.45 UT Utah 5414 2.93 8.40 479 263 111.65 40.25 UT Wasatch 212 2.93 8.40 19 10 111. 35 40.52 UT Washington 631 3.35 8.50 57 31 113.60 37.10 UT Wayne 47 2.93 8.40 4 2 111.65 38.40 UT Weber 3590 2.93 8.40 318 174 111. 90 41.20 WY Cambell 329 2.92 8.40 50 24 105.50 41.30 Wy Crook 115 2.92 8.40 18 8 104.40 44.45 Wy Laramie 1774 3.41 8.50 151 83 104.80 41.10 Wy Lincoln 302 2.93 8.40 27 15 110.56 41.80 Wy Sublette 113 2.93 8.40 10 6 109.85 42.90 Wy Sweetwater 456 2.93 8.40 40 22 114.90 39.20 WY Teton 232 2.93 8.40 20 11 110.75 43.50 Wy Uinta 323 2.93 8.40 29 16 110.95 41. 25

1Source: Reports by the market administrators of the following five-federal-orders: Black Hills, Eastern Colorado, Great Basin, Lake Mead, Southwest Idaho-Eastern Oregon; Conversion Factors and Weights and Measures, Statistical Bulletin No. 616, ESCS, USDA; and U.S. Geological Survey maps.

2Milk components included 0.80 percent fat and 20.29 percent sol ids-not-fat for all counties.

3Milk components included 8.73 percent fat and 11. 21 percent solids-not-fat for all counties.

4At approximately the geographic center of the county.

5Solids-not-fat were estimated using the following formula: SNF = 7.3325 + 0.3541(BF}.

49

Appendix Table 3. Number and location of dairy plants included in the1 study by state, city, and products (December 1983) .

Fluid Manu - Location mi 1 k factured

and Cottage Ice prod- Longi- Lati-No. State City cream cheese cream ucts tude tude

1 CO Boulder Yes Yes 105.25 40.00 2 CO Colorado Springs Yes 104.80 38.85 3 CO Colorado Springs Yes Yes 104.80 38.85 6 CO Delta Yes 108.05 38.75 4 CO Denver Yes Yes 105.00 39.75 5 CO Denver Yes 105.00 39.75 7 CO Denver Yes Yes 104.90 39.60 8 CO Denver Yes 105.00 39.75 9 CO Denver Yes Yes Yes 105.00 39.75

10 CO Denver Yes 105.00 39.75 11 CO Denver Yes Yes 105.15 39.60 12 CO Denver Yes Yes 105.00 39.75 13 CO Ft. Collins Yes 105.05 40.55 14 CO Delta Yes 108.50 39.10 15 CO Delta Yes 108.50 39.10 16 CO Grand Junction Yes 107.90 38.45 17 CO Greeley Yes Yes 104.65 40.42 18 CO Longmont Yes 105.15 40.15 19 CO Montrose Yes 107.90 38.45 20 CO Pueblo Yes 104.60 38.25 21 ID Boise Yes 116.20 43.65 22 10 Boise Yes Yes Yes 116.20 43.65 23 10 Buhl Yes 114.50 42.55 24 10 Buhl Yes Yes 114.50 42.55 25 ID Caldwell Yes 116.65 43.65 26 10 Idaho Falls Yes 112.00 43.50 27 10 Idaho Fall s Yes Yes 112.00 43.50 28 10 Nampa Yes 116.65 43.65 29 10 Pocatello Yes Yes 112.45 42.85 30 10 Richfield Yes 114.10 -43.00 31 10 Twin Falls Yes Yes Yes Yes 114.45 42.55 32 ID Tw-in Falls Yes 114.45 42.55 33 NE Superior Yes 98.00 40.00 34 NV Las Vegas Yes Yes Yes 115.15 36.15 35 NV Logandale Yes 114.30 36.55 36 SO Rapid City Yes 103.20 44.10 37 SO Rapid City Yes Yes Yes 103.20 44.70 38 SO Sturgess Yes 103.20 44.70 39 UT Beaver Yes 112.65 38.25 40 UT Cedar City Yes 113.10 37.75 41 UT Delta Yes 112.65 39.45 42 UT Ogden Yes Yes Yes Yes 111.90 41. 20 43 UT Richmond Yes 111.75 41.80

50


Fl ui d Manu- Location milk factured

and Cottage Ice prod- Longi- Lat i -No. State City cream cheese cream ucts tude tude

44 UT Salt Lake City Yes 111. 80 40.70 45 UT Salt Lake City Yes 111.75 40.70 46 UT Salt Lake City Yes Yes 111. 80 40.80 47 UT Salt Lake City Yes 111. 80 40.80 48 UT Salt Lake City Yes Yes 118.80 40.80 49 UT Salt Lake City Yes Yes 111. 80 40.70 50 UT Salt Lake City Yes 111.80 40.80 51 UT Smithfield Yes 111.75 41.80 52 WY Thane Yes 110.85 43.15

ISource: Reports by market administrators of the following five federal orders: Black Hills, &astern Colorado, Great Basin, Lake Mead, and Southwest Idaho-Eastern Oregon; and U.S. Geological Survey maps.

, I j, (C pl.i.,.r ~ 1\ !1. t ~ t:l L · .I I ~) --I,: c:. I I II 1/ --

1./11 ( II , I II 1/ ---

51

Appendix Table 4. Basis of fluid milk plant processing costs.

Average monthly costs, 1977-1978 -d . 1

Cost item

Jan. 1978 used as ml -poInt

Plant volune: million pounds per month

1.863 7.453 14.907

Selected price indexes, Jan. 1985

as a percent of Jan. 19782

____ ~V~a~r~i~a=b~l~e~C~o~s~t~s~ _________ ~P~r~i=c~e~[nd~e~x~ _____ ~

Cases Containers Direct labor Electricity3

Fuel 3

Product loss

$494 22,728 11,761 2,249 1,551 1,174

$1,980 89,661 32,786 6,379 4,914 4,706

$3,961 178,676 58,990 11,574 8,168 9,412

Repairs 871 6,812 15,288 Supplies 1,452 5,807 11,613 Water, sewage 555 1,660 2,903 Total $42,835 $154,705 $300,585 Aver. per cwt. 2.30 2.08 2.02

Metal containers Pulp, paper prod. Weekly mfg, earnings Electric power Gas fuels Other miscellaneous Special indust. mach_ Other miscellaneous Other miscellaneous

157.4 173.4 163.7 186.2 255,8 195_2 166.3 195.2 195.2

Fi xed Costs ____ ~P~r~i~c~e~Ind~e~x~ ______ Percent

Administrative $ 975 $2,721 $4,897

Bui lding depr. 1,127 2,799 4,069 Equipment depr. 4,927 9,564 16,202 Interest 6,067 12,549 20.098 Taxes, insurance 1,881 3,532 5,096

Total $14,977 $31,165 $50,362 Average per cwt. 0,80 0.42 0.34

Variable and Fixed Costs

Total Costs $57,812 $185,870 $350,947 Average per cwt. 3.10 2.49 2.35

Weekly mfg. earnings 163.7 LLJrber, wood prod. 118.7 Special i ndus t. mach . 166.3 Mortgage interest 155.0 Property taxes 133.7

Average monthly costs

indexed to Jan. 1985 with

change in selected price indexes

Cost item

Cases Containers Direct labor Electricity Fuel Product loss Repai rs Suppl i es Water, sewage

Plant volune:

mi II i on pounds per month

1.863 7,453

Variable Costs

$778 39,401 19,256 4,188 3,968 2,292 1,449 2,834 1.083

$3,117 155,431

53,681 11,879 12,568 9,187

11 ,330 11 ,335 3,240

14.907

$6,234 309,744 96,585 21,555 20,892 18, ~73 25,427 22,671 5,668

Total $75,249 $271,768 $527,149 Average per cwt. 4.04 3.65 3.54

Fixed Costs

Acininistrative $1,596 $4,456 $8,017

Bui lding depr. 1,338 3,324 4,831 Equipment depr_ 8,195 15,907 26,948 Interest 9,402 19,450 31,149 Taxes, Ins. 2,514 4,721 6,813

Total $23,045 $47,858 $77,758 Average per cwt. 1.24 0.64 0.52

Variable and Fixed Costs

Total Costs $98,294 $319,626 $604,907 Average per cwt. 5.28 4.29 4.06

1Based on weekly operating costs for three model fluid milk plants for 1977-1978, as reported in Table 13 of Fluid Milk Processing and Distribution Costs, Station Bulletin 530 Agricultural Experiment Station University of Minnesota, 1979, by Martin Fisher, J. Hammond, and W. Hardie. Weekly costs were converted to monthly costs by ~~ltiplying weekly costs by 4_333. Plant volune was converted from gallons to pounds using 8.6 pounds per gallon.

2Selected indexes from the Monthly Labor Review, U.S. Department of Labor.

3Combined electricity and fuel costs for all plants averaged 86 percent of total variable costs. The following cost functions were developed from the adjusted data above.

b Fixed cost: Y = ax , where Y = total fixed costs per plant per month; a $15,825; x = million pounds of fluid milk and cream processed per month; and b = $0.5766.

Variable cost: Y = ax b, where Y = variable costs per hundredweight of milk processed; a $4.19, x million pounds of fluid milk and cream processed per month and b = $-0.649.

52

Appendix Table 5. Basis of cottage cheese processing costs. 1

Cost item

Variable Costs per Month:

Carton Direct labor Electricity an~ fue1 2 Other expenses

Tota 1 Average per hundredweight

Fixed Costs per Month 4

Total Average per hundredweight

Total Fixed and Variable Costs


Plant volume, million pounds per month

.7501

$44,634 59,486 10,952 36,682

$151,754 20.23

32,181 4.29

183,935 24.52

.9523

$47,164 62,799 10,345 44,775

$165,083 17.34

38,151 4.01

203,234 21. 34

1.2435

$67,375 65;394 15,928 64,195

$212,892 17.12

47,643 3.83

260,535 20.95

1Source: Cost data for 1985 from three U.S. cottage cheese plants.

2Combined electricity and fuel costs for all plants averaged 7.0 percent of total variable costs.

The following cost functions were developed from the data above.

Fixed cost:

Variable cost:

Y = ax b, where Y = total fixed costs per plant per month; a = $40,028; x = million pounds of of cottage cheese processed per month; and b = $0.7773.

Y ax b, where Y = variable costs per hundredweight of cottage cheese processed; a = $17.95, x = million pounds of cottage cheese processed per month; and b = $ -0.3247.

3Water, plant supplies, and ingredients (not including milk and cream).

4Administrative overhead, depreciation, insurance, taxes and rent.

53

Appendix Table 6. Basis of ice cream processing costs. 1,2

Cost item

Variable Costs per Month:

Carton Direct labor Electricity an~ fue1 3 Other expenses


Fixed Costs per Month 5


Total Fixed and Variable Costs


Plant volume: million pounds per month

1.0790

$41,478 50,283 21,710 86,539

200,010 18.54

46,917 4.35

246,927 22.88

1.9702

$141,736 92,797 16,505 92,835

343,873 17.45

57,263 2.91

401,136 20.36

3.5031

$152,082 122,899 29,176

158,773

462,930 13.22

61,758 1. 76

524,688 14.98

1Source: Cost data for 1985 from three U.S. ice cream plants.

2Gallons were converted to pounds at the rate of 5 pounds per gallon.

3Combined electricity and fuel costs for all plants amounted to 6.7 percent of tot a 1 vari abl e costs.

The following cost functions were developed from the data above.

Fixed cost:

Variable cost:

Y = ax b, where Y = total fixed costs per plant per month; a = $46,980; x = million pounds of ice cream processed per month; and and b = $0.2341.

Y ax b, where Y = variable costs per hundredweight of ice cream processed; a = $19.65, x = million pounds of ice cream processed per month; and b = $ -0.2858.

4Water, plant supplies, and ingredients (not including milk and cream).

5Administrative overhead, depreciation, insurance, taxes, rent.

54

Appendix Table 7. Basis of Cheese Manufacturing Costs. Part 1.

Average monthly costs, 1981 - 1982, January 1982 used as mid-point 1

Selected price indexes, January 1985 as a percent of January 19822

Average monthly costs adjusted to January 1985 with price indexes3

Variable Costs Price Index Percent Variable Costs

Cleaning supplies Di rect labor Electricity

$13,881 92,365 14,315 16,384 64,869 10,144

Supplies 105.3 121. 7 113.7 108.6 115.0 111.3 101.3 101.3

Cleaning supplies Direct labor Electricity

$ 14,617

Fuel Ingredients & packing materials Repair and maintenance ~ater and sewage Other expense


Depreciation Indirect labor

Fixed Costs

Taxes and insurance


3,470 2.936

$218,364 8.18

$17,619 22,957

$47,250 1.77

Weekly mfg. earnings Electric power Gas fuels Pulp, paper products Special indust. machinery Other miscellaneous Other miscellaneous

Special indust. machinery & construction materials 109.5 Weekly mfg. earnings 121.7 Property taxes and insurance 115.8

Fuel Ingredients & packing material Repair and maintenance Water and sewage Other expense


Depreciation Indirect labor

Fixed Costs

Taxes and insurance


112,408 16,276 17,793 74,599 11,290 3,515 2.974

$253,472 9.50

19,293 27,939

$54,960 2.06

Total Fixed and Variable Costs Total Fixed and Variable costs


$265,614 9.95

4 Total Average per hundredweight

$308,432 11.554

lsased on total fixed and variable costs for cheese plants for July 1981 through June 1982, as reported in Table 1 of Dairy Product Manufacturing Costs at Cooperative Plants, ACS Research Report Number 34, Agricultural Cooperative Service, U. S. Department of Agriculture, by K. Charles Ling. Costs include the $2.43 per hundredweight of cheese manufactured for ingredients and packaging materials referenced in the for the all plants were converted to average monthly costs per plant. 2,669,455 pounds of cheese.

footnote to Table 1. Total annual costs Average monthly volume per plant was

2selected Bureau of Labor Statistics price indexes from the Monthly Labor Review. Indexes were chosen that were as representative as possible of individual cost items.

3AVerage monthly costs for 1981-1982 times the percentage increase in the associated price indexes.

4The increase in total fixed and variable costs per hundredweight between 1981-82 and 1985 was 16.1

percent.

Note: Using average monthly adjusted costs, combined electricity and fuel costs for all plants were 13.4 percent of total variable costs, variable costs were 82.2 percent of total costs, and fixed costs were 17.8 percent of total costs.

55

Appendix Table 8. Basis of cheese manufacturing costs. Part 2.

Pl ant volume,

mil. lbs. per month

1.0

2.0

3.0

4.0

5.0

Average cost per cwt. Estimated --------------------2- variab1e 1981-19821 1985 costs per cwt.

$14.00

10.42

8.86

7.98

7.76

$16.25

12.10

10.29

9.26

9.01

$13.36

9.95

8.46

7.61

7.41

Estimated fixed

4costs

per month

$28,900

43,000

54,900

66,000

80,000

1Values read from the long run average cost curve for cheese plants as published in Figure 5, plus $2.43 per hundredweight for ingredients and packaging materials as reported in the footnote to Table 1, Dairy Product Manufacturing Costs at Cooperative Plants, ACS Research Report Number 34, Agricultural Cooperative Service, U. S. Department of Agriculture, by K. Charles Ling.

21981-1982 costs increased by 16.1 percent to 1985 cost levels based on changes in selected Bureau of Labor Statistics price indexes. See Appendix Table 7.

3Variable costs = 82.2 percent of average costs (see Appendix Table 7).

4Fixed costs = 17.8 percent of average costs (see Appendix Table 7).

56

SIZE AND LOCATION - Dairy Markets · 2011-04-22 · Milk supply and production areas 7 Milk demand and consumption areas 7 Number and location of milk plants 10 PLANT COSTS II Fluid

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